Saudi Arabia: Saudi Arabia’s retail real estate market is poised for growth in the near term, driven by population growth, expanding tourism, and economic diversification efforts under the Vision 2030 initiative, according to S&P Global. 

In its latest report, the credit rating agency said that ongoing mega-projects and the expansion of international brands are expected to propel further demand for retail space across the Kingdom. 

This comes as Saudi Arabia steps up efforts to become a global hub for tourism and business by the end of the decade, with the Real Estate General Authority projecting the property market to reach $101.62 billion by 2029, driven by an anticipated compound annual growth rate of 8 percent from 2024. 

“The growth path for retail real estate in Saudi Arabia is looking good for 2025-2026. The government’s commitment to infrastructure development, the rise of mega projects, and the expansion of international brands into the Saudi market will boost demand for retail spaces,” S&P Global said. 

The report aligns with findings from real estate advisory JLL, which in March forecast a shift in the Kingdom’s retail market toward “experiential formats” and a strong growth outlook for 2025. 

Riyadh, Jeddah, and other major cities are witnessing a wave of new retail developments, ranging from malls and entertainment venues to mixed-use spaces combining residential, hospitality, and retail components, S&P noted. 

Driving factors 

The US-based agency added that the strong influx of tourists into the Kingdom and the government’s foreign investment policies — such as allowing 100 percent foreign ownership — will also help the retail real estate sector grow and evolve. 

The report cited the Kingdom’s major developments — including NEOM, The Red Sea Project, and AlUla — as key drivers for retail real estate expansion. 

“Saudi Arabia’s per capita income is strong, and consumer spending on retail and entertainment is expected to grow, given the dominance of youth in the growing population. The country’s gradual transformation toward being a more socially liberal, entertainment-friendly society is leading to higher footfall in malls and retail destinations,” S&P Global said. 

In addition to international tourism, the domestic retail environment is evolving, with open-air and boulevard-style outlets gaining popularity. According to JLL, open-air boulevard-type retail is gaining popularity in the Kingdom, while traditional mall concepts are facing declining occupancy rates due to their standard “closed mall” designs and generalized retail offerings.  

S&P Global added that growing urbanization — particularly among the youth — is lifting demand for modern retail formats such as lifestyle centers and high-end shopping malls.  

“The country has become a major target market for international brands in the fashion, luxury, and food and beverage segments. Global retailers are expanding their footprints in Saudi Arabia, leading to increased demand for premium retail spaces,” the agency noted. 

It added that upcoming high-profile events, including Expo 2030 and the 2034 FIFA World Cup, are likely to boost demand further. 

Although the affinity toward e-commerce shopping is rising in the Kingdom, the demand for physical stores that offer in-store experiences is also expected to grow in the coming years. 

S&P Global said that people in the Middle East region consider malls to be spaces for entertainment, recreation, dining, and social interaction, and as a result, the retail real estate sector will experience growth, similar to the e-commerce industry. 

Supply pressures ahead 

Despite the positive outlook, S&P Global flagged several risks that could weigh on the sector. These include oversupply, changing retail preferences, and pressure on rental yields amid elevated capital expenditure by landlords. 

“The volume of retail projects in the pipeline raises the risk of potential oversupply, in our view, particularly in secondary locations where demand may not be sufficient to absorb new retail spaces,” said S&P Global. 

Rental rates could also face downward pressure as the volume of retail real estate space increases. 

S&P Global highlighted that additional factors like location, competition, and asset quality could also affect rental rates in the retail property space. 

According to Knight Frank’s 2024 Saudi Arabia Giga Projects Report, 7.4 million sq. meters of new retail real estate are under development, including spaces at Diriyah Gate, The Red Sea Project, and NEOM. 

Moreover, lower oil prices, market volatility, escalating global trade tensions, and a fragmented geopolitical environment could dampen government spending and non-oil economic growth in the Kingdom. 

Citing the Knight Frank report, S&P Global noted that Riyadh’s real estate supply is expected to grow by 50 percent by 2027, while Jeddah’s will increase by 75 percent during the same period. 

“This rapid growth could lead landlords to offer rental discounts, revenue-sharing lease models, and other incentives to maintain occupancies. Retailers are increasingly prioritizing foot traffic and tenant mix over sheer size,” the analysis said.