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Ardco’s $1.6bn vision blurred by Saudi mega-projects

Saudi Arabia's long list of mega-projects is taking up much of the construction capacity in the country, giving Ardco a hurdle to overcome Reuters/Ahmed Yosri
Saudi Arabia's long list of mega-projects is taking up much of the construction capacity in the country, giving Ardco a hurdle to overcome
  • Ardco targets $270m of revenues from real estate
  • Office rents in city grew 5.8% last year, apartment prices by 17.4% 
  • Riyadh aims to be one of world’s biggest city economies by 2030

A slowdown in residential property demand and construction capacity issues due to Saudi Arabia’s bulging projects pipeline will be among some of the challenges facing Ardco, the latest player to the Riyadh property market and development scene, experts said.

Ardco, which is also known as the Riyadh Development Company, announced last month it is becoming a fully fledged holding company, tasked with developing real estate, not just investing in it.

The company said it hopes to double its net income to SAR1 billion ($270 million) over the next 10 years by becoming an “active real estate developer” and “acquiring revenue-generating assets”. 

The new strategy will see Ardco invest in and deliver more than $1.6 billion of projects across Saudi Arabia’s capital city over the next decade, according to its chief executive Jehad Alkadi.

It will also create opportunities for investment in emerging sectors and accelerate plans for Riyadh to become one of the world’s top 10 city economies by gross domestic product by 2030, up from 40th today. 

However, Ardco faces challenges in meeting its goals, property experts told AGBI

“One of the potential issues will be the scale of development required, particularly when there are a number of concurrent mega-projects taking place [across the kingdom],” said Pedro Ribeiro, Saudi Arabia general manager of property consultancy CBRE.  

The value of giga-project related contracts awarded in Saudi in 2022 grew by 103 percent to $24.6 billion from $12 billion the previous year, driven by the Neom smart city, according to Meed Projects’ 2023 Saudi Arabia outlook.

“This could result in capacity issues, particularly as supply chain issues originating from the pandemic take time to be resolved,” Ribeiro said.

“That being said, the Saudi government is investing in solutions to help alleviate these issues.

“Another issue pertaining specifically to the residential market are increases in interest rates and building costs, which have demonstrably affected residential mortgage figures throughout the second half of 2022.”

The total volume of residential transactions in Riyadh dropped 33.9 percent year-on-year in 2022, a result of increasing development costs, interest rate hikes and uniform property price growth over the past two years, according to CBRE’s 2022 Real Estate Market Overview

“Unsurprisingly”, the report said, the total number of Saudi mortgage contracts issued by banks fell 23.4 percent last year. “A drop-off in demand and consequent slowdown or reversal in price growth has been expected.” 

Government and other entities are working to address “current market challenges and provide a stable solution for the medium to long-term”, Ribeiro noted. 

The city’s property market in general recorded “healthy performances” across multiple segments last year.

In the office market occupier demand remained strong, with Grade A rents growing by 5.8 percent annually and occupancy up to 99.2 percent, presenting an opportunity for more stock to come to market, according to CBRE. 

In the residential market, Riyadh was the only Saudi city to record annual improvements in average villa and apartment prices, at 6.2 percent and 17.4 percent respectively. 

It therefore presents clear opportunities for Ardco and other developers, with potential focal points being to “increase supply within the office market and improve affordability across the residential market”, according to Ribeiro. 

“The decision by Ardco to increase its scope and become an active developer is a welcome announcement and will certainly help Riyadh achieve its economic and development goals,” he said.

“Given the scale of these goals, developers will play a key part in ensuring that the right assets and supporting built environment are delivered in a timely manner.”

Other major players in the Riyadh property market include Roshn Real Estate, the National Housing Company, and New Murabba Development Company (NMDC), which is wholly owned by Saudi’s sovereign wealth vehicle the Public Investment Fund.

NMDC is delivering the 19 sq km New Murabba mixed-use development in downtown Riyadh, it said this month. 

This week Ardco chairman and mayor of Riyadh, Prince Faisal bin Abdulaziz bin Ayyaf, said work is underway on a new development plan for Riyadh, to be unveiled by early next year. 

Delivering the right product in the right location will be critical if Ardco and others are to overcome inherent market challenges, said Faisal Durrani, partner and head of Middle East research at consultancy Knight Frank.  

“As Saudi Arabia’s financial and commercial capital, Riyadh is being revitalised through a dramatic wave of investment to the tune of over $110 billion,” Durrani said. 

“The $1.1 trillion herculean task of transforming Saudi Arabia’s real estate landscape [requires] care and attention to deliver the correct quantum of product in the right locations.”

Ardco was founded in 1996 to develop five core industries in Riyadh: wholesale of fresh fruits and vegetables; market sale of fish and other fresh produce; delivery of public transport networks; car sales; and investment in commercial and residential real estate. 

Its new direction “aims to capitalise on Riyadh’s city strategy, as well as Vision 2030”, Prince Faisal said last month. 

Ardco did not respond to AGBI’s requests for further comment on its plans. 

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