What Saudi Arabia’s Riyadh Metro means for the kingdom’s development

Riyadh Metro is one of the most important projects currently being built in Saudi Arabia.

Six metro lines, named Blue, Red, Orange, Yellow, Green, and Purple are being developed as part of Arriyadh Development Authority’s (ADA) project, which is worth approximately $23bn (SAR86.3bn). The lines are respectively 38km, 25.3km, 40.7km, 29.6km, 12.9km, and 30km long.

Upon completion, the metro network will link Riyadh’s King Khaled International Airport and the King Abdullah Financial Centre (KAFC), as well as connect with universities and other mass-transport systems in the cities.

During an interview with Construction Week in 2016, Eng Alwalid Alekrish, director of construction development projects and project director of the Riyadh Metro at ADA, said “not only [Riyadh], but the entire kingdom will reap its rewards when the metro is completed”.

He added: “The surprise will be when a large number of people from all social classes want to use the metro.”

Indeed, Riyadh Metro is an ambitious project for many reasons, not least of which is the transport culture in the Middle East. Last February, Khalid Alhazani, director of the architectural project program and public affairs at ADA, acknowledged that Saudis would require time to “get used to” the concept of a project such as Riyadh Metro.

He added: “This is the first metro project in the kingdom; people in Riyadh don’t have experience in public transportation. It will take time for people to get used to public transportation.”

However, Riyadh Metro‘s impact will extend beyond the “surprise” and acclimatisation that ADA’s Alekrish and Alhazani spoke of. In Knight Frank’s June 2018 report, titled The Impact of New Infrastructure on Real Estate Values, Raya Majdalani, research manager at the advisory, says the transport project will not only influence the property sector’s performance in Riyadh, but impact its socio-economic variables as well.

“In the short to medium term, we believe that urban regeneration will need to play an increasingly important role across Saudi Arabia,” Majdalani explains.

“Recently introduced strategic reforms, aimed at creating a favourable environment for investment and strengthening the non-oil sector, have placed a focus on real estate, which is forecast to double its contribution to economic output throughout the period to 2030.

“Moreover the implementation of various urban regeneration initiatives, including mixed-use communities and large-scale infrastructure projects, are expected to act as catalysts for the real estate market.”

Majdalani describes Riyadh Metro as “one of the key infrastructure projects” under way in the kingdom, which will “dramatically alter the dynamics of both residential and commercial real estate markets when delivered”.

She adds: “Whilst it is too early to quantify the effect on capital values, land values, and rental rates, an analysis of international benchmarks shows that mass transit systems have the potential to be a strong driver for growth as a result of improved connectivity.”

Mass-transport systems, according to Knight Frank’s report, are globally known to have boosted real estate values, “from continuously changing cities such as Beijing and Mumbai to comparatively developed cities, such as London”. These schemes, the report explains, not only impact real estate positively, but also reduce congestion and encourage “the development of new business districts and lifestyle destinations”.

“[In] Riyadh, where the 176 km metro – complemented by a new 24-route bus network – is expected to be operational in the coming 18 months, the impact on the city is due to be equally wide-ranging both in terms of social and economic development,” Majdalani says.

“With Riyadh city’s population set to grow from circa seven million to eight million by 2030, the requirement for a mass transit system seems clear, not only when placed in context of the city’s congested nature, but given the rapid social reform that is under way in Saudi Arabia.”

The good news is that Riyadh, according to the Knight Frank report, is “defined as a real estate ecosystem [without] natural topographical restraints”. As a result, owners and investors must only focus on “how to maintain and grow asset value”. As Majdalani explains, the launch of Riyadh Metro may bring other parts of the city to the fore, and transform them into hot-spots of construction and infrastructure-development activity.

She explains: “The introduction of the metro may lead to a more permanent outer boundary for Riyadh. Therefore, we argue that areas that may have been classed secondary locations historically are set to become future value-creation hot-spots.

“Moreover, this trend is likely to extend further to developing areas [with] low density.”

While the Saudi real estate market’s “underlying fundamentals” make it a positive residential pocket for the medium to long term, Knight Frank’s latest Saudi Arabia Residential Review shows that, despite strong demand, the sector witnessed a slowdown in 2017. Majdalani explains that this is partly due to a change in buyer demand, which has historically “been mismatched” by the large villas that are typically construct in the kingdom.

She continues: “With demand shifting away from villa stock towards more affordable and smaller units, mixed-use urban regeneration around key metro hubs could respond to this growing market segment.

“Given the young and growing population whose tastes are fast-changing and developing in line with global trends along with the propensity for smaller household sizes, we are likely to see demand shift away from villa stock to smaller units that are part of environments with good connectivity.”

Additionally, this trend may also support the rise of affordable housing in Saudi Arabia, as new demand contrasts with the availability of home financing.

“As social norms change within the kingdom, the move away from the family home is coming earlier in each generation,” Majdalani explains.

“Given the kingdom’s young population dynamics, this only stresses the requirement for such stock. We see the success of [Saudi’s large-scale] projects resting, in part, on being efficiently connected to the wider urban environment through major infrastructure projects such as the Riyadh Metro.

“The implementation of Riyadh Metro [will act] as a catalyst for urban regeneration and sustainable development in the capital city. Over the medium to long term, the metro is expected to transform Riyadh for the better, improving the quality of life of local community, [which is] a central objective of the kingdom’s leadership.”

This was originally written by Neha Bhatia, editor of Construction Week.

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