The Red Sea Development, one of the most impressive tourism projects ever from Saudi Arabia, has plans that include 16 hotels ready to go in less than 3 years. It's more than just a tourism venture, however. It's also part of the country's pandemic recovery.
What's the real extent of this project? The complete plan is general knowledge for real estate experts already, but its significance goes beyond its infrastructure. The most important subject related to this project is its repercussions.
To say that it's a unique development would be an understatement. Its influence might change the real estate landscape significantly.
What does the Red Sea Project Entail?
The Financial Post has a great introduction to the project and its expectations. In essence, The Red Sea Project is a luxurious resort for tourists. It aims to create thousands of housing units and individual rooms.
Its goals include creating around 18,000 spaces between housing units and hotel rooms. Its contributions strive to 22 billion SAR (Saudi Riyal) to the annual GDP. Developers expect it to become a foreign investment partnership, with a 50 billion SAR budget.
It comprises 200km of coastline, including nine islands and desert and mountain landscapes. The project expects to have 50 hotels, a new town, and even an international airport by its completion.
Short-Term Expectations
The article also reports that the project's short-term outlooks include 300,000 annual visitors. Specifically, developers expect demand to experience a significant boost after the COVID-19 crisis starts to subdue.
Its aftermath will act as a pressure release for pent-up travel demand. As soon as restrictions start to decrease, experts state that recovery will be swift. While tourism was one of the largest victims of the pandemic, it promises some of the most impressive recoveries.
Funding goals include a 14-billion SAR loan from multiple banks for 15 years. The capital spending expectations, for instance, oscillate around 30 billion SAR by 2023. The remaining funds will come from the PIF (Public Investment Fund).
Long-Term Implications
With secured capital and commitment, developers are strongly confident that the Red Sea Project will revolutionize Saudi Arabia's tourism industry. The expectations are quite impressive, with the kingdom aiming for tourism to make up 10% of its GDP by 2030.
This project makes up one of the fronts in which the region is fighting to change its economic focus from oil. Further in the article, we'll analyze the full picture, which includes other giga-projects.
Finally, its developers also point out that the project doesn't aim for a mass market. These statements come from environmental fears about the damage that the Red Sea landscape might suffer.
Part of a More Significant Tourism & Entertainment Upcoming Stimulus
Oxford Business Group also shares excellent insight into the giga-project landscape currently growing in Saudi Arabia. It touches on complex construction projects and their many purposes.
These developments mark a unique approach to economic stimulus, both in ambition and scope. The projects have been around for a couple of years now.
They're part of Vision 2030, the complete economic growth plan for Saudi Arabia. We'll touch on the strategy in a moment. For now, let's see which other developments complement the Red Sea Project.
What are the Other Projects?
The construction sector's contribution to Vision 2030 includes other giga-projects with a similar scope to the Red Sea Project. The largest developments are NEOM and Qiddiya.
NEOM was launched back in 2017, and it's considered Vision 2030's flagship development. It plans to become a futuristic mega-city with a $500bn budget. Its goal is to become a large hub for different industries and sectors. It'll share frontiers with Israel, Egypt, and Jordan, with aims to include territories from surrounding regions. It also sells as a catalyst for human progress and an "early look into the future," acting as an innovation lab.
Qiddiya is quite similar to NEOM, looking to become an entertainment city with a budget of around $8bn. It's projected as Saudi Arabia's entertainment capital, prioritizing arts and sports. Its 334 sq km extension makes it about three times as large as Florida's Walt Disney World Resort.
There will be plenty to explore for every tourist, including:
Over 300 facilities, including a stadium, golf courses, theme parks, racetracks, and cinemas.
The five themes include attractions, sports, mobility, art/culture, and nature.
The last mega-project reported by the Oxford Business Group's article is Amaala. It's another luxury tourism venture, covering 3,300 sq km. We could consider it as a smaller Red Sea Project, with its airport, 2,500 rooms, and 700 villas. It'll also include yacht marinas and one equestrian club. Its completion aims for 2028.
How does the Red Sea Project Standout?
As you can see, this project covers a different sector from NEOM and Qiddiya. It seems as these three developments will make up city-like hubs for entertainment, tech development, and tourism. Even with Amaala sharing its focus, the Red Sea Project brings a unique solution to the table.
Its location is a 30,000 sq km site, with projected room for up to a million tourists every year. The local town aims to house 35,000 inhabitants. It's the main driver behind Saudi Arabia's plans to become a tourism hotspot in the future.
Additionally, it's a leading project in sustainability. It plans to rely entirely on renewable energy, generated on-site, 100% carbon neutrality, and no waste-to-landfill approach. It seems like it'll become a unique economic region, with individual regulations.
Vision 2030: The Big Picture of Saudi Arabia's Financial Transformation
Thankfully, Oxford Business Group also has an article explaining the entire socio-economic reforms planned until 2023. The current demand for more entertainment choices is forcing the commercial sector to evolve.
COVID-19 caused many sectors to close down, most prominently cinemas and malls. Reopening these sectors progressively, for instance, has been vital for more than mere recovery. It promises real growth in the long-term, which resulted in Vision 2030.
What does this mean for real estate? Confidence in commercial real estate from investors is prominent, even despite oversupply concerns.
Demand Boosts
Vision 2030 includes boosting household entertainment investing by two times its 2016 levels. That includes increasing the number of exercising people to boost demand for related facilities. Additionally, hotels, restaurants, retail facilities, and other sectors are part of the investment.
This approach also points out the evolution of malls from shopping centers to entertainment facilities, with 20% of their units providing entertainment in 2019. While most of these projects had to halt during the pandemic, entire festivals and land development are ready to start as soon as the crisis subsides.
Prioritizing Entertainment
The move suggests a change from the more conservative image of Saudi Arabia towards a more leisure-oriented investment and destination. Therefore, the current focus includes industries like malls and tourism.
At the end of 2017, the government ended a three-decade cinema ban, and cinemas have increased noticeably. CBRE, a real estate consultancy company, estimates 350 cinemas in the kingdom by 2030.
Malls are also a promising investment, mainly those centered around entertainment. The Avenues enjoys high anticipation, with 400,000 sqm to open by 2023. It'll span over 1,000 stores, five towers, and multiple facilities, including offices and apartments. The Mall of Saudi is a 2024 project that promises indoor snow parks and ski slopes.
Finally, we already touched on tourism with the Red Sea Project. However, Saudi Arabia also aims to become an international sports host. These events will include WWE, the European Tour, and Formula E Championship.
Upcoming Developments
Back in November 2019, Al Diriyah Gate saw its foundations settled. It's a historical restoration project to turn into a tourism destination. It'll span 20 hotels, over 100 restaurants/cafes, public squares, an arena, and a racetrack.
King Salman Park is another major project, projected for completion between 2024 and 2025. It'll include museums, art academies, galleries, an opera house, and even a national theater.
The Financial Sector
Naturally, becoming a business center and revolutionizing its industry requires a lot of financial work. The first step is to expand its office sector, with projects like the KAFD (King Abdullah Financial District).
The development aims to provide residential spaces, restaurants, entertainment and other options. It aims to become a financial sector to rival Dubai's International Financial Center. The main goal is to boost the grade-A office stock.
Expert Forecasts Amidst Current Development and Planning
Naturally, these plans promise a significant shift in Saudi Arabia's economic landscape. Experts have been quick to analyze the trends that might come from it. Mordor Intelligence is a great example, with an article analyzing possible trends between 2020 and 2015.
It's worth noting that Saudi Arabia experienced substantial economic growth before the pandemic. That's what gave birth to these mega-projects. While the pandemic was a significant setback, it's worth noting that many of these developments had their foundations ready when COVID-19 became a crisis.
Retail Sector Growth
The report details the increase in construction activity toward retail space. As we already mentioned, many of these projects aim to provide entertainment options to boost this sector's growing focus.
Interestingly, many of these pre-pandemic developments can still play a vital role in the country's Vision 2030. Despite the setbacks, chances are they'll continue to be priorities.
Office Space Demand
Just like the retail sector, the office industry was also a promising developing sector before the pandemic. Riyadh—currently expected to become the KAFD's home—already enjoyed huge potential for office space development.
Again, office space development is an essential priority for Vision 2030. While the pandemic harmed the office sector considerably, it's unlikely to hinder these developments. Considering the post-pandemic recovery office hubs will become crucial for Vision 2030's completion.
Competitive Environment
The last section in the Mordor Intelligence report touches on how competition has grown with the government's plan to diversify away from its oil economy. The most significant change has been in the real estate sector, particularly its commercial market.
It's worth noting that the most critical developments in Vision 2030 are real estate markets as the demand for properties increases. Both large brands and smaller firms should take advantage of the upcoming contract abundance.
What's in the Future of the Sovereign Fund?
We haven't touched on this subject enough, so it's good that Consultancy-me has an excellent article on the topic. We must note that the PIF (Public Investment Fund) is currently behind the Red Sea Project, and it's the driving force behind the kingdom's development.
It's the 10th most giant SWF (sovereign wealth fund) in the world. Despite the pandemic, it's only expected to grow.
Investment in Vision 2030
Expectedly, the PIF is a significant entity, ensuring that the project meets its goals. The fund's strategy aligns directly with Vision 2030, with a strong focus on sustainable and strategic investment diversification.
Among the fund's investment areas, we have Saudi real estate development and giga-projects. That makeup almost the entirety of Vision's 2030 vital developments, thus making the PIF its backbone.
Main Goals
The main goal for the PIF is to grow its assets, but this also translates into several advantages for different sectors. Economic diversification is another priority, thus enabling the creation of new financial ecosystems and infrastructure.
On the other hand, building strategic international partnerships also plays a role in Vision 2030. Becoming a global financial hub is one of the project's approaches.
Incentivizing Investment
Of course, attracting foreign investment is another priority for Vision 2030. Developments like the Red Sea Project make extremely enticing investment options for foreign firms.
The entertainment industry's growth will drive considerable capital from foreign sources. The consequences will include more robust demand from tourism, more jobs, and overall life quality improvements for the region's citizens.
What Does This Mean for the Housing Sector?
As an end-note, we want to assess some of the concerns that could spring from these reports. With such a strong focus on commercial real estate, the housing sector might raise some eyebrows.
Luckily, this market will surely grow with its commercial counterpart. We already mentioned how many of the developments include residential spaces.
However, the most crucial aspect we want to cover is that the sovereign fund has already created more channels to aid residential real estate. Mainly, it set up a new subsidiary to meet the increasing demand. You can learn more about it from Reuters.
Now, there's little reason to worry about the housing market losing demand. Real estate in Saudi Arabia is experiencing significant growth in general, and the upcoming recovery after the pandemic will benefit all sectors. Therefore, keeping an eye on possible investments should be a priority for anyone.