The Al Futtaim Group, one of the biggest conglomerates in the UAE, has signed a deal to build Saudi Arabia’s largest shopping centre as the developer seeks a foothold in the lucrative Saudi retail market.
The company struck a deal with Riyadh-based Kayannat Real Estate Company to export its Festival City concept and build a 6 billion riyal (Dh5.87bn) super-regional mall in the Al Diriyah district to the west of Riyadh.
The 250,000 square metre Al Diriyah Festival City mall, which is to include an Ikea anchor store, a luxury 500-room hotel and serviced apartments, will be located 5 kilometres from King Saud University and 10km from King Abdullah Financial District.
Al Futtaim said that the scheme has obtained all necessary building permits and is ready to start construction in the coming weeks.
Under the agreement, Al Futtaim will provide investment and development management services to build and operate the mall.
“With a population of 30 million, Saudi Arabia is the GCC’s biggest market with a booming retail sector expected to reach a value of 276bn riyals by the end of 2014, which accounts for 17 per cent of Saudi Arabia’s GDP,” said Omar Al Futtaim, the vice chairman of Al Futtaim Group.
“This agreement will add another significant asset into our portfolio of regional malls. It gives us a footprint into the kingdom’s retail sector and extends our network of shopping centres.”
The project is the latest of Al Futtaim’s Ikea-anchored Festival City- branded shopping and entertainment schemes, which the company is aiming to export across the Middle East.
The company opened the original Dubai Festival City Mall in 2005 and last year opened a 157,700 sq metre Cairo Festival City. In Qatar, Al Futtaim and its joint venture partners have completed the first phase of the 254,000 sq metre Doha Festival City.
In Muscat the company is working with local partners to build Oman’s largest shopping mall, which will have an Ikea. The company is also co-developing a 120,000 sq metre, Ikea-equipped shopping mall in Casablanca, Morocco.
Retail spending has been growing rapidly in Saudi Arabia over the past three years, driven by a government policy to grant bonuses to state employees after the Arab Spring.
According to the property consultancy JLL, average retail rents in Riyadh increased over the six months to the end of March to 2,700 riyals per sq metres from 2,600.
“Al Futtaim is just one of a number of Dubai-based developers looking to get a foothold into the lucrative Saudi Arabian market,” said Craig Plumb, the head of research at JLL’s Dubai office. “At the moment the country has no other major internationally branded retail centre and the malls which have been completed have been of varying quality.”
The developer could face difficulties getting the project’s first phase – the Ikea store – completed within its tight 12-month schedule as the country’s contractors continue to suffer the effects of a government clampdown on illegal workers.
Almost 1 million foreign workers are believed to have departed the kingdom between March and November last year after authorities began enforcing work permit rules. The total number of foreign workers was estimated at 9 million before the action.
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