Saudi Arabia, long an underserved market in retail, will see many new projects come online in the next five years.

Boasting the largest population in the Gulf at 30 million people, 70 percent of whom are under the age of 30, Saudi Arabia’s retail market has long been seen as an untapped gold mine for developers and brands. The country has one of the fastest-growing retail sectors in the world, increasing 11 percent annually with consumer spending up 18 percent, year-over-year, in 2015, according to Arabian Centers, one of the biggest mall operators in the kingdom. And now the government is viewing retail as a pillar to help diversify the economy away from its dependence on oil. As part of its Vision 2030 plan, the government revealed a goal to add a million jobs in the sector in the next decade.

This story first appeared in the August 3, 2016 issue of WWD. Subscribe Today.

Driving this boom is the development of retail infrastructure across the country. Riyadh is expected to add 6.1 million square feet of gross leasable space by next year, while Jeddah is set to complete 4.1 million square feet, according to Jones Lang LaSalle.

“There is a need to modernize the offering, and an opportunity to create ideal destinations that currently are not available,” said Andrew Williamson, head of retail for Middle East and North Africa at Jones Lang LaSalle. In the absence of cinemas and other entertainment venues, malls in Saudi Arabia are not just about shopping. They serve a much bigger recreation function than in other markets.

Arabian Centers plans 12 new shopping centers in the next five years; it already operates 17 in the country. Developers are creating new formats. Raj Real Estate is building a 1.5 million-square-foot open-air lifestyle center called Riyadh Walk, similar to The Grove in Los Angeles.

Dubai-based developer Majid Al Futtaim said this year it will invest $3.7 billion in Saudi Arabia to develop two landmark shopping malls in the country’s capital, Riyadh. Majid Al Futtaim is known to be a pioneer in creating retail entertainment destinations, having developed Dubai’s first megamall, Mall of the Emirates, which helped establish the emirate as a retail tourism hub.

While there might seem to be a glut of malls coming to market, Williamson believes this will not result in an oversupply. “There is major brand interest to expand. Developers understand that brands will pay rent in projects that deliver what the consumers are seeking, and until now in Saudi they have been underserved in quality, breadth of retail offering, retail experience, food and beverage offering and entertainment. Consumers have witnessed the retail successes in the region’s other cities and want this at home, too.”

Williamson added that the projects coming on line have been well-thought-through in terms of design. “Everything — from parking considerations, tenant mix, even down to the quality of the toilets — has been planned carefully.”

Mall of Saudi, set to begin construction by mid-2017, will be the kingdom’s largest mall with 3.2 million square feet of shops, restaurants and entertainment zones, including the first indoor ski slope in Saudi Arabia. It will also host a number of luxury international fashion brands entering the market for the first time. Set to be complete in 2022, the entire project will cover a land area of 9.6 million square feet, including a hotel and serviced apartments.

In east Riyadh, Majid Al Futtaim unveiled plans to build another large-scale project, City Center Ishbiliyah. It will cover more than 1 million square feet of gross leasable area and feature 250 stores, a 100,000-square-foot Carrefour hypermarket, a food court and an entertainment complex inclusive of Magic Planet kids’ amusement park.

The plethora of new developments will likely push rents up in popular malls. Average rents in Riyadh increased by 2 percent to $756 a square meter (about $70 a square foot) last year, according to JLL. In Jeddah, rents increased by 10 percent to $797 a square meter (about $74 a square foot) during the same period. Rental rates in the new Riyadh Park Mall, which is expected to open at the end of this year, are forecast to range from $720 to $1,333 a square meter, or $67 to $124 a square foot. Vacancy rates have dropped to 8 percent from 11 percent in Riyadh, while in Jeddah, they increased slightly as tenants moved to newer malls.

Retailers are also eager to enter the market. In addition to the malls, Majid Al Futtaim also operates retail ventures in the kingdom. The company plans to expand the retail offering in Saudi with brands not before seen in the kingdom.

“Everyone wants to come to Dubai now, but when we started, that wasn’t the case,” said Ahmed Galal Ismail, chief executive officer of Majid Al Futtaim Ventures, who oversees fashion, food and beverage, and leisure concepts. “We have to bear in mind, Saudi is underrepresented. Dubai is a $19 billion retail market and Saudi is 10 to 12 times that in terms of retail potential.”

Ismail is also looking to bring a new department store concept into the region as a retail operator. The store would be an anchor in the Majid Al Futtaim malls, potentially in Saudi Arabia and rolled out throughout the Middle East region. He said the developer would like to partner with an existing department store to create a very customer-centric experience, bringing brand offerings that don’t exist yet in the region.