Testing Demand Before You Commit to a Saudi Development

A practical sequence for finding out who will buy or rent your building, what they will pay, and what competing supply is arriving at the same time.

Demand is the assumption that decides whether a development works, and it is the one most often taken on trust. Testing it does not require an expensive market report: it requires a defined occupier, evidence of what that occupier pays today, and a count of what else will be finished around the same time as your building. This is the sequence, and most of it is field work.

Before stage one

You need a specific plot and a specific product idea before demand research means anything. Research aimed at a city rather than a catchment produces general statements you cannot act on. The useful unit of analysis is a small area around the plot, the type of occupier who chooses that area, and the two or three buildings a tenant would consider instead of yours.

• A defined catchment: the streets and districts a tenant or buyer would actually consider.
• A first view of the product: unit types, sizes and specification level.
• A decision on whether you are testing sale demand, rental demand or both.
• Access to local agents who transact in that catchment, not only nationally.
• A record sheet, so evidence is collected in a comparable format rather than as impressions.

Stage 1: Define the occupier precisely

Write down who the building is for: household size, income band, employment type, whether they arrive with a family, how long they stay and what they are leaving. A product for young single professionals is a different building from one for relocating families, and the two rarely compete for the same unit. Vague occupier definitions are the root of most product errors.

• Deliverable: A one-page occupier profile with the reason that group is growing in this catchment.
• Owner: The owner with the development manager.
• Approval gate: You can name an employer, an institution or a scheme that supplies these occupiers.

Stage 2: Collect live asking evidence

Gather current listings for comparable units in the catchment: size, specification, asking rent or price, and how long each has been available. Time on market is the most informative field and the one most often ignored. This gives you the upper bound of the market, not the answer.

• Deliverable: A listing table with rate per square metre and days on market for each comparable.
• Owner: Whoever is doing the research, reviewed by an agent.
• Approval gate: At least ten genuinely comparable units recorded, with dates.

Stage 3: Convert asking evidence into achieved evidence

Ask agents and letting managers what units in that range actually transact at, what incentives are being given, and how long a unit typically sits empty. An accredited valuer can also provide transaction evidence for sales. The difference between asking and achieved is your first real finding.

• Deliverable: Achieved rates by unit type with a note on incentives and void periods.
• Owner: Local agents and an accredited valuer, recorded by the study author.
• Approval gate: Every rate you will use in the appraisal has an achieved figure behind it.

Stage 4: Count the competing pipeline

Walk or drive the catchment and record buildings under construction, plots with permits displayed and schemes being marketed off plan. Then ask how many units each will add and when. A district can look undersupplied today and be oversupplied in two years, and your building completes in the second picture rather than the first.

• Deliverable: A pipeline list with estimated unit counts and expected completion periods.
• Owner: Site research by the development manager.
• Approval gate: You know roughly how many competing units complete in the same window as yours.

Stage 5: Test the product against real occupiers

Show the proposed unit mix and sizes to people who place tenants or sell units for a living and ask what they would change. This is the cheapest design review available. Agents will tell you quickly if a layout is hard to let, if a size is between two markets, or if a missing feature costs you a segment.

• Deliverable: Written feedback from at least three independent agents on the proposed mix.
• Owner: The development manager, with the architect present.
• Approval gate: The mix has been revised at least once in response to what you heard.

Stage 6: Set the rates you will appraise with

Choose conservative rates from the achieved evidence, not the best figure you found, and state the basis: net area, exclusive of what, and on what lease or sale terms. Then write down what would have to be true for a higher rate to be achievable, and treat that as upside rather than as the plan.

• Deliverable: A signed assumptions note fixing revenue rates by unit type for the appraisal.
• Owner: The owner, advised by the development manager.
• Approval gate: The rates used are at or below the achieved evidence, never above it.

Stage 7: Set the absorption assumption

Decide how quickly the units sell or let. Use the void periods and time on market you collected, adjusted for the number of units you are releasing at once. Absorption drives your holding costs after completion and is the assumption most likely to be missing entirely from an optimistic plan.

• Deliverable: An absorption profile in units per month, carried into the cash flow.
• Owner: The development manager with agent input.
• Approval gate: The cash flow shows the cost of carrying unsold or unlet units.

Handovers between stages

Demand research is only useful if it leaves the research stage as numbers the appraisal can use: achieved rate per square metre by unit type, a void assumption and an absorption profile. Where it arrives as a narrative about a growing city, the appraisal author picks rates from the listings instead, and the whole exercise has been decorative. Equally, the pipeline count has to reach the absorption assumption, or you will plan to let into a market that has just received three hundred new units.

How you know it is finished

You have tested demand when you can say, in one paragraph, who the occupier is, what they pay today, how many competing units complete in your window, and how fast you expect to sell or let. If any of those four is missing, you have collected material rather than reached a conclusion, and the gap will be filled later by whoever is most optimistic in the room.

Domira designs, builds and manages projects across Saudi Arabia for owners who are based abroad: land appraisal, feasibility, design, construction, handover and asset management under one accountable contract. Send us the plot or the brief and Domira will put the numbers in front of you before you commit.