Practice briefing: the inception and preliminary performance analysis of REITs in the Kingdom of Saudi Arabia

Purpose: The Saudi REIT market's introduction in 2016 was part of the Kingdom of Saudi Arabia's Vision 2030 master plan to diversify the country's sources of revenue and reform its financial sector. Despite the Saudi REIT market's nascent state, it has experienced significant growth in a short period of time, being the largest REIT market in MENA. Saudi REITs are designed using well-established global REIT standards to facilitate efficient capital influx into commercial property investment opportunities in Saudi Arabia. The core aim of this paper is to highlight the development of Saudi REITs and empirically assess their performance over the period from December 2018 to December 2023. Design/methodology/approach: Using monthly total returns in local currency (SAR), the risk-adjusted performance and portfolio diversification attributes of Saudi REITs are assessed. A series of optimal portfolios are constructed to identify the potential added-value role of Saudi REITs in a multi-asset framework. Findings: Whilst Saudi REITs' average annual return performance is lower than that of stocks, their annual returns are delivered with less volatility, thus giving a competitive overall risk-adjusted performance against other asset classes. This is a testament to Saudi REITs' higher income return performance due to the fiscal-efficient framework. Further, when Saudi REITs are introduced in a stocks-bonds portfolio, they are able to improve the portfolio's overall return whilst reducing the volatility, with their allocation in the asset mix observed to effectively scale throughout the portfolio risk-return spectrum. Practical implications: Saudi REITs are an emerging investment opportunity for investors seeking exposure in a relatively stable and fast-growing MENA property market. As Saudi Arabia makes continuous reforms to improve the accessibility and transparency of its commercial property market, Saudi REITs are the most effective way to date for domestic and overseas investors to obtain exposure to the Kingdom's property investment opportunities. Importantly, the encouraging preliminary results as identified in this paper provide valuable insight into the potential trajectory of Saudi REITs, given their significant contributing role to achieve the strategic objectives of Vision 2030. Originality/value: This paper is the first empirical investigation that provides a preliminary performance validation of Saudi REITs as a listed pathway to commercial property exposure in Saudi Arabia. This study provides empirical evidence that enables more informed and practical decision-making in property investment, particularly in understanding the strategic importance of Saudi REITs within an investment portfolio.