Are we nearing the death of the REIT access premium?

Saudi REITs are quietly being repriced as the door to direct foreign ownership swings open. New rules allowing foreigners to buy property directly and opening Saudi-listed companies with assets in Makkah and Madinah to global investors are eroding the access premium that long supported REIT valuations.

The result? A shifting investment thesis. “When REITs were the only practical gateway for foreign capital, investors were willing to pay for the wrapper. Now that direct ownership is possible, even if still selective and regulated, that premium becomes harder to justify,” Sarah Alyasiri, a capital markets analyst at CF Trade, tells EnterpriseAM.

The REIT wrapper is being stripped of its scarcity value. In equity terms, that turns what was once a growth-plus-yield story into a pure yield and asset-quality trade. Investors are shifting away from passive yield vehicles toward the few remaining pockets of scarcity — most notably listed exposure to the Holy Cities.

That re-pricing is gradual: “What we’re watching is whether discounts to Net Asset Value (NAV) become more persistent and whether simpler REIT structures start to underperform vehicles that offer either operational upside or unique exposure. The adjustment happens over valuation cycles, not overnight,” Alyasiri tells us.

Market backdrop

REITs are still a small and relatively young corner of Tadawul. As of late 2025, the market comprised 19 listed REITs across the main market and Nomu, with a combined market capitalization of around USD 4 bn (as of August 2025). Balance sheets are modest, with the median REIT managing assets of roughly USD 370 mn, and sector IPOs slowing down after an initial burst of listings in 2019-2020.

The vehicles that benefit from corporate tax exemptions are required to distribute at least 90% of net income and can provide exposure to asset classes and locations that are otherwise hard for foreigners to access, which Alyasiri says creates a potential valuation buffer for the very few REITs with exposure to the Holy Cities.

How the Riyadh rent freeze is being priced in

The five-year freeze on residential and commercial rents in Riyadh, which went live in September 2025, is also capping REITs income growth. S&P Global sees it forcing revisions to cashflow models and valuations for leased assets, even as demand for office, residential, and retail space remains strong.

“In valuation terms, a Riyadh-heavy REIT should be treated as a stabilized income asset rather than a growth vehicle,” Alyasiri said. With market yields near 7.3% and inflation around 3%, she estimates the headline real yield at about 4% before fees, financing costs, and maintenance capex, leaving a thinner investable return.

Several listed REITs rely heavily on rental income from assets within Riyadh’s urban boundary, particularly office and warehouse-heavy portfolios in central districts. For those vehicles, Alyasiri said, real returns are effectively capped unless managers can bypass the rent freeze through asset rotations and value-add ploys.

In practice, only a narrow set of REITs is positioned to respond. Alyasiri said mandates and execution risk (not balance-sheet capacity) are the main constraints, with large renovations requiring upfront capital, operational depth, and a willingness to disrupt near-term payouts. As a result, she expects selective, targeted upgrades rather than broad portfolio-wide repositioning.

Where the upside still is

With strings attached: “If more compliant vehicles emerge with real exposure [to Makkah and Madinah], demand could exceed supply and support a premium, but it depends entirely on execution and mandate flexibility,” she said, adding that “investors are no longer paying for rental growth, they’re paying for cashflow visibility, balance-sheet strength, and the manager’s ability to create optionality.”

Foreign ownership limits add another layer. As a listed name nears its foreign ownership cap, Alyasiri explained that markets typically respond with either a scarcity premium if demand holds up, or capped upside and higher volatility as marginal buying power fades. The effect shows up more in liquidity and short-term price action than in fundamentals, particularly when foreign investors are the marginal buyers.