What to take into your next appraisal
- Reconcile warehouse, office and ancillary areas to the lease basis.
- Separate possession, rent commencement and cash collection.
- Keep tenant-specific works and recurring expenses distinct.
Underwrite the building a tenant can use
Define the proposed warehouse layout, access, loading, power, fire strategy, yard and ancillary offices. Obtain project-specific technical and leasing evidence for the intended occupier. The relevance of port or distribution access must be demonstrated for the actual site and tenant operation.
RICS development guidance supports a structured appraisal of revenues, costs and timing. It does not supply current Jeddah rents or a universal warehouse specification; those inputs require local evidence.
Build a tenant-level schedule
For each suite, track available area, lease signature, possession, rent commencement, incentive, escalation and expiry. A signed lease with a future commencement date should not produce current rent. A landlord fit-out payment is a capital outflow even if presented commercially as a leasing incentive.
Keep service-charge recoveries and their matching expenses visible. Gross recovered income should not be counted as extra net rent while the associated maintenance cost is omitted.
Reconcile stabilised income
A fictional 20,000 square metre warehouse is 80% occupied at an assumed SAR 300 per square metre annually. Gross rent is SAR 4.8 million. Assume SAR 1.2 million of landlord operating expenses after recoveries; NOI is SAR 3.6 million.
At 95% occupancy on the same terms, gross rent is SAR 5.7 million and NOI is SAR 4.5 million if those expenses remain unchanged. That cost assumption must be tested because some expenses vary with occupancy. Neither rate is a Jeddah market benchmark.
Test the period before stabilisation
If one 5,000 square metre tenant receives three rent-free months at the assumed rate, foregone face rent is SAR 375,000. If the project also funds SAR 500,000 of tenant works, the initial cash burden is SAR 875,000 before operating costs.
Place the rent-free period and works invoices in the actual months. A straight-line income presentation can be useful for reporting, but the construction lender needs the cash schedule and the sponsor needs the peak funding requirement.
Connect tenant risk to exit assumptions
Stress a large tenant moving in late, a lower renewal rent and an unrecovered expense increase. Test the exit against the actual lease maturity profile rather than a permanently stabilised occupancy assumption.
The investment case should disclose rent evidence, tenant concentration, remaining landlord obligations and the downside funding reserve. Confirm Saudi tax and property rights assumptions separately for the project structure.
Sources and further reading
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