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Growing demand for office space is driving commercial rent to new highs and underscores the market’s yawning supply gap, according to Knight Frank’s Summer 2024 Saudi Arabia Commercial Market Review (pdf). Initiatives like the government’s regional headquarters program — which is working to lure foreign investors into setting up shop in Riyadh — have thrust into the spotlight the short supply of prime offices, propping up the price tag on commercial real estate in Riyadh. Space is also tight in Jeddah and the Dammam metropolitan area (DMA).
Rent is up everywhere everywhere you look: Grade A rents in Riyadh rose 8% y-o-y to SAR 2k per sqm in 1Q 2024, while Grade B rents rose 26% y-o-y to SAR 1.2k per sqm. In Jeddah, the price of Grade A offices were up 23.5% to SAR 1.2k per sqm compared to 2021 levels, while those in Grade B grew 2% y-o-y to SAR 790 per sqm. Grade A rents in DMA saw a 2% uptick to SAR 1k per sqm, while Grade B rents were up 1.6% y-o-y to SAR 625 per sqm.
REMEMBER- Rent has been the big culprit behind inflation: A 9.4% y-o-y increase in villa rental prices led to a 10.4% y-o-y hike in the price of the overall rent sector in April. Riyadh’s office market was tight in 1Q 2024, buoyed by a 4.4% growth in the non-oil sector. Grade A offices saw an occupancy rate of 98% during the quarter as demand continues to pick up pace on the back of the Kingdom’s diversification plan and regional headquarters program.
Meanwhile, occupancy rates remain largely unchanged: Occupancy rates in Riyadh’s Grade A offices grew 1% y-o-y to 98% by the end of the first quarter of the year, while those of Grade B offices in the capital were up 8% y-o-y, with higher prices pushing businesses “to settle for a less-than-ideal space,” Partner and Head of Research, Faisal Durrani said in a press release. In the Grade A market, occupancy was down 2 percentage points y-o-y to 93% in Jeddah, and up 5% y-o-y to 85% in Dammam.
What the pundits are saying: “What is extraordinary about the market dynamics is the sheer shortage of prime office options, with vacancy rates as high as 98% in Riyadh,’” Durrani said. “On the global stage, many cities in the Gulf, including Riyadh, Jeddah, Dubai and Abu Dhabi stand out for the near-record low levels of prime office vacancy, which stands in contrast to many other global gateway locations,” he said.
ALSO- Hotel rates are mirroring heightened demand: An increase in corporate travel, business conferences, and international sports events are pushing up hotel prices in Riyadh, according to Knight Frank. Average daily rates in the capital grew 26.8% y-o-y to SAR 982, while occupancy rates dipped around 4 percentage points y-o-y to 67%.
