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Riyadh’s office market was tight in 1Q 2024, buoyed by a 4.4% growth in the non-oil sector, according to Savills’ Riyadh Office Market report (pdf). 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.
On the office market and foreign interest: New rentals fell 27% q-o-q due to lack of office space availability, with growing demand leading rent prices for Grade A offices to rise 5% q-o-q. Savills said it expects upward pressure on pricing to continue this year thanks to efforts to attract foreign investments and the Kingdom’s regional headquarters program. Nearly 74% of inquiries received by Savills originated from abroad with a notable 37% interest from the US, it said.
Over 180 foreign firms have or are in the process of setting up a regional HQ in Riyadh, beating an initial target of 160 companies, according to Savills. “The city’s expanding market and promising prospects are attracting international companies, reinforcing its position as a vital hub for leading businesses across diverse industries,” Savills said.
Remember: The Kingdom had set a 1 January 2024 deadline for foreign firms to move their regional HQs here or run the risk of losing out on government contracts. The plan, a cornerstone of Crown Prince and Prime Minister Mohammed bin Salman’s drive to build a diversified, globally significant non-oil economy, has been in the works since February 2021.
What’s trending in Riyadh: 75% of transactions monitored by Savills saw relocations to business parks in the capital’s northeast and King Abdullah Financial District in northern Riyadh. North-east Riyadh saw the highest rental increase in the first quarter of the year at 36% y-o-y while northern Riyadh came next with a 22% y-o-y rise.
Expect more supply to accommodate the rising demand: Savills sees some 420k sqm of new Grade A office space being added to the market by the end of the year, with the additional supply set to keep the rental market balanced against “sharp” price increases.
Grade A office parks are the next big thing: Earlier this month, Ezdihar Real Estate Development launched a SAR 1.1 bn real estate fund with Al Istithmar Capital — a wholly owned subsidiary of Saudi Investment Bank — to develop a “Grade A office park” in Riyadh. SNB Capital and Alshegrey Investment Group launched in February the SAR 1 bn Al Ahli Al Basateen Real Estate fund. SNB Capital (the investment banking arm of SNB, the Kingdom’s largest bank by assets) and Alshegrey are looking to capitalize on rising demand in Riyadh for offices and commercial real estate.
