Staff Report,
Dubai, UAE
Saudi Arabia’s office market has witnessed a rising demand of up to 31 percent in Riyadh in Q4 2023, driving the country’s non-oil economy. Despite a projected dip in GDP to -0.5 percent last year due to strategic oil adjustments, Saudi Arabia’s non-oil sector remained robust at 4.1 percent, boosting a swift rebound in overall economic growth at 5 percent in 2024 as oil production in the Kingdom normalises.
The Purchasing Managers’ Index (PMI) for December 2023 held strong at 57.5, reflecting the resilient non-oil sector driven by increasing demand, investment, and exports. This momentum is further fuelled by Saudi Arabia’s ambitious Vision 2030 target of boosting foreign direct investment (FDI) to 5.7 percent of GDP by 2030, instilling strong investor confidence, particularly among foreign companies.
Ramzi Darwish, Head of Saudi Arabia at Savills Middle East, said, “Riyadh’s office market showcased remarkable agility in Q4 2023, with a 31 percent surge in office transactions during 2023 compared to 2022. The upward trajectory is expected to continue in 2024, even though rental values will remain stable in Q4 2023, propelled by Vision 2030’s FDI goals, and sustained economic growth.”
The surge in corporate interest is evident as over 180 foreign firms have secured licences to establish regional headquarters (RHQ) in Riyadh, surpassing the initial target of 160. Among these are some of the prominent global corporates that have established their regional headquarters in Q4 2023, reinforcing Riyadh’s status as a magnet for leading players across industries.
Leasing activity tracked by Savills in Q4 2023 revealed legal firms dominating 40 percent of completed transactions, followed by tech companies, Telecommunication, Media and Technology (TMT) firms, and engineering and manufacturing companies at 20 percent each. Companies from the pharmaceutical, IT/ITES, and BFSI sectors accounted for 57 percent of total occupier inquiries.
70 percent of inquiries were focused on office units smaller than 1,000 square metres, indicating a preference for agile, efficient workspaces.
Swapnil Pillai, Associate Director, Middle East Research, Savills, said, “International companies led the surge, contributing to 78 percent of Q4 2023 inquiries, with the US leading demand at 40 percent, reflecting growing international interest in Riyadh’s economic potential. The recently announced 30-year tax relief for regional headquarters aligns with Vision 2030 goals.”
He further added, “The government’s spending on infrastructure projects is creating significant opportunities and attracting global players to establish a strong presence in the city.”
Amid limited prime office space, the Grade A occupancy rate is estimated at 98 percent, with stable rents observed in Q4 2023 after a significant y-o-y increase of 18 percent. North-East Riyadh stood out as it experienced the highest rental increase at 26 percent y-o-y, followed by Central and Northern Riyadh at 17 percent y-o-y, highlighting its prime location and limited availability.
A surge in supply of more than 800,000 square metres of new Grade A office space is likely to be completed by 2025 to respond to the strong increase in demand. This should offer more options for tenants, potentially mitigating dramatic price increases while also catering to sustained demand levels.
Ends
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