We closed Q4 2023 with a smile given the increased occupier activities within Riyadh. With the nationals and international businesses queueing for quality office spaces, especially in Riyadh, the occupancy rate reached 98.1%. The year 2024 has come with its share of challenges in the office market. The headwinds resulted in expectations of a slowdown in the rate of rental growth across the key markets in the Kingdom. It is also the time when the amnesty to set up regional headquarters in Riyadh and benefit from government contracts would come to an end for foreign businesses. Nonetheless, the demand for office Grade A offices in Riyadh remained robust at an occupancy rate of 98% in Q1, 2024.
Let’s look at the office market trends in Saudi Arabia’s real estate…
Rising Rents Against Decreasing Office Transactions
In 2024, Grade A offices recorded a 5% increase in rent over the quarter amidst declining transactions in the office market. The increase in prices of Grade A office rent is associated with the increasing demand emanating from the international market. Some of the areas such as North-east Riyadh reported an increase of 36% year-on-year while Northern Riyadh followed at 22%. Currently, more than 180 foreign firms are in the process of setting up headquarters in Riyadh given the city’s position as a business hub for different businesses across the globe. International inquiries for Grade A offices recorded in Q1, 2024 reached 74% out of which 37% came from the US.
Despite the recorded strong demand especially in Riyadh, the increasing price trends resulted in a decrease in the number of transactions. In Q1 2024, the office rent transactions decreased significantly with a 27% drop. Nonetheless, King Abdullah Financial District is one of the business parks that is expected to supply state-of-the-art Grade A offices to meet the rising demand.
Factors for Office Market Trends in the Kingdom
The office market in Saudi Arabia is experiencing significant growth and transformation, driven by strong economic fundamentals and key government initiatives.
Government Initiatives and Vision 2030
Saudi Arabia’s Vision 2030 aims to diversify the economy away from oil dependency. This includes substantial investments in real estate and infrastructure, such as the development of the futuristic city NEOM. These projects are expected to fuel sustained growth in the property market.
Market Characteristics
Despite the increased demand, supply remains limited, particularly in key commercial cities. This has led to high occupancy rates in Grade A office buildings. Landlords are enhancing their properties by adding facilities like F&B outlets and flexible floorplates to attract and retain tenants.
Economic Context
The broader economic environment is supportive, with the non-oil sector expected to grow at a rate of 2.9% in 2024. This economic backdrop is conducive to continued demand for office spaces as businesses expand and new enterprises are established.
Overall, the Saudi office market is on a positive trajectory, driven by strategic economic policies and robust demand, particularly in major cities like Riyadh and Jeddah. The ongoing investments in infrastructure and real estate as part of Vision 2030 are set to further enhance the market’s appeal to both local and international investors.