The rapidly approaching deadline for the Regional HQ (RHQ) Programme has fueled leasing activity and is likely to sustain the office market rental growth run in the Saudi capital Riyadh, according to global real estate services provider Savills.
The Grade A office occupancy rates have reached 98%, which is among the highest in the world, due to the tremendous demand. Rental values have naturally increased as the desired Grade A space has become more scarce; according to Savills’ most recent research report on the Riyadh office market for Q3 2023, rents increased by 23% year over year on average in Q3.
Given the presence of important government agencies and the availability and future supply of preferred Grade A office developments, Riyadh has emerged as the port of entry for the majority of these companies.
Saudi Arabia’s economy remained strong in 2022, according to Savills, with GDP growth of 8.7%, primarily due to rising oil prices and the country’s oil sector’s expansion.
However, it is anticipated that this year’s overall economic growth will slow to less than 1%, mostly as a result of a drag on oil outputs brought on by the Kingdom’s voluntary oil cuts.
Although the oil sector is expected to perform poorly, the non-oil sector is expected to grow by 5.1% in 2023, according to the expert. The non-oil sector has been growing at a rate of more than 5% for the past few years.
Ramzi Darwish, Head of Saudi Arabia, Savills Middle East, said: “Saudi Arabia is experiencing the highest on-record interest from some of the biggest corporates around the world amid large-scale development in kingdom.”
“Both global and regional companies have taken cognizance of the situation and have ramped up their presence across the country. Riyadh has emerged as the port of entry for most of these companies given the presence of key government entities and the availability and future supply of preferred Grade A office development,” he noted.
The micro-market in North-East Riyadh, containing structures like Granada Business Park, Riyadh Business Gate, and Roshn Business Front, has seen the largest increase in rental rates in Q3 2023. Throughout the submarket, rents have climbed by 30% on average year over year.
According to Darwish, occupiers looking for options that are “close to the best” will continue to drive demand for Grade B spaces due to the scarcity of Grade A stock and affordability.
Swapnil Pillai, Associate Director, Middle East Research, Savills said: “Of the total transactions concluded by Savills, 58% of the companies were from the consulting and legal sectors. During the past quarter, occupier inquiries came from companies in the engineering and manufacturing, TMT (technology, media, and telecom), legal services, and BFSI sectors.”
“We also noted that 71% of the demand is for office units under 1,000 sqm. Going forward, inquiry levels and pipeline for the next few months remain strong,” he stated.
On the supply front, nearly 420,000 sqm of space is lined up for completion by 2024. The prominent projects nearing completion include Kayanat Business Park, STC Square by Aqalat, and Laysen Valley Phase 2, among others, he added.
