According to the most recent Saudi commercial market report by Savills, the office market in Riyadh, which is regarded as a major engine of the economy, maintained its strong performance in Q2 2024, reflecting the strength of the non-oil sector.
In the first quarter of this year, the sector expanded by a robust 3.4% year over year, surpassing initial projections. Going forward, sustained non-oil activity is anticipated to drive GDP growth to a projected 5% this year.
Another encouraging indicator for the business climate is low inflation, which is now recorded in May 2024 at a moderate 1.6% year over year for the third consecutive month. In May, the Purchasing Managers’ Index (PMI) remained stable in the expansionary zone at 56.4, which is 45 months in a row above the neutral 50-point threshold that denotes expansion.
A wave of corporate interest is pushing Riyadh to the forefront of the region; in Q12024, FDI increased by 5.6% year over year and is predicted to continue for the remainder of the year. The government’s investment incentives, such as tax breaks, and Saudi Vision 2030’s strategic focus on luring foreign capital are two of the main drivers of this momentum. International corporations looking to establish regional headquarters in the kingdom find these incentives to be very alluring.
Foreign firms relocation
More than 120 international companies moved their regional headquarters to Riyadh in Q1 2024 as a result of this strategy, an impressive 477% increase from the same period the previous year. Prominent companies like Ernst & Young and PayerMax have recently established regional headquarters in Riyadh, which serves to reinforce this sentiment even more.
Leading companies from a variety of industries are drawn to the city by its developing market and bright economic future, solidifying Riyadh’s standing as an important hub for both domestic and international trade.
Ramzi Darwish, Head of Saudi Arabia at Savills Middle East, comments: “The kingdom’s ongoing efforts to diversify its revenue streams and create an attractive business environment are proving successful, as evidenced by the high volume of international inquiries. In the second quarter of 2024 alone, nearly 70% of inquiries received by Savills originated from outside Saudi Arabia, with a significant portion of 50% coming specifically from US and UK corporations.”
Increase in leasing activity
The second quarter of 2024 saw a notable rise in leasing activity, according to Savills. Many industries contributed to this growth, including manufacturing, IT/ITes, consulting & engineering, media & telecommunications (TMT), and technology. Interestingly, new entrant businesses were involved in 50% of these completed transactions, suggesting that the market is supportive of business expansion.
For the remainder of the year, there should be a steady flow of inquiries, so the momentum should continue. At the forefront of this interest are Engineering & Manufacturing, Legal Services, and pharmaceutical companies, which together account for almost half of all the inquiries that Savills receives. An increasing number of inquiries (estimated at 60%) concerned office spaces smaller than 1,000 square meters, indicating a desire for flexible and effective workspaces.
Amjad Saif, Head of Transactional Services at Savills in KSA, adds: “Limited prime office space in Riyadh, coupled with strong business confidence, has driven Grade A occupancy as high as 98%, and rents are increasing steadily, rising by 3% quarter-over-quarter in Q2 and a significant increase of 13% year-on-year.”
Rent increases
Greater annual growth in rent has been seen in certain areas, such as North and North-East Riyadh, where increases have reached 23% and 20%, respectively. The Saudi capital’s flourishing office market is reflected in this trend. Driven by strong demand, however, by the end of 2025, a large supply of Grade A office space is expected.
More than 650,000 square meters of new space are expected to be added, which should improve tenant options and lessen the likelihood of a supply shortage.
