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Riyadh office market booms in Q1 2024: Grade A space in high demand

Grade A offices witnessed an increase in rents by 5% the last quarter, owing to the buoyant demand for quality assets

Riyadh office market booms in Q1 2024: Grade A space in high demand

The office market in Riyadh remained strong in the first quarter of 2024, showcasing the resilience of the non-oil sector despite a slight decline in overall GDP last year. The non-oil sector was a key driver of the economy, experiencing a solid growth of 4.4% in 2024, with positive indicators pointing towards an expected GDP growth of 2.1% this year. Industries like manufacturing, banking, retail, and government services have been active contributors to the economy.

In the first quarter of 2024, despite a notable decrease in office rent transactions in Riyadh, the office market demonstrated resilience. Ejar data reveals a 27% decline in transactions compared to the previous quarter, mainly due to the limited availability of office spaces. Nevertheless, Grade A offices experienced a modest 5% increase in rents, driven by strong demand for high-quality assets.

This upward trajectory is expected to continue throughout the year, supported by initiatives such as Saudi Vision 2030 aimed at attracting foreign investment and diversifying income sources. Notably, a significant 74% of inquiries received by Savills in the first quarter of 2024 originated from overseas, with 37% specifically from US corporations.

“Riyadh is currently witnessing a notable increase in corporate interest, with more than 180 foreign companies surpassing the initial target of 160 by choosing to establish their regional headquarters in the city. This surge in confidence is a testament to the strong potential of the Saudi capital, driven by the country’s strategic economic diversification plan,” explains Amjad Saif, Head of Transactional Services at Savills in KSA.

Noteworthy organisations such as Franklin Templeton and Allen & Overy have recently established their regional bases in Riyadh, further solidifying the city’s position as a crucial hub for leading businesses in various industries. The expanding market and promising prospects of Riyadh continue to attract international companies, underscoring its status as a key destination for global corporations.

During the first quarter of 2024, Savills reported strong leasing activity, with legal services leading the way and accounting for 50% of completed transactions. The Engineering and Manufacturing, as well as IT/ITes sectors, closely followed at 25% each. Looking ahead, there is a promising inquiry pipeline for the upcoming months.

Notably, Technology, Media & Telecommunications (TMT) and Banking, Financial Services and Insurance (BFSI) companies were prominent in occupier inquiries, making up 27% of the total inquiries received by Savills. Interestingly, 65% of these inquiries focused on office units smaller than 1,000 sqm, indicating a preference for agile and efficient workspaces.

Limited availability of prime office space in Riyadh, coupled with positive business confidence, attracted occupiers to set up business in the city, pushing the Grade A occupancy rate to 98%. During the current review period, rents inched up 5% q-o-q, while there was a significant increase of 20% y-o-y. North-East Riyadh stands out, experiencing the highest rental increase in Q1 2024 at 36% y-o-y, followed by Northern Riyadh increasing by 22% y-o-y.

A significant 75% of the transactions monitored by Savills involved relocations to the Business Parks in North-East Riyadh and the King Abdullah Financial District (KAFD) in Northern Riyadh. This underscores the pronounced demand, particularly in these two specific areas.

“Limited availability of prime office space in Riyadh, coupled with positive business confidence, attracted occupiers to set up business in the city, pushing the Grade A occupancy rate to 98%. During the current review period, rents inched up 5% q-o-q, while there was a significant increase of 20% y-o-y. North-East Riyadh stands out, experiencing the highest rental increase in Q1 2024 at 36% y-o-y, followed by Northern Riyadh increasing by 22% y-o-y. A significant 75% of the transactions monitored by Savills involved relocations to the Business Parks in North-East Riyadh and the King Abdullah Financial District (KAFD) in Northern Riyadh. This underscores the pronounced demand, particularly in these two specific areas,” concludes Saif.