The office market rental growth run in the Saudi capital Riyadh is likely to continue thanks to the fast-approaching deadline for the Regional HQ (RHQ) Programme, which has fuelled leasing activity, according to global real estate services provider Savills.
Owing to the overwhelming demand, the Grade A office occupancy levels have reached 98%, among the highest globally. As the preferred Grade A space runs out, rental values have naturally increased - on average, rents have increased by 23% y-o-y in Q3, stated Savills in its latest research report on the office market in Riyadh for Q3 2023..
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 developments.
According to Savills, Saudi Arabia’s economy remained buoyant throughout 2022 with GDP growth of 8.7%, largely driven by higher oil prices and expansion in the oil sector.
For this year however, overall economic growth is projected to slow down to less than 1%, largely due to a drag in oil outputs due to the voluntary oil cuts committed by the Kingdom.
While the oil sector performance is likely to be lacklustre, growth in the non-oil sector remains upbeat – it has been consistently growing by more than 5% for the last few years and is likely to expand by 5.1% in 2023, stated the expert.
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 North-East Riyadh micro-market, which has buildings such as Roshn Business Front, Riyadh Business Gate, and Granada Business Park, has witnessed the highest rental increase during Q3 2023. On average, rents have increased by 30% y-o-y across the sub-market.
The dearth of Grade A stock and affordability is expected to sustain the demand for Grade B spaces as occupiers start looking for ‘close to the best’ options, stated Darwish.
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.-TradeArabia News Service
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