• Madinah records highest hotel occupancy in the Kingdom at 79%
  • US$ 30bn CAPEX forecast for the Saudi data centre market.

Riyadh: Persistent economic growth, underpinned by programmes and initiatives linked to Vision 2030 are contributing to rising demand for office space across the Kingdom, which has resulted in rising Grade A rents rising by 8% in Riyadh, 3.8% in Jeddah and by 3.5% in the Dammam Metropolitan Area (DMA) over the last 12 months, according to global property consultancy Knight Frank’s Summer 2024 Saudi Arabia Commercial Market Review.

Faisal Durrani – Partner and Head of Research, MENA, explained: “The commercial office market has been one of the biggest beneficiaries of Vision 2030, with occupier demand rising nationally. What is extraordinary about the market dynamics is the sheer shortage of prime office options, with vacancy rates as high as 98% in Riyadh. The shortage of options has left some businesses with little choice but to settle for less-than-ideal space, as is reflected in the rapid increase in Riyadh’s grade B rents which are up a staggering 26% when compared to this time last year. In Jeddah too, a similar story is playing out, with grade A rents up 3.8% since Q1 2023, driven predominantly by public sector demand.

“On the global stage, many cities in the Gulf, including Riyadh, Jeddah, Dubai and Abu Dhabi stand out for the near-record low levels of prime office vacancy, which stands in contrast to many other global gateway locations.”

The office market in the DMA continued to expand in the 12 months to the end of Q1 2024 due to an acceleration in office demand, says Knight Frank. Office rents have responded, with grade A rents rising by 3.5% to SAR 1,025 psm. Grade B rents grew marginally by 1.6% to SAR 625 psm between Q1 2023 and Q1 2024. The average occupancy across Grade A office space increased by 5 percentage points between Q1 2023 and Q1 2024 to reach 85%. Grade B occupancy levels have also risen by 3 percentage points over the same period to reach 73%.

HOSPITALITY MARKET

In Islam’s holiest city, Makkah, the Hajj and Umrah pilgrim quotas were restored to full capacity last year. This has unsurprisingly provided a substantial boost to the hospitality and tourism sectors. In fact, during 2023, 1.84 million pilgrims performed Hajj, and around 26.9 million pilgrims performed umrah, of which 23 million were international visitors, marking the highest number of Umrah pilgrims in history. 

Elsewhere, Riyadh’s hospitality market is performing well thanks to a rise in corporate travel, an increase in international events, and the expansion of the city's cultural and leisure options. Average Daily Rates (ADR) in Riyadh grew by 26.8% to SAR 982, while occupancy levels decreased to 67% from 71.3% compared to last year (STR Global). The decline may in part stem from the rapid increase in room rates, according to Knight Frank.

Turab Saleem - Partner and Head of Hospitality, Tourism & Leisure Advisory, MEA, added: “The 6,840 hotel rooms are under construction, due to be delivered by 2026 in the capital could not come sooner. Even so, 85% of the under-construction stock falls into the 4- and 5-star categories, hinting strongly at the need for a greater variation in hotel accommodation options to cater to a wider range of budgets”.

Knight Frank says Jeddah has maintained and strengthened its standing as a major Middle Eastern centre for hospitality. The city’s increasing appeal as a leisure and business travel destination can be attributed to strategic efforts like regulatory reforms to simplify the visa process for tourists and emerging tourist infrastructure developments like redevelopment of the Jeddah Corniche.

In addition to raising the city's profile internationally, the 4th Jeddah Grand Prix, which took place in March 2024, had a significant impact on Jeddah’s hospitality industry. Hotels in proximity to the event venue reported occupancy rates nearing capacity. In fact, in the year to March 2024, the average occupancy levels in Jeddah rose to 63.6%, representing a 10.4% increase compared to the same period last year.

DATA CENTRES

Saudi Arabia is fast emerging as the region’s main data hub and indeed, is the fastest-growing data centre market in the Middle East. The Kingdom’s live IT capacity has risen from 40MW in 2014 to 205MW today since the beginning of the year, with the data centre market split between, Riyadh, Jeddah, and Dammam, which host 80% of live IT supply, or 40MW, 29MW and 19MW each, respectively.

Stephen Beard - Partner and Global Head of Data Centres, said: “Factors such as government initiatives, rising cloud adoption, a booming e-commerce market, improved connectivity, and the rising recognition of big data & IoT are all fuelling the growth of the data centres sector.

“The roll out of 5G and the introduction of the Personal Data Protection Law in the Kingdom is expected to further boost demand. Indeed, as a result of these initiatives, we forecast US$ 30bn of CAPEX in the sector by 2030”.

-Ends-

About Knight Frank:

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