Riyadh: Riyadh's office market continued its strong performance in the second quarter of 2024, thanks to government investment incentives that attracted international corporations to set up regional headquarters.
According to the latest Saudi Commercial Market Report by Savills, more than 120 international companies relocated their regional headquarters to the kingdom's capital in the first quarter of this year, an increase of 477 percent compared to the same period in 2023.
The move comes after the Saudi government announced a range of benefits for companies setting up Middle East bases in Riyadh, including a 30-year exemption from corporate income tax, a withholding tax on headquarters activities, as well as discounts and support services.
Ramji Darwish, head of Saudi Arabia at Savills Middle East, said: “Efforts to diversify the kingdom's revenue streams and create an attractive business environment are succeeding, as evidenced by the high volume of international inquiries.”
He added: “In the second quarter of 2024 alone, almost 70 percent of inquiries received by Savills came from outside Saudi Arabia, with a significant portion of 50 percent coming from US and UK corporations in particular.”
This increase in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, construction, and IT, with 50 percent of transactions involving new entrants, reflecting positive market sentiment for expansion.
The British real estate consulting firm noted that this trend is expected to continue, supported by a strong pipeline of inquiries for the remainder of the year.
The report cited an increase in rental activity in the capital, with rental prices rising in north and north-east Riyadh, seeing year-on-year increases of 23 percent and 20 percent respectively.
These price increases are accompanied by foreign direct investment in the city at an annualized rate of 5.6 percent in the first quarter of 2024.
“Limited prime office space in Riyadh, coupled with strong business confidence, Grade A occupancy has increased to 98 percent, and rents are steadily increasing, up 3 percent quarter-over-quarter in Q2 and a significant 13 percent year-on-year growth. – year-on-year,” said Amjad Saif, Head of Transaction Services at Savills in KSA.
Savills noted that the city's expanding market and promising economic prospects are attracting leading businesses from various industries, reinforcing Riyadh's role as an important hub for both regional and global commerce.
It also noted that prominent companies such as PayerMax and Ernst & Young have already set up their regional headquarters in the Kingdom.
Other notable firms include Northern Trust, Bechtel, and PepsiCo, as well as IHG Hotels & Resorts, PwC, and Deloitte.
Riyadh Office Market
The UK-based firm noted that limited prime office space in Riyadh reached Grade A occupancy rates of 98 percent at the end of the second quarter, with these facilities commanding high rents due to their location, modern infrastructure and new construction.
“This trend reflects the growing office market in the Saudi capital. Due to strong demand, however, a significant increase in Grade A office space supply is expected by the end of 2025. This projected influx of more than 650,000 square meters of new space will increase tenant options and reduce the potential for supply shortages.” As expected,” added Savills in the report.
The analysis noted significant leasing activity in the second quarter of this year, led by engineering and construction companies, followed by legal services and pharmaceutical firms.
According to Savills, nearly 60 percent of tenant inquiries focused on office spaces under 1,000 square meters, indicating a growing preference for agile and efficient work environments.
Non-oil sector
Savills noted that Saudi Arabia's non-oil sector emerged as the key economic driver, expanding by 3.4 percent in the first quarter of 2024 compared to the same period last year.
The firm pointed out that Saudi Arabia's moderate inflation rate of 1.6 percent in May is a positive indicator for the non-oil business environment.
Savills, citing data from S&P Global and Riyadh Bank, added that the Purchasing Managers' Index remained steady in the expansionary zone at 56.4 in May, indicating growth in the state's private sector, above the neutral 50 threshold for the 45th consecutive month.
The latest S&P Global Report on July 3 revealed that the PMI stabilized at 55 due to increased demand, higher production levels and rising employment.
In that report, Riyadh Bank Chief Economist Naif Al-Ghaith said second-quarter growth data suggested a positive outlook for Saudi Arabia's non-oil GDP, with growth expected to be above 3 percent.
He noted that the strong performance of the non-oil sectors during the quarter supported the country's economic growth and diversification efforts.
In another report released earlier this month, Savills noted that 26 percent population growth by 2033 and ongoing government infrastructure spending is expected to put Riyadh among the top 15 fastest-growing cities.
The analysis highlighted that Riyadh is the only non-Asian city on the list, attributed to its growth from 5.9 million to 9.2 million over the next decade.
In May, S&P Global also indicated that the establishment of free economic zones and regional headquarters program could further boost the flow of foreign direct investment into the state.
