RIYADH: The office market in Riyadh continued its strong performance in the second quarter of 2024, thanks to government investment incentives that encourage international companies to establish regional headquarters.
According to Savills' latest report on the Saudi commercial market, over 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.
Among these measures, the Saudi government announced a series of benefits for companies setting up Middle Eastern operations in Riyadh, including a 30-year corporate tax exemption, a withholding tax on activities at the company's headquarters, and discounts and support services.
Ramzi Darwish, head of Saudi Arabia at Savills Middle East, said: “The Kingdom’s ongoing efforts to diversify its revenue streams and create an attractive business environment are proving successful, as demonstrated by the high number of international enquiries.”
He added: “In the second quarter of 2024 alone, almost 70 percent of the enquiries received by Savills came from outside Saudi Arabia, with a significant 50 percent coming specifically from US and UK companies.”
This growth in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing and IT. 50 percent of the transactions involved new entrants, reflecting a positive market sentiment towards expansion.
The British property consultancy pointed out that this trend is expected to continue, supported by a strong enquiry backlog for the rest of the year.
The report also found that increased leasing activity in the capital resulted in rents in the north and northeast of Riyadh increasing by 23 percent and 20 percent annually, respectively.
These price increases coincide with an increase in foreign direct investment in the city, which rose 5.6 percent year-on-year in the first quarter of 2024.
“The limited supply of prime office space in Riyadh, combined with strong business confidence, has led to occupancy rates of up to 98 percent in Grade A. And rents are rising steadily, up 3 percent quarter-on-quarter in the second quarter and a significant 13 percent year-on-year,” said Amjad Saif, head of transaction services at Savills in Saudi Arabia.
Savills noted that the city's growing market and promising economic prospects are attracting leading companies from various sectors, strengthening Riyadh's role as a key hub for regional and global trade.
It was also noted that well-known companies such as PayerMax and Ernst & Young have set up their regional headquarters in the Kingdom.
Other well-known companies include Northern Trust, Bechtel and PepsiCo as well as IHG Hotels & Resorts, PwC and Deloitte.
Riyadh office market
The UK-based company noted that the limited amount of Grade A office space in Riyadh had pushed Grade A occupancy rates to 98 percent by the end of the second quarter, with these facilities commanding higher rents due to their location, modern infrastructure and newer construction.
“This trend reflects a thriving office market in the Saudi capital. However, due to robust demand, a significant increase in the supply of Grade A office space is expected by the end of 2025. This expected influx of over 650,000 square metres of new space is expected to improve tenant options and mitigate the potential for a supply shortage,” Savills added in the report.
The analysis revealed significant leasing activity in the second quarter of this year, led by engineering and manufacturing companies, followed by legal and pharmaceutical companies.
According to Savills, around 60 percent of rental inquiries focused on office space under 1,000 square meters, indicating a growing preference for agile and efficient working environments.
Non-oil sector
Savills found that Saudi Arabia's non-oil sector emerged as a key economic driver, growing 3.4 percent in the first quarter of 2024 compared to the same period last year.
The company noted that Saudi Arabia's moderate inflation rate of 1.6 percent in May was a positive indicator for the non-oil business environment.
Savills added, citing data from S&P Global and Riyad Bank, that the purchasing managers' index remained stable in the expansion zone at 56.4 in May, above the neutral 50-point threshold for the 45th consecutive month, indicating growth in the Kingdom's private sector.
The latest S&P Global report on July 3 showed that the PMI stabilized at 55 due to increased demand, higher production levels and rising employment.
In this report, Naif Al-Ghaith, chief economist at Riyad Bank, noted that second-quarter growth figures indicate a positive outlook for Saudi Arabia's non-oil GDP, with growth expected to exceed three percent.
He noted that the strong performance of the non-oil sectors throughout the quarter continues to drive economic growth and diversification efforts in the country.
In another report published earlier this month, Savills found that Riyadh is forecast to be among the 15 fastest-growing cities by 2033 due to 26 percent population growth and continued government spending on infrastructure.
The analysis found that Riyadh is the only non-Asian city on the list, with its growth due to a population surge from 5.9 million to 9.2 million over the next decade.
In May, S&P Global also noted that the establishment of free trade zones and the regional headquarters program could further increase the flow of foreign direct investment into the Kingdom.
