RIYADH: The office market in Riyadh continued its strong performance in the second quarter of 2024, thanks to government investment incentives that attracted international companies to establish regional headquarters.
According to the latest Saudi commercial market report from Savills, over 120 international companies moved 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 measures came after the Saudi government announced a series of benefits for the companies establishing Middle Eastern bases in Riyadh, including a 30-year exemption from corporate tax, withholding tax on headquarters operations, as well as rebates 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 evidenced by the high volume of international enquiries.”
He added: “In the second quarter of 2024 alone, almost 70 per cent of inquiries received by Savills came from outside Saudi Arabia, with a significant 50 per cent 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, where 50 percent of transactions involved new entrants, reflecting positive market sentiment for expansion.
The UK property consultancy noted that this trend is expected to continue, supported by a strong pipeline of inquiries for the rest of the year.
The report also noted that the increase in rental activity in the capital led to rental prices in northern and northeastern Riyadh seeing annual increases of 23 percent and 20 percent respectively.
These price increases sit alongside foreign direct investment in the city which rose 5.6 percent year-on-year in the first quarter of 2024.
“Limited office space in Riyadh, coupled with strong business confidence, has pushed Grade A occupancy to as high as 98 percent, and rents are increasing steadily, up 3 percent quarter-on-quarter and a significant increase of 13 percent year-on-year , says Amjad Saif, Head of Transaction Services at Savills in KSA.
Savills noted that the city's growing market and promising economic outlook attracted leading companies from various industries, reinforcing Riyadh's role as a crucial hub for both regional and global trade.
It also noted that prominent companies such as PayerMax and Ernst & Young have established their regional headquarters in the Kingdom.
Other notable companies include Northern Trust, Bechtel and PepsiCo, as well as IHG Hotels & Resorts, PwC and Deloitte.
Riyadh office market
The UK firm noted that limited prime office space in Riyadh increased its Class A occupancy rate to 98 percent at 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 booming office market in the Saudi capital. However, due to strong demand, a significant increase in the supply of Class A office space is expected by the end of 2025. This expected influx of over 650,000 square meters of new space is expected to improve options for tenants and mitigate the potential for supply shortages,” Savills added in the report.
The analysis noted significant leasing activity in the second quarter of this year, led by engineering and manufacturing companies, followed by legal services and pharmaceutical companies.
According to Savills, around 60 per cent of letting inquiries were aimed at office spaces under 1,000 sq m, indicating an increasing preference for flexible and efficient working environments.
Non-oil sector
Savills noted that Saudi Arabia's non-oil sector emerged as a key economic driver, expanding by 3.4 percent in the first quarter of 2024 compared to the same period last year.
The company 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 Riyad Bank, added that the Purchasing Managers' Index remained stable in the expansionary zone at 56.4 in May, marking the 45th consecutive month above the neutral 50 threshold, signaling growth in the Kingdom's private sector.
The latest S&P Global report on July 3 revealed that the PMI stabilized at 55, driven by increased demand, higher production levels and rising employment.
In that report, Naif Al-Ghaith, chief economist at Riyad Bank, observed that second-quarter growth figures suggested a positive outlook for Saudi Arabia's non-oil GDP, with growth expected to exceed 3 percent.
He noted that the strong performance of non-oil sectors during the quarter continued to drive economic growth and diversification efforts in the country.
In another report released earlier this month, Savills noted that Riyadh is projected to be among the 15 fastest growing cities by 2033, driven by a 26 percent population increase and ongoing government spending on infrastructure.
The analysis found that Riyadh is the only non-Asian city on the list, with its growth attributed to a population increase 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 the regional headquarters program could further increase the inflow of foreign direct investment into the kingdom.
