Riyadh: Riyadh office market continues to grow strongly in Q2 2024, supported by government investment attracting foreign companies to set up regional headquarters
According to the latest Saudi Arabia Commercial Market Report by Savills, more than 120 international companies moved their regional headquarters to the Saudi capital in the first quarter of this year, representing a 477 per cent increase compared to the same period in 2023.
The move comes after the Saudi government announced a range of incentives for companies setting up bases in the Middle East in Riyadh, including a 30-year corporate income tax exemption, withholding tax on head office activities, and discounts and support services.
“Saudi Arabia’s ongoing efforts to diversify its revenue streams and create an attractive business environment are proving to be successful, as evidenced by the high volume of international enquiries,” said Ramzi Darwish, Head of Saudi Arabia at Savills Middle East.
“In Q2 2024 alone, almost 70 per cent of inquiries received by Savills came from outside Saudi Arabia, with a significant 50 per cent coming from companies in the US and UK in particular,” he added.
This growth in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing and IT, with 50 per cent of transactions involving new entrants, reflecting the market's positive sentiment for expansion.
The UK property consultancy noted that this trend is expected to continue, supported by a high volume of enquiries for the rest of the year.
The report also said that the increase in rental activity in the capital has led to rental prices in northern and northeastern Riyadh increasing by 23 percent and 20 percent per year, respectively.
The price hike comes in conjunction with a 5.6 percent year-on-year increase in foreign direct investment in the city in the first quarter of 2024.
“Limited prime office supply in Riyadh, coupled with strong business sentiment, has resulted in a 98 per cent occupancy rate for Grade A space and continued rent growth, up 3 per cent quarter-on-quarter in Q2 and up significantly by 13 per cent year-on-year,” said Amjad Saif, Head of Transaction Services at Savills in Saudi Arabia.
Savills noted that the city’s expanding market and strong economic prospects are attracting leading businesses from a variety of industries, reinforcing Riyadh’s role as a key hub for both regional and global commerce.
It was also noted that leading companies such as PayerMax and Ernst & Young have set up 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-based company said limited availability of prime office space in Riyadh resulted in a 98 per cent occupancy rate of Grade A office space at the end of the second quarter, with these offices commanding higher rents due to their location, modern infrastructure and newer construction.
“This trend reflects the booming office market in the Saudi capital. However, the supply of Grade A office space is expected to increase significantly by the end of 2025 due to rising demand. The expected inflow of over 650,000 sq m of new office space is expected to increase tenant choice and reduce the potential for space shortages,” added Savills in the report.
The analysis found that leasing activity was significant 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 office leasing enquiries are focused on office space of 1,000 square metres or less, indicating a growing demand for flexible and efficient working environments.
Non-oil sector
Savills noted that Saudi Arabia’s non-oil sector emerged as the main economic driver, expanding by 3.4 percent in the first quarter of 2024 compared to the same period last year.
The company pointed to Saudi Arabia's moderate inflation rate of 1.6 percent in May as 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 (PMI) remained steady in the expansionary zone at 56.4 in May, the 45th consecutive month above the neutral level of 50, signaling growth in Saudi Arabia's private sector.
S&P Global's latest report on July 3 showed the PMI held steady at 55, boosted by rising demand, higher output and increased employment.
In the report, Naif Al-Ghaith, chief economist at Riyad Bank, noted that the growth figures in the second quarter indicated that Saudi Arabia's non-oil GDP outlook was positive, with growth expected to exceed 3 percent.
He noted that the strong performance of the non-oil sector throughout the quarter continued to drive economic growth and domestic diversification efforts.
In a separate report released earlier this month, Savills said Riyadh is expected to be among the 15 fastest-growing cities by 2033, driven by a 26 percent population growth and continued government spending on infrastructure.
The analysis highlights that Riyadh is the only non-Asian city on the list, with growth driven by a population increase from 5.9 million to 9.2 million over the next decade.
In May, S&P Global also said the establishment of free economic zones and regional headquarters projects could help boost foreign direct investment flows into the kingdom.
