RIYADH: The office market in Riyadh continued its strong performance in the second quarter of 2024, thanks to government investment incentives attracting international corporations to set up regional headquarters.
According to the latest report on the Saudi commercial market by Savills, 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.
The moves came after the Saudi government announced a series of benefits for those companies that set up bases in the Middle East in Riyadh, including a 30-year exemption from corporate income tax, withholding tax on headquarters activities, as well as discounts and support services.
Ramzi Darwish, head of Saudi Arabia at Savills Middle East, said: “The kingdom's continued 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 corporates.
This growth in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing and IT, with 50 percent of transactions involving new entities, reflecting positive market sentiment for expansion.
The UK property consultancy noted that this trend is expected to continue, supported by strong inquiries for the rest of the year.
The report also said that an increase in leasing activity in the capital led to rental prices in northern and northeastern Riyadh seeing year-on-year increases of 23 percent and 20 percent, respectively.
This price rise sits alongside foreign direct investment in the city, which rose 5.6 percent year-on-year in the first quarter of 2024.
“Limited prime office space in Riyadh, coupled with strong business confidence, has pushed Grade A occupancy up to 98 percent and rents are steadily increasing, up 3 percent quarter-on-quarter and 13 percent year-on-year in the second quarter. -on a year-over-year basis,” 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, strengthening Riyadh's role as a key hub for both regional and global trade.
He also noted that major companies such as PayerMax and Ernst & Young have established 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 British firm noted that limited prime office space in Riyadh had pushed A-grade occupancy 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 the booming office market in the Saudi capital. However, strong demand is expected to increase the supply of Grade A office space significantly by the end of 2025. This anticipated influx of more than 650,000 square meters of new space is expected to expand tenant options 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 firms.
According to Savills, around 60 per cent of lease inquiries focused on office space up to 1,000 square metres, indicating a growing preference for agile and efficient working environments.
Non-oil sector
Savills noted that Saudi Arabia's non-oil sector has emerged as a key economic driver, growing 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.
Citing data from S&P Global and Riyad Bank, Savills added that the PMI remained steady in an expansionary band at 56.4 in May, the 45th month in a row 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 output levels and rising employment.
In the report, Naif Al-Ghaith, chief economist at Riyadh Bank, noted that second-quarter growth data indicated a positive outlook for Saudi Arabia's non-oil GDP, with growth expected to exceed 3 percent.
He noted that the strong performance of the non-oil sectors throughout the quarter continued to drive economic growth and diversification efforts in the country.
In another report published earlier this month, Savills noted that Riyadh is expected to be among the 15 fastest-growing cities by 2033, thanks to a 26 percent increase in population and continued government spending on infrastructure.
The analysis highlighted that Riyadh is the only non-Asian city on the list whose growth is attributed to 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 a regional headquarters program could further boost FDI flows into the kingdom.
