Saudi Arabia

Saudi: Office Space Demand Soars as Supply Crisis Sparks Race for Premium HQs

Demand for office space in Saudi Arabia has continued to rise amid rules demanding regional HQs be located in the kingdom. Office space demand soars to record levels in Saudi Arabia amid an influx of businesses setting up HQs in the Kingdom, but the scarcity of suitable units has forced many to compromise on less-than-desirable alternatives, an industry expert told sources.

By 2023, foreign businesses or multinational companies are required to set up headquarters in the Kingdom or risk losing out on lucrative government clients.

“Programme HQ is clearly driving up demand for office space in Riyadh, but the significant economic growth stemming from Vision 2030 is also resulting in businesses from the world over clamouring to establish a presence in the Kingdom,” Faisal Durrani, Partner – Head of Middle East Research at real estate consultancy Knight Frank told sources. “The real star of the market remains the office sector.”

Major cities like Riyadh registered record occupancy levels for Grade A and B office spaces at 97 and 85 percent respectively. The number of business licences issued in Saudi Arabia surged by 54 percent last year, Durrani said, possibly contributing to the increase in demand for office spaces, particularly in Riyadh, Jeddah and Dammam Metropolitan Area (DMA).

“Almost no new significant Grade A offices have been completed in Riyadh in the last 12 months which has contributed to the strong rental growth being recorded not just for prime space, but also grade B space as businesses are being forced to settle for less than ideal options.”

The strong economic growth last year, around 9 percent, marked the highest level of growth for any major economy, has led to a rise in job creation in key cities like Riyadh, where the stock of suitable office and residential properties is continuing to diminish rapidly. In addition, the pipeline of supply remains slim. Only around 800,000 square metres of new offices have been planned for Riyadh by 2025, Knight Frank said in a statement on Tuesday.

This has resulted in businesses having to settle for “Grade B” options due to the shortage of spaces, in turn leading to a 15 percent rise in rent prices for more secondary offices in Riyadh and 6 percent in Jeddah over the past year, Durrani explained.

“Occupancy levels for prime or Grade A office space in Riyadh mirror both Dubai and Abu Dhabi where a lack of new supply and surging demand is driving up prime rents. The UAE and Saudi had some of the strongest economic growth in the world last year, which has catalysed demand. Meanwhile, high quality supply has been slow to materialise.”

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Arabian Business
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