RIYADH: Riyadh's office market continued its strong performance in the second quarter of 2024, thanks to government investment incentives attracting international corporations to establish regional headquarters.
According to Savills' latest Saudi Business Market Report, more than 120 international companies relocated their regional headquarters to the Kingdom's capital in the first quarter of this year, marking a 477% increase 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, the withholding tax on head office activities , as well as 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 evidenced by the high volume of inquiries international”.
He added: “In the second quarter of 2024 alone, almost 70% of the inquiries Savills received came from outside Saudi Arabia, with a significant 50% coming specifically from US and UK corporates.”
This increase in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing and IT, with 50% of transactions involving new entrants, reflecting a positive sense of expansion in the market.
The UK real estate consultancy noted that this trend is expected to continue, supported by strong inquiry volume for the rest of the year.
The report also noted that increased leasing activity in the capital led to annual rental price increases in the north and northeast of Riyadh by 23% and 20% respectively.
These price increases are alongside foreign direct investment in the city, which increased by 5.6% year-on-year in the first quarter of 2024.
“Limited office space in Riyadh, coupled with strong business confidence, has driven occupancy up to 98% and rents are rising steadily, up 3% Q2 and a significant 13% year-on-year growth. -per year,” said Amjad Saif, head of transactional services at Savills in KSA.
Savills noted that the city's expanding market and promising economic prospects were attracting top businesses from various industries, strengthening Riyadh's role as a crucial hub for both regional and global trade.
He also noted that prominent 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 UK-based firm noted that the limited office space in Riyadh led to Grade A occupancy rates of 98% by the end of the second quarter, with these facilities commanding higher rents due to their location, modern infrastructure and construction newer.
“This trend reflects a thriving office market in the Saudi capital. Fueled by robust demand, however, the supply of Grade A office space is expected to increase significantly by the end of 2025. This anticipated influx of more than 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 highlighted 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% of lease inquiries focused on office space under 1,000 square feet, indicating a growing preference for agile and efficient work environments.
The non-oil sector
Savills noted that Saudi Arabia's non-oil sector has emerged as a key economic driver, expanding by 3.4% 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% 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 steady in expansion territory at 56.4 in May, marking the 45th consecutive month above the neutral 50 mark, signaling growth the private sector of the Kingdom.
The latest S&P Global report on July 3 showed that the PMI stabilized at 55 on the back of increased demand, higher production levels and rising employment.
In that report, Naif Al-Ghaith, chief economist at Riyad Bank, noted 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 boost economic growth and diversification efforts in the country.
In another report released earlier this month, Savills noted that Riyadh is expected to be among the top 15 fastest-growing cities by 2033, driven by a 26 percent increase in population and government spending on infrastructure.
The analysis revealed 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 boost foreign direct investment flows into the Kingdom.
