Market Trends of Saudi Arabia Flexible Office Space Industry
Strong Growth in Riyadh To Drive the Market
Infrastructure development trends over the past few years in Riyadh indicate that the capital city is growing toward the Northern areas, where the properties have the highest sale prices and experience faster absorption rates.
The Eastern region of Riyadh can be utilized for office purposes as the sale prices are lower in the East of Riyadh, along with potential absorption for new developments, thus indicating strong demand for this area.
The North of Riyadh is evaluated with the highest sale prices along with the highest absorption rates for office spaces, including government and private firms, owing to better infrastructure and the completion of a number of high-profile projects, for instance, KAFD, Rafal Tower, and PNU.
Some of the major factors influencing Riyadh office space are strong government initiatives, the emergence of international companies in Riyadh, positive economic development, an increase in women's workforce, location factors, expat exodus or Saudization, and physical conditions of office premises.
During Q1 2023, Riyadh remained the focal point for occupier activity in the Kingdom, with demand in the likes of Jeddah and the Dammam Metropolitan Area (DMA) remaining relatively limited over the period.
Demand from both existing and new occupiers has continued to grow. This is despite the fact that there are extremely limited levels of occupiable stock available across the market. In terms of occupiers, demand continues to stem mainly from government, semi-government, and global institutional occupiers, with the former two sectors accounting for the highest proportion of required space within the mark.
Throughout Q1 2023, the office sector in Riyadh exhibited strong performance in both Grade A and Grade B sectors of the market. In the Grade A segment, the average rental rate saw an annual rise of 9.3%, with rents reaching SAR 1,767(USD 468.7) per square meter in Q1 2023.
In the Grade B segment of the market, rents rose by 14.0% to SAR 1,450(USD 384.84) in terms of occupancy rates; both Grade A and Grade B offices saw average occupancy rates increase, with Grade A segment reaching 99.8%, representing a 1.8 percentage point annual increase, and Grade B segment reaching 99.0%, indicating an improvement of 2.1 percentage point year-on-year.
Growth in Saudi Arabia’s Office Space Market To Provide More Opportunities
Saudi Arabia's office sector saw an increase in performance in 2021, owing to a number of government mandates that drew a large number of foreign corporations to the country. In Q4 2021, average year-on-year rental rates in Riyadh and Jeddah rose by 4% and 2%, respectively, in the office segment. Grade A rates in Jeddah climbed by 8% in the fourth quarter of 2021, averaging roughly SAR 1,036 square meters per year.
This demand will most likely be the biggest in Riyadh and Jeddah, which are becoming increasingly commercialized and have some of the highest rental yields in the country. The vast bulk (90 percent) of the 480,000 square meters of office floor space delivered in Saudi Arabia in 2021 was in Riyadh, the country's capital. In 2022, 4,20,000 square meters of office space was completed in the city.
The office sector is likely to grow substantially in the future years as Saudi Arabia pursues its ambitious aim of becoming a global hub for commerce, investment, and international trade. The overall office supply in the Kingdom is expected to reach 9,50,000 square meters by the end of 2023.
Another element driving this expansion was a new government regulation implemented last year that required foreign corporations to establish regional offices in the Kingdom of Saudi Arabia by 2024 in order to be eligible for government contracts. In October 2021, the government gave licenses to around 40 multinational enterprises to set up shop in the Kingdom, following the announcement of this strategy in February 2021.
