The sector remained the key driver of the economy and surged by a robust 4.4% in 2024, despite a revised overall GDP last year, which showed a decline of 0.8%. Continued strength in non-oil activities is expected to propel GDP growth to a projected 2.1% in 2024.
The latest Saudi commercial market report by Savills revealed that despite global economic challenges and a GDP that was revised downward by 0.8% last year, Riyadh’s office market has maintained its robust performance in the first quarter of 2024 and remains a key contributor to the economy, driven by the resilient performance of the non-oil sector.
The Kingdom’s Purchasing Managers’ Index (PMI) rose to a healthy 57.2 in February of this year, marking the fastest rise in output in five months and confirming the non-oil economy’s role as a major GDP supporter. This marks the 42nd consecutive month where the PMI has exceeded the 50-point threshold, indicating ongoing expansion in the non-oil sector.
Amjad Saif, Head of Transactional Services at Savills in KSA, said, “Despite healthy demand, a significant decrease in the number of office rent transactions was recorded in Q1, with Ejar data indicating a 27% drop in transactions quarter on quarter, due to the limited availability of office spaces. However, Grade A offices witnessed an increase in rents by 5% compared to the last quarter, owing to the buoyant demand for quality assets amid their limited supply.”
The upward trend in Grade A offices is likely to continue throughout the year due to factors like Saudi Vision 2030’s focus on attracting foreign investment, the country’s continuing efforts to diversify income sources, and attracting foreign companies to set up their base in Riyadh.
The report also highlighted that 74% of inquiries received by Savills originated from overseas, with an impressive 37% coming specifically from US corporations.
“Riyadh is experiencing a remarkable surge in corporate interest, with over 180 foreign companies surpassing the initial target of 160 choosing to establish their regional headquarters in the city. This growing confidence reflects the robust potential of the Saudi capital, fuelled by the country’s strategic economic diversification plan,” Ramzi Darwish, Head of Saudi Arabia at Savills Middle East, commented.
“Prominent entities such as Franklin Templeton and Allen & Overy have recently set up their regional bases in the capital Riyadh,” Ramzi added.
The 30-year tax relief for regional headquarters, the expanding market, and promising prospects are attracting international companies and reinforcing Riyadh’s position as a vital regional hub for leading businesses across diverse industries.
Robust leasing activity was observed in Q1 2024, with Legal Services leading the way, followed by Engineering and Manufacturing, and IT/ITES sectors. While Technology, Media & Telecommunications (TMT), and Banking, Financial Services and Insurance (BFSI) companies dominated occupier inquiries, reflecting diverse industry interests.
Limited availability of prime office space in Riyadh has led to a Grade A occupancy rate of 98%, with rents increasing by 5% q-o-q and 20% y-o-y. The Business Parks and the King Abdullah Financial District are witnessing significant demand, with 75% of transactions involving relocations to these areas.
To ease demand concerns, a supply of over 420,000 sqm of new Grade A office space is expected by year-end, providing tenants with greater flexibility in their choices and helping to stabilise rental prices.