Riyadh prime offices almost full as foreign firms flock to Saudi

Regus Saudi Arabia

• Grade A offices are at 98 percent occupancy in the Saudi capital
• Demand is driven by big increase in foreign investment licences issued
• Office space markets in Jeddah and Dammam are also growing

Unprecedented demand for prime office space in Riyadh has taken Grade A office occupancy levels close to 100 percent, driven by a massive increase in the number of foreign investment licences issued this year. 

More than 4,400 licences were issued in the second quarter of 2022, a rise of almost 700 percent on the same period last year.

The increase is being led by retail, construction, manufacturing, hotels, food and beverage, and business services companies, according to the latest analysis by real estate consultancy Knight Frank.

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Of the licences that were awarded to new foreign investment projects, 60 percent are within the wholesale and retail trade sector. 

The appetite of international retailers to enter the Saudi market continues to strengthen, with a preference for physical stores in shopping, said Faisal Durrani, partner and head of Middle East research at Knight Frank. Durrani

added: “As the kingdom’s economic transformation plan unfolds, business activity is rising at an extraordinary pace.”

Foreign direct investment levels hit SR3.5 billion ($933 million) during the second quarter, across 49 deals. This is up from 37 deals in Q1. The FDI activity is set to create 2,000 new jobs which, according to Durrani, will “inevitably filter through to the office market in the form of new space requirements”.

Durrani said: “Grade B rents are also on the increase as occupiers jostle for space in the Saudi capital. With limited Grade A options, many are either turning to the Grade B market, while others are exploring build-to-suit options. City-wide Grade B occupancy levels now stand at 75 percent, the highest level in at least five years.” 

Grade A occupancy levels stand at 98 percent, up by 4 percentage points on this time last year.

This has put landlords in the driving seat, according to Andrew Love, partner and head of occupier-landlord strategy and solutions and head of Middle East capital markets at Knight Frank.

He added: “Unsurprisingly, office lease rates continue to climb in the wake of growing demand. Indeed, average lease rates for prime office space have increased by 18 percent over the past 12 months to approximately SR1,775 per square metre.”

Jeddah and Dammam

Jeddah’s office market has also been experiencing a resurgence, Knight Frank said, as multinational and domestic businesses ramp up their presence in Saudi Arabia’s second-largest city. 

Grade A office rents stand at around SR1,065 per sq m, a 6.5 percent increase on this time last year. Grade B rents have increased by 8.5 percent over the same period. Vacancy levels continue to edge downward, standing at 8 percent for Grade A offices and about 20 percent for Grade B buildings.

The positive economic sentiment has also led to a rise in demand for offices in Saudi’s Eastern Province. In the Dammam metropolitan area, lease rates for Grade A office space have risen by 5 percent in the last 12 months to SR950 per sq m. Grade A occupancy levels have edged up to 77 percent, from 73 percent in the same period last year.

The rising demand comes as more multinational firms look to set up a base in Saudi. A total of 70 international companies have so far been issued licences to relocate their regional headquarters to Riyadh. This time last year, just over 20 companies had signed up.

Most of these companies were in sectors that depend heavily on the Saudi government for business, such as engineering and construction, pharmaceuticals and medical devices, technology products and services and consulting.

Saudi Arabia’s Ministry of Investment has partnered with 25 public agencies to help attract new firms to Riyadh through its Regional Headquarter Programme.

On January 1 2024, the Saudi government and state-backed institutions will stop signing contracts with foreign firms that base their Middle East HQs outside the kingdom, it was announced last year.