Foreign companies push up cost of Riyadh’s scarce office space

Ayman Zaid/Alamy via Reuters Connect

• Occupancy in prime locations hits 98%
• Rents rise by up to 36%
• 75% of inquiries from overseas

Rental rates in Riyadh’s office sector rose by up to 36 percent in the first quarter of this year as a result of increased demand from foreign companies and occupancy rates approaching 100 percent.

Three quarters of all enquiries for office space directed to the real estate company Savills in the first three months of 2024 came from overseas, with nearly 40 percent involving US companies.

“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,” said Savills’ head of Saudi Arabia, Ramzi Darwish. 

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Franklin Templeton, an investment manager with headquarters in California and the UK-based law firm Allen & Overy both formally established offices in Riyadh in March. 

Occupancy in the Saudi capital’s prime office locations was 98 percent, Savills said on Monday, with 75 percent of transactions in the first quarter involving relocations to the business parks and the King Abdullah Financial District. 

Year-on-year rental rates rose 20 percent, with north-east Riyadh in particular logging an even more remarkable rent price jump of 36 percent over the same period in 2023.

The legal industry made up half of all Q1 leasing transactions, followed by engineering and manufacturing, and technology.

As a result of the rising demand and rental levels, Savills said, the number of new rental transactions in the Saudi capital dropped 27 percent year on year in Q1, indicating tenants were opting to renew existing leases.

Savills expects more than 420,000sq m of new Grade A office space to become available before the end of the year to meet rising demand, providing a wider range of options for potential and existing occupants, and ultimately protecting the market from any sharp rent rises.

In April, Ezdihar Real Estate Development Company and Al-Istithmar Securities and Brokerage Company, owned by the Saudi Investment Bank, established a $290 million fund to develop a 103,000sq m Grade A business park on a plot on the King Saud University campus.