Saudi HQ drive forces up Riyadh office rents

Alamy via Reuters

• 350 European companies in capital
• Grade B rents up 25% in a year
• Saudi target of 480 HQs by 2030

A shortage of prime office space in Riyadh has pushed up B-grade office rents by 26 percent over the last year, a real estate report said this week, as companies rush to set up premises in the kingdom. 

Saudi Arabia says companies must base their regional headquarters in the kingdom if they want access to government contracts worth SAR1 million ($260,000) or more. 

“To date, 350 European companies have been granted licences to establish their regional HQs in the capital,” the report by Knight Frank said, adding that the HQ drive “continues to fuel a rise in demand for office space in Riyadh”. 

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The government is targeting a total of 480 HQs in Riyadh by 2030, part of its bid to raise flagging foreign direct investment figures and boost its economic transformation plans. 

“Grade B rents in the capital have also surged by 25.6 percent in the last 12 months as a lack of prime space is forcing businesses to secure what is perhaps less than ideal space,” the report said. 

Rents in prime office space have also risen, but at only 8 percent in the last 12 months and almost 37 percent since the first quarter of 2021. 

Grade B occupancy rates rose by 8 percentage points in the past year to reach 91 percent, while grade A occupancy edged up 1 percentage point to 98 percent by the end of the first quarter, Knight Frank said. 

In Jeddah grade A rents rose nearly 4 percent over the year with a 2 percent decrease in occupancy to 93 percent, and grade B rents rose 2 percent with occupancy unchanged at 85 percent. 

• Foreign companies push up cost of Riyadh’s scarce office space
• $290m fund set up to develop Riyadh business park
• New Riyadh downtown could add $48bn to Saudi’s non-oil GDP

In Dammam grade A rents rose 3.5 percent with occupancy up 5 percent at 85 percent and grade B rents grew by 1.6 percent with occupancy up 3 percent to 73 percent of the available space. 

The Ministry of Investment said last week it had issued a record 3,157 business licences in the first quarter of 2024, a 9 percent rise from 2,884 issued in the last quarter of 2023. 

Five months after the regional headquarter rule came into effect the Public Investment Fund is beginning to impose informal conditions that companies, including banks, must have established bases in the kingdom to access lucrative contracts with PIF. 

The sovereign wealth fund, which manages some $925 billion in assets, owns the giga-projects at the heart of the economic plans. 

Goldman Sachs did not respond to request for comment over reports that it has become the first Wall Street bank to obtain a regional headquarter licence. 

State oil giant Aramco launched a $13 billion secondary offering this week, highlighting the rewards for banks who are in favour.