Interest in Saudi commercial space may be peaking

Unsplash/Youssef Abdelwahab

• Saudi commercial demand slowing
• Office space tops the list
• Still ‘firmly in positive territory’

Weakening demand in Saudi Arabia’s commercial sector suggests the market could be reaching a plateau, a new survey indicates. 

The Global Commercial Property Monitor report by the UK’s Royal Institution of Chartered Surveyors (Rics) found that demand for space rose by 20 percent in the second quarter of 2024, compared with a 53 percent rise in Q1. 

Office space was top of the list, with a 35 percent increase in demand, followed by industrial space with a 19 percent increase and retail space with a 6 percent increase. 

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Although “all key metrics continue to report positive figures”, including rent expectations, capital value and enquiries, the report found there was a growing sense of the market levelling out. 

“This quarter, the largest proportion of respondents – 29 percent – believe the market reached its peak, followed by 24 percent who are of the view that the market is still in the middle of an upturn,” it said. Around 24 percent now think there is a downturn.  

“All things considered, while cooler, Saudi Arabia’s commercial property market remains in firmly positive territory, and continued large-scale investment by the kingdom will likely keep the market in a positive phase for the foreseeable future,” it added.  

The survey, which included 42 companies working in Saudi Arabia, including many giga-projects, broadly confirms what other real estate indicators have shown. 

Retail occupancy rates in Riyadh rose by 5 percentage points over the year to 90 percent at the end of the first quarter but fell by 1 percentage point in Jeddah to 84 percent and by 1 percentage point in Dammam to 89 percent, real estate consultancy Knight Frank said this month. 

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The sports and entertainment sectors are seen as key drivers for retail rents to rise by 28 percent in Riyadh by 2026, it said. 

The construction boom – driven by the $1.25 trillion economic reform projects – has also slowed as the Public Investment Fund manages funding constraints amid lower global oil prices and a lack of foreign direct investment in Saudi Arabia. 

This week PIF appointed a new head of investments as it shifts towards a more domestic orientation of reducing external investments and pumping more capital spending into the giga-projects to make up for the lack of foreign interest. 

By contrast, last year Rics said the Saudi giga-projects were sucking the air out of the regional market by luring workers out of neighbouring Gulf countries, resulting in skills shortages.