RIYADH: The Riyadh office market continued to perform strongly in the second quarter of 2024, as government investment incentives attracted international companies to establish regional headquarters.
According to Savills’ latest Saudi Commercial Market report, more than 120 international companies have relocated their regional headquarters to the Kingdom’s capital in the first quarter of this year, up 477 percent compared to the same period in 2023.
The measures come after the Saudi government announced a series of benefits for companies setting up Middle Eastern bases in Riyadh, including a 30-year exemption from corporate income tax, a withholding tax on headquarters assets, as well as discounts and support services.
Ramzi Darwish, Head of Saudi Arabia at Savills Middle East, said: “The Kingdom’s ongoing efforts to diversify revenue streams and create an attractive business environment are proving effective, as evidenced by the high volume of international inquiries.”
He added: “In Q2 2024 alone, nearly 70 percent of Savills’ enquiries came from outside Saudi Arabia, with a significant 50 percent coming specifically from US and UK firms.”
This growth in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing and IT, with 50 percent of transactions involving new entrants, reflecting positive market sentiment towards expansion.
The UK property consultancy noted that this trend is expected to persist, supported by a solid set of applications for the rest of the year.
The report also highlighted that increased rental activity in the capital has led to annual increases in rental prices in the north and northeast of Riyadh of 23 percent and 20 percent, respectively.
These price increases are in line with a 5.6% year-on-year increase in foreign direct investment in the city in the first quarter of 2024.
“Riyadh’s limited prime office space coupled with strong business confidence has driven Grade A occupancy to a 98% level and rents are rising steadily, up 3% quarter-on-quarter in Q2 and up significantly by 13% year-on-year,” said Amjad Saif, Savills’ head of transactional services in Saudi Arabia.
Savills highlighted that the city's expanding market and promising economic prospects were attracting leading companies from various sectors, reinforcing Riyadh's role as a key hub for regional and global trade.
It also noted that major companies such as PayerMax and Ernst & Young have established their regional headquarters in the Kingdom.
Other notable firms include Northern Trust, Bechtel and PepsiCo, as well as IHG Hotels & Resorts, PwC and Deloitte.
Riyadh Office Market
The UK-based firm noted that the shortage of prime office space in Riyadh had driven Class A occupancy rates to 98% by the end of the second quarter, with these properties commanding higher rents due to their location, modern infrastructure and new construction.
“This trend reflects a thriving office market in the Saudi capital. However, fueled by robust demand, the supply of Grade A office space is expected to increase significantly by the end of 2025. This expected influx of over 650,000 square meters of new space should improve tenant options and mitigate the potential for a supply shortage,” Savills added in the report.
The analysis found significant leasing activity in the second quarter of this year, led by engineering and manufacturing companies, followed by legal services and pharmaceuticals.
According to Savills, around 60 percent of leasing inquiries were for office spaces smaller than 1,000 square meters, indicating a growing preference for agile and efficient working environments.
Non-oil sector
Savills noted that Saudi Arabia’s non-oil sector has emerged as a key economic driver, expanding 3.4% in the first quarter of 2024 compared to the same period last year.
The company stressed that Saudi Arabia's moderate inflation rate of 1.6% in May is a positive indicator for the non-oil business environment.
Savills, citing data from S&P Global and Riyadh Bank, added that the purchasing managers' index remained stable in the expansionary zone at 56.4 in May, marking the 45th consecutive month above the neutral threshold of 50, which signals growth in the kingdom's private sector.
The latest S&P Global report on July 3 revealed that the PMI stabilized at 55, driven by rising demand, higher production levels and rising employment.
In that report, Naif Al-Ghaith, chief economist at Riyadh Bank, noted that second-quarter growth data suggested a positive outlook for Saudi Arabia’s non-oil GDP, with growth expectations above 3%.
He stressed that the strong performance of non-oil sectors during the quarter continued to boost economic growth and diversification efforts in the country.
In another report published earlier this month, Savills noted that Riyadh is expected to be among the 15 fastest-growing cities by 2033, driven by a 26% population increase and continued government spending on infrastructure.
The analysis found that Riyadh is the only non-Asian city on the list, with its growth attributed to a population increase from 5.9 million to 9.2 million over the next decade.
In May, S&P Global also indicated that the establishment of free economic zones and the regional headquarters program could further boost foreign direct investment inflows into the Kingdom.
