RIYADH: Riyadh’s office market continued its strong performance in the second quarter of 2024 as government investment incentives attracted international companies to set up their regional headquarters.
According to the latest Saudi Commercial Market Report published by Savillis, more than 120 international companies relocated their regional headquarters to the Saudi capital in the first quarter of this year, a 477% increase compared to the same period in 2023.
The move comes after the Saudi government announced it would offer a range of benefits to companies setting up a Middle Eastern base in Riyadh, including a 30-year corporate income tax exemption, withholding tax on headquarters activities, and access to discounts and support services.
“The Kingdom’s ongoing efforts to diversify revenue sources and create an attractive business environment have proven successful, as evidenced by the high volume of international enquiries,” said Ramzi Darwish, head of Saudi Arabia at Savills Middle East.
He added: “In Q2 2024 alone, approximately 70% of the enquiries received by Savills originated from outside Saudi Arabia, with a significant 50% coming from US and UK entities in particular.”
Growth in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing and IT, with 50% of transactions involving new entrants, reflecting positive market sentiment towards expansion.
The UK property consultancy said it expected the trend to continue for the rest of the year, supported by a strong pipeline of inquiries.
The report also said rental prices in the northern and northeastern areas of Riyadh rose by 23 per cent and 20 per cent year-on-year respectively, driven by increased rental activity within the capital.
These price increases coincide with foreign direct investment in the city expected to rise 5.6% year-on-year in the first quarter of 2024.
Amjad Saif, head of transaction services at Savills KSA, said: “Riyadh’s limited prime office space combined with strong business confidence has resulted in Grade A occupancy reaching 98 per cent and steady rental growth, up 3 per cent quarter-on-quarter in Q2 and a significant 13 per cent year-on-year increase.”
Savills said the city's expanding markets and promising economic prospects are attracting leading companies from a range of industries, reinforcing Riyadh's role as a key hub for regional and global trade.
It also revealed that renowned companies such as PayerMax and Ernst & Young have established regional headquarters in the country.
Other major companies include Northern Trust, Bechtel, PepsiCo, IHG Hotels & Resorts, PwC and Deloitte.
Riyadh Office Market
The UK-headquartered company said there was a shortage of prime office space in Riyadh, with Grade A occupancy reaching 98 per cent by the end of the second quarter, and that such properties command higher rents due to their location, modern infrastructure and newer buildings.
“These trends reflect the Saudi capital’s thriving office market. However, strong demand is expected to drive a significant increase in Grade A office space supply by the end of 2025, with over 650,000 sq m of new space expected to enter the market, expanding tenant choice and mitigating the potential for a supply shortage,” Savills added in the report.
Our analysis found that engineering and manufacturing companies led leasing activity in the second quarter of this year, followed by legal services and pharmaceutical companies.
According to Savillis, around 60% of leasing inquiries are focused on office space under 1,000 sq m, showing a growing preference for agile and efficient work environments.
Non-oil sector
Savillis said Saudi Arabia's non-oil sector has emerged as a key economic driver, growing 3.4% in the first quarter of 2024 compared to the same period last year.
The company said Saudi Arabia's moderate inflation rate of 1.6% in May was a positive indicator for the non-oil business environment.
Citing data from S&P Global and Riyadh Bank, Savills said the purchasing managers' index (PMI) remained expansionary at 56.4 in May, above the neutral threshold of 50 for the 45th straight month and indicating growth in Saudi Arabia's private sector.
The latest S&P Global Report released on July 3 said that the PMI stabilized at 55, driven by increased demand, rising production levels, and increased employment.
In the report, Naif Al-Ghais, chief economist at Bank of Riyadh, observed that the second-quarter growth figures suggest a positive outlook for Saudi Arabia's non-oil GDP, with growth expected to top 3%.
He noted that the strong performance of non-oil sectors continued to fuel the country's economic growth and diversification efforts throughout the quarter.
In another report released earlier this month, Savills said Riyadh is expected to be among the 15 fastest-growing cities by 2033, driven by a 26% population increase and continued government infrastructure spending.
The analysis found that Riyadh was the only non-Asian city on the list to show growth, driven by a population surge from 5.9 million to 9.2 million over the decade.
In May, S&P Global said the establishment of free economic zones and regional headquarters programs could further encourage foreign direct investment into the country.
