Riyadh – Mubasher: Riyadh’s office market maintained robust performance in the second quarter (Q2) of 2024, underscoring the vitality of the non-oil sector.
This sector, crucial to the economy, saw a year-on-year (YoY) growth of 3.40% in Q1-24, surpassing initial projections, according to the latest Saudi commercial market report by Savills.
Continued activity in the non-oil sector is expected to drive GDP growth to a projected 5% for the year.
Low inflation, stable at 1.60% YoY for the third consecutive month in May 2024, supports a positive business climate.
The Purchasing Managers’ Index (PMI) remained in the expansionary zone at 56.40 in May, marking the 45th straight month above the neutral 50 mark, indicative of ongoing economic expansion.
Riyadh's prominence in the region is bolstered by a surge in corporate interest and a 5.60% YoY increase in foreign direct investment (FDI) in Q1-24, expected to persist throughout the year.
This momentum is fuelled by Saudi Vision 2030's strategic focus on attracting foreign capital and government investment incentives, including tax breaks, which are appealing to international corporations establishing regional headquarters in the kingdom.
This strategy has yielded significant results, with over 120 foreign firms relocating their regional headquarters to Riyadh in Q1-24, a remarkable 477% increase compared to the same period last year.
Prominent entities such as PayerMax and Ernst & Young have recently established regional headquarters in Riyadh. The city’s expanding market and promising economic prospects are attracting leading businesses across diverse industries, solidifying Riyadh’s status as a vital hub for regional and global commerce.
Savills observed a substantial increase in leasing activity during Q2-24, driven by sectors including Technology, Media & Telecommunications (TMT), Consulting & Engineering, Manufacturing, and IT/ITes.
Notably, 50% of completed transactions involved new entrant companies, reflecting a positive market sentiment for business expansion. The momentum is expected to continue, with a strong pipeline of inquiries for the rest of the year.
Engineering & Manufacturing, Legal Services, and pharmaceutical companies are at the forefront of this interest, collectively representing nearly 50% of all inquiries received by Savills.
A significant portion, estimated at 60%, focused on office spaces under 1,000 square meters, indicating a growing preference for agile and efficient work environments.
Certain areas, such as North and North-East Riyadh, experienced steeper rent increases, with annual growth rates of 23% and 20%, respectively, highlighting the thriving office market in the Saudi capital.
Despite robust demand, a significant increase in Grade A office space supply is anticipated by the end of 2025, with over 650,000 square meters of new space expected to enhance tenant options and mitigate potential supply shortages.
