Saudi Arabia real estate: Riyadh office rents soar amid property shortage as regional HQ deadline looms – Arabian Business

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Businesses are beginning to feel the pinch of the Riyadh office supply shortage as the scramble to establish regional headquarters in Saudi Arabia by the end of the year heats up, pushing rental rates to new record highs.

Grade A office occupancy in the capital city has reached 98 percent, one of the highest in the world, amid strong leasing activity fueled by the HQ mandate.

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With preferred grade A inventory running low, average rents have jumped 23 percent year-over-year in the third quarter of 2023 as occupiers seek out the limited supply. The rise has been most dramatic in the northeast Riyadh sub-market where buildings like ROSHN Business Front, Riyadh Business Gate, and Granada Business Park are located – average rents there increased 30 percent over the past year.

“Saudi Arabia is experiencing the highest on-record interest from some of the biggest corporates around the world amid large-scale development in the Kingdom,” said Savills Middle East’s Head of Saudi Arabia, Ramzi Drawish.

“Both global and regional companies have taken cognizance of the situation and have ramped up their presence across the country. Riyadh has emerged as the port of entry for most of these companies given the presence of key government entities and the availability and future supply of preferred Grade A office developments,” he added.

Regional HQ Programme Fuels Riyadh’s Demand

The looming deadline, introduced by the Saudi government in 2021, requires foreign companies to set up local headquarters or risk losing lucrative public sector contracts. It has accelerated the influx of multinational firms establishing operations in the Kingdom. Of leasing transactions handled by Savills recently, 58 percent involved consulting and legal firms responding to the mandate.

“We also noted that 71 percent of the demand is for office units under 1,000 sqm. Going forward, inquiry levels and pipeline for the next few months remain strong,” said Swapnil Pillai, Associate Director of Middle East Research at Savills.

With robust demand and tight grade A availability, rental growth is expected to continue. Occupiers are now turning to nearby grade B stock as their fallback option, providing support below the prime segment. Over 420,000 square meters of new supply is slated to come online by 2024, but for the moment developers are struggling to keep up with the demand spike set in motion by the regional headquarters programme.

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