Saudi office rents increase in 2023 ahead of quality supply boost – Arabian Business

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Saudi Arabia’s office market performance expanded in Q3 2023 as quality supply looms.

As at Q3 2023, Riyadh’s King Abdullah Financial District (KAFD) has recorded upwards of 60 per cent of its office space as leased.

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commercials real estate properties.

For occupiable supply, this rate is substantially higher at 92.2 per cent.

Saudi office supply

Landmark transactions within KAFD included the acquisition of around 22,000 sq m of office space by two major management consulting firms.

While demand remains very much centred towards Riyadh, demand is trickling into Jeddah and the Dammam Metropolitan Area (DMA).

In terms of upcoming quality supply in the next two years, key additions in Riyadh’s office market include 166,100 sq m in KAFD, 200,000 sq m in EZDI Park, 60,000 sq m in STC Square and more than  60,000 sq m in phase two of Laysen Valley.

The aforementioned drive for office space in Riyadh, particularly for quality space in the likes of KAFD, has driven prime rents to record growth rates of 23.6 per cent in the year to Q3 2023, where rents currently stand at SR2,617 ($698) per square metre.

Grade A rents grew by 12.9 per cent over the same period, reaching an average of SR1,900 ($507) per square metre.

Grade B offices increased by 18.9 per cent in the 12 months to September 2023, settling at the average rent of SR1,529 ($408) per square metre.

Occupancy levels in Riyadh’s Grade A segment of the market have reached full occupancy as at Q3 2023.

During the same period, the average Grade B occupancy rate remained stable at 99.4 per cent and the average prime occupancy rate increased by 8.2 per cent to reach 92.2 per cent.

Dammam and Khobar’s office market recorded growth across all segments in Q3 2023.

Starting with Dammam, the Grade A segment saw its average rents grow by 7.5 per cent, settling at SR950 per square metre, while Grade B rents increased by 4.8 per cent, registering on average at SR550 per square metre.

In Khobar, Grade A offices grew by 9 per cent, with rents in this segment now averaging SR1,090 per square metre.

Average occupancy in the two cities progressed positively in Q3 2023, with the Grade A segment in Dammam and Khobar increasing annually by 3.3 per cent and 7.1 per cent to reach 83 per cent and 82.1 per cent respectively.

Dammam’s Grade B average occupancy rate rose 2.2 per cent in the year to Q3 2023, to reach 68.6 per cent average occupancy.

Both office segments in Jeddah saw their average rents rise in the year to Q3 2023 as Grade A offices reached SR1,356 per square metre to register a 17.9 per cent growth.

Grade B segment managed to incur a 1 per cent rise in average rent to reach SR707 per square metre.

Average occupancy within both segments witnessed upticks of 2.5 per cent for Grade A and 4.7 per cent for Grade B, resulting in average occupancies of 92.5 per cent and 80.0 per cent respectively.

In Q3 2023, the industrial sector saw the introduction of “LOGISTI” platform, which targets to provide 59 logistics centres across Saudi Arabia by 2030, up from the 21 which are currently operational.

The programme, alongside the National Transport and Logistics Strategy (NTLS), aims to supply the required infrastructure and associated services to help enable the development of these future centres.

Among the key goals for LOGISTI is achieving a top-10 ranking in the Logistics Performance Index, processing 40 million containers and transporting 4.5 million tonnes of air cargo.

Moreover, the third quarter of 2023 marked the materialisation of several key agreements within MODON, where EVA Pharma acquired 50,000 square metres of land in Sudair in the North Riyadh to establish an industrial complex to produce over 990 million units annually.

Another agreement was signed with retailer “B4L” to create a 38,000 sq m fully automated distribution centre.

In Riyadh, average industrial and logistics rents increased to SR 195 per square metre, representing an increase of 30.3 per cent in the year to Q3 2023.

Industrial and logistics rents in Eastern and Central Riyadh stand at SR294 per square metre and SR 119 per square metre, the highest and lowest in the capital respectively.

In the 12 months to Q3 2023, Jeddah’s industrial and logistics average rents have softened marginally by 0.7 per cent compared to a year earlier. 

In terms of rates achieved, average rents in Northern Jeddah stood at SR223 per square metre, whereas Southern Jeddah rents reached SR 137 per square metre.

Dammam and Khobar’s average rents improved in the year to Q3 2023 by 19.8 per cent and 16.4 per cent respectively.

In Dammam, average industrial and logistics average rents rose to SR 252 per square metre, while in Khobar average rents currently stand at SR235 per square metre.

Taimur Khan, Head of Research – MENA at CBRE in Dubai, said: “Throughout the third quarter of 2023, the commercial real estate market in Saudi Arabia demonstrated high levels of demand for quality office space, notably in Riyadh.

“This uptick in demand is resulting from the influx of new international companies, driven mainly by “Program HQ”, paired with increased requirements from emerging domestic entities.

“All these new occupiers seek to acquire upcoming quality office supply, which is continually being leased before entering the market.

“For the remainder of the year, we anticipate performance levels to remain strong due to the quality supply shortage in the market, as additional entities look to set up in the Kingdom.”

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