If you are planning to invest in an office space for rent in Saudi Arabia, the demand for Grade A space is likely to remain high for the next year. New international firms are moving to the country, bringing with them new business relationships and clients. Investors should note that tenants will be looking for Grade A offices with flexible and smaller working spaces. While the demand for Grade A space is likely to remain high, rents in the Grade B and C segments will remain low.
Demand In Saudi Arabia
The country’s expansionary fiscal policies and large oil receipts will likely drive additional demand for office space in the coming years. The country’s commitment to infrastructure development may also spur further office demand. The non-oil sector in Saudi Arabia grew by 8% per year between 2005 and 2012, and the HSBC Purchasing Managers’ Index for February 2014 indicated a strong recovery in the non-oil private sector. The growth in new orders and staffing levels in the country’s manufacturing sector, backed by growing employment levels, bodes well for office real estate in the country.
Riyadh’s office market is undergoing a transformation. The King Abdullah Financial District is slated to be finished in the second half of 2015, increasing Riyadh’s office supply by 40%. This, in turn, should drive up office prices. In 2013, Riyadh had around 425,000 square meters of unoccupied office space, compared with only 360,000 square meters of office space delivered in Jeddah and Makkah.
Rents
While a steady stream of requirements from new public and quasi-public entities and consolidation activity has been encouraging, the future of the Grade A segment of the office market remains uncertain. While global occupier behavior remains centered on the rightsizing trend resulting from the pandemic, Saudi Arabia is poised to reap the benefits of its economic reforms. However, the burgeoning supply of office space is a cause for concern. Approximately five million square meters of office space is scheduled to be built in Riyadh by the end of 2015.
Although retail rents remain under pressure across the Kingdom, Riyadh’s Grade A office stock is seeing increases in rental rates. Meanwhile, the overall performance of the Saudi Arabian real estate market remains mixed, as residential prices grew by five per cent and rents rose by two per cent. In Riyadh, rents of Grade A office space have remained stable for the past year, despite the tumultuous situation in the country.
Increase In Demand In Riyadh
The city’s office market is expected to rise in the coming year, as more multinational companies are planning to base regional HQs here. This is good news for investors, as this trend will attract new clients and business relationships to the country. However, there is one thing to keep in mind when considering this market: tenants are looking for Grade A offices and small, flexible spaces. The price of Grade A office space is expected to rise over the next few years, which is good news for property owners.
Increase In Demand In Jeddah
The city has a large amount of potential office space, and the majority of the existing supply is Grade A. Currently, about 30% of Jeddah’s office space is available in Grade A buildings. Meanwhile, another 30% is scheduled to come online in smaller projects along major arterial routes, including Jeddah Gate, an Emaar masterplan development that will include nearly two hundred thousand square meters of premium office space in a mixed-use environment.
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