The major markets in Saudi Arabia have seen a sharp increase in office rents due to high demand brought on by the influx of new foreign businesses.
According to a CBRE report released on Wednesday, leasing rates for premium space increased by roughly 24% in Riyadh during the third quarter of 2023, while increases in other cities ranged from 1% to more than 18%.
“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,” said Taimur Khan, Head of Research – MENA at CBRE in Dubai.
The real estate consultancy said that demand is particularly high within the premium segment, where upcoming quality supply is “continually being leased before entering the market”.
“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,” Khan said.
“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.”
Saudi’s “Program HQ” initiative aims to attract international businesses to set up their regional headquarters in the kingdom in a bid to boost foreign investment and diversify the local economy.
Rent increases
According to CBRE’s report, there is a demand for high-quality office space in Saudi Arabia, particularly in areas like the King Abdullah Financial District in Riyadh.
The average prime rent in Riyadh is currently SAR 2,617 per square meter, having grown at a rate of 23.8% in the year ending in the second quarter of 2023.
Over the same period, Grade A rents increased by 12.9% to an average of SAR1,900 per square meter, while Grade B office rents increased by 18.9% to SAR1,529 per square meter.
Average rents in Dammam increased by 7.5% in the Grade A segment to SAR950 per square meter and by 4.8% in the Grade B segment to SAR550 per square meter.
Grade A offices in Khobar are approximately 9% more expensive to rent, with an average leasing rate of SAR1,090.
Jeddah is another city where rent is rising. There, leasing rates for Grade A offices increased by 17.9% to SAR1,356 per square meter, while Grade B leasing rates increased by 1% to SAR707 per square meter.