According to a new report released on Tuesday, the kingdom’s real estate market is still experiencing severe supply constraints in 2023, which will increase the cost of both office leasing and home ownership.
According to CBRE, the average office rent in Riyadh for Grades A and B units increased by 13% to 22.2% in the 12 months leading up to the fourth quarter of 2023, while occupancy rates were between 99.4% and 100%. Prices for villas increased by as much as 5.5%, while those for apartments increased by as much as 10.7% in the same time frame.
In addition, villa prices in the kingdom’s major cities increased during the final three months of 2023, while residential real estate transactions increased by 63.7% when compared to the same period in 2022, according to the consulting firm’s Saudi Arabia Real Estate Market Review for Q4 2023.
“On the whole, demand in Saudi Arabia continues to outpace supply across almost all real estate market sectors, hence we have seen relatively strong levels of performance in 2023 despite some headline economic headwinds,” said Taimur Khan, Head of Research – MENA at CBRE.
Despite the anticipated delivery of new units, Khan stated that the level of supply in Saudi Arabia’s real estate market will continue to lag demand this year, meaning the market will continue to post strong performance all year long.
All office grades in Riyadh saw an increase in rent in the year leading up to the fourth quarter of 2023, with the average Prime unit seeing a 20.7% increase and the Grades A and B units seeing increases of 13% and 22.2%, respectively.
By the end of the year, there was a noticeable increase in demand for the Saudi capital. An estimated 65% of the space in the King Abdullah Financial District (KAFD) has been leased to date, reflecting increased demand from both domestic and foreign tenants.
Strong demand was also observed in other markets outside of the Saudi capital during the previous quarter, as Grade A office rents in Jeddah increased by 19.7%. While Grade A and Grade B office occupancy rates in Jeddah increased to 92.5% and 82.1%, respectively, Grade B rents saw a slight increase of 1%.
Grade A office rents in the Eastern Province increased by 7.4% and 7.2% in Dammam and Khobar, respectively. At 84.2% and 83.6% occupancy, respectively, Grade A units were also almost full in both cities.
Residential sector
In the year leading up to Q4 2023, Riyadh, Jeddah, Dammam, and Khobar recorded average price increases in the villa segment of 5.5%, 4.8%, 0.3%, and 1.1%, respectively.
The average price of an apartment increased by 10.7%, 1.8%, and 2% in Khobar, Dammam, and Riyadh during the same period. On the other hand, flat prices in Jeddah decreased by 1.9%.