Rise of international HQs in Saudi Arabia driving up quality office space demand: CBRE
RIYADH: Grade A office space in Riyadh reached full capacity in the third quarter of 2023 thanks to the influx of international companies to the Saudi capital, according to a CBRE report.
This uptick in demand is driven mainly by “Program HQ,” an initiative by the government encouraging global firms to relocate their regional headquarters to Saudi Arabia.
Earlier in November, Minister of Investment Khalid Al-Falih revealed the Kingdom has seen 180 companies make the move, surpassing the initial goal of securing 160 relocations by the end 2023.
CBRE noted that the emergence of domestic entities has also fueled the demand for offices, with King Abdullah Financial District recording upwards of 60 percent of its space as leased, with its occupiable supply at 92.2 percent.
“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,” firm’s Head of Research Taimur Khan noted in a press release.
He added that new occupiers seek to acquire upcoming quality office supply, which is continually being leased before entering the market.
Demand remains largely centered around Riyadh, with key additions to the market made through KAFD adding 166,100 sq. meters, EzdiPark adding 200,000 sq. meters, and stc Square adding over 60,000 sq. meters in phase two of Laysen Valley.
The drive for workplaces in Riyadh, particularly for quality space, has pushed prime rents to record growth rates of 23.6 percent in the third quarter of 2023, where rents currently stand at SR2,617 ($556.28) per sq. meter.
Grade A rents grew by 12.9 percent over the same period, reaching an average of SR1,900 per sq. meter. Grade B offices increased by 18.9 percent in the 12 months to September 2023, settling at the average rent of SR1,529 per sq. meter.
According to the report, the Jeddah and Dammam metropolitan areas continue to see a trickling of demand, with average occupancy in Dammam and Khobar’s Grade A segment increasing annually by 3.3 percent and 7.1 percent to 83 percent and 82 percent, respectively.
Dammam’s Grade B average occupancy rate rose 2 percent in the third quarter of 2023 to reach 68 percent average occupancy.
Average occupancy within both segments in Jeddah witnessed upticks of 2.5 percent for Grade A and 4.7 percent for Grade B, resulting in use rates of 92 percent and 80 percent, respectively.
Both office segments in the Kingdom’s second-largest city saw their average rent rise as Grade A offices reached SR1,356 per sq. meter, indicating 17 percent growth.
The Grade B spaces incurred a 1 percent rise in average rent to reach SR 707 per sq. meter.
In the third quarter of 2023, the industrial sector saw the introduction of the Logisti platform, which aims to provide 59 logistics centers across Saudi Arabia by 2030.
The National Transport and Logistics Strategy aims to supply the required infrastructure and associated services to help develop these future centers.
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 tons of air cargo.
The third quarter of 2023 marked the materialization of several key agreements within the Saudi Authority for Industrial Cities and Technology Zones, also known as MODON, where Eva Pharma acquired 50,000 sq. meters of land in Sudair in 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. meter fully automated distribution center.
Jeddah’s industrial and logistics average rents have softened marginally by 0.7 percent compared to a year earlier.
Performance levels are anticipated to remain strong for the remainder of the year due to the quality supply shortage in the market as additional entities express interest in establishing a presence in the Kingdom, as stated in the release.