Market Trends of Saudi Arabia Flexible Office Space Industry
This section covers the major market trends shaping the Saudi Arabia Flexible Office Space Market according to our research experts:
Strong Growth in Riyadh To Drive the Market
The office market in Riyadh is still showing signs of fragmentation. Over the last 12 months (through Q2 2021), average Grade A rentals climbed by 1.5 percent, while Grade B rents fell by 1.1 percent. The relative outperformance of Grade A offices can be linked to a significant increase in the number of licenses issued to international investors seeking to establish businesses in the Kingdom.
Indeed, from over 700 in 2018 to nearly 1300 in 2020, the number of foreign investment licenses issued has nearly doubled. On the supply side, the construction of a small office development along King Fahad Road increased the city's supply by around 9,000 square meters. The total office stock remained largely steady at 4.2 million sqm as a result of this slight addition. By the end of 2023, total office space is estimated to reach 5.3 million sqm.
The demand for high-quality offices in Riyadh has surged since Saudi Arabia announced that foreign companies should relocate their regional headquarters to the kingdom in order to do business with it. The increased demand for Grade A office space in Riyadh, Saudi Arabia's capital, has put upward pressure on Grade A office lease rates, which have grown 2.9 percent in the year to the end of Q3 2021. Despite this, Saudi Arabia has the largest economy in the area and a population of over 35 million people, indicating that there is potential for more than one economic center in the region.
Growth in Saudi Arabia’s Office Space Market To Provide More Opportunities
Saudi Arabia's office sector saw an increase in performance in 2021, owing to a number of government mandates that drew a large number of foreign corporations to the country. In Q4 2021, average year-on-year rental rates in Riyadh and Jeddah rose by 4% and 2%, respectively, in the office segment. Grade A rates in Jeddah climbed by 8% in the fourth quarter of 2021, averaging roughly SAR 1,036 square meters per year.
This demand will most likely be the biggest in Riyadh and Jeddah, which are becoming increasingly commercialized and have some of the highest rental yields in the country. The vast bulk (90 percent) of the 480,000 square meters of office floorspace delivered in Saudi Arabia in 2021 was in Riyadh, the country's capital. Over the period of 2022, another 360,000 square meters of office space is expected to be completed in the city.
The office sector is likely to grow substantially in the future years as Saudi Arabia pursues its ambitious aim of becoming a global hub for commerce, investment, and international trade. The overall office supply in the Kingdom is expected to reach 925,000 square meters by the end of 2022.
Another element driving this expansion was a new government regulation implemented last year that required foreign corporations to establish regional offices in the Kingdom of Saudi Arabia by 2024 in order to be eligible for government contracts. In October 2021, the government gave licenses to around 40 multinational enterprises to set up shop in the Kingdom, following the announcement of this strategy in February 2021.
