Prime office rents in Riyadh have grown by 13% over the last 12 months, fuelled in part by the looming Regional HQ Program deadline, which goes into effect in January 2024, according to global real estate consultancy, Knight Frank’s Summer 2023 Saudi Commercial Market Review.
Faisal Durrani, Partner – Head of Middle East Research, explained: “Corporates are increasingly declaring their intention to establish their regional hubs in Riyadh, and this is translating into heightened office leasing activity. Indeed, 80 multinational businesses are looking to establish their regional HQs in Riyadh.
“The rising demand, coupled with a severe shortage of prime office space is putting upward pressure on rents, leaving landlords firmly in the driving seat. In fact, prime rents in Riyadh are now averaging around SAR 1,890 per square meter, with some developments crossing SAR 2,100 per square meter, which places rents in some buildings in record territory.”
Knight Frank says that supply is struggling to meet the increasing demand, with only 100,000m2 being delivered during H1 2023 and a further 676,000m2 forecast to be completed between now and the end of 2026. Furthermore, some businesses, such as Arabian Oud, Jarir, and Alinma Bank are pursuing build-to-suit options.
Durrani continued: “In a normal market, we would expect to see a greater delta between Grade A and Grade B rents given the global occupier focus on best-in-class space. However, given the national office supply shortage, Grade B rents are also climbing and are up by 15% in Riyadh and 7% in Jeddah as businesses settle for less than their ideal space. It is no surprise to see vacancy rates sliding across the board, with Grade A vacancy levels at around 2% in Riyadh and 6% in Jeddah.”
Retail rents are under pressure as supply grows, while hotel occupancy levels edge upwards thanks to initiatives to boost local tourism
Retail Sector
Retail rents across the Kingdom are coming under pressure as supply rises and online shopping becomes further entrenched amongst the country’s younger demographic, according to Knight Frank.
Jonathan Pagett, Partner, Head of Retail Advisory, Saudi Arabia, said: “Away from the physical shopping experience, consumer preferences, particularly those aged 25 and under, or the ‘Gen Z’ population, are irrevocably linked to online shopping and e-commerce. Indeed our 2023 Saudi Report results echoed this, with shopping malls emerging as the least popular shopping venue among this age bracket, albeit malls remain popular overall, regardless of age.”
Knight Frank says that supply is struggling to meet the increasing demand, with only 100,000m2 being delivered during H1 2023
Knight Frank also highlights that local businesses unsurprisingly remain focused on establishing or boosting their online presence. While the market is currently dominated by international retail platforms, a recent survey by Kearney and Mukatafa revealed that 74% of online shoppers support buying locally and are expecting to increase their purchases from Saudi platforms.
The current e-commerce market in the Kingdom is valued at around 6% of total retail sales, this is expected to increase by a further 7.5% by 2025 (Euromonitor).
Shopping malls emerge as the least popular shopping venue among the 25 and under bracket
Hospitality Sector
In the hospitality sector, Knight Frank is reporting an upward creep in occupancy levels during H1 2023 as government sponsored tourism initiatives, festivals and city-focused Seasons drive up domestic tourism levels, while international visitor numbers also slowly climb.
Turab Saleem, Partner, Head of Hospitality, Tourism and Leisure Advisory – MENA, added: “Riyadh’s year-round events and reawakening as the commercial hub for the Kingdom are contributing to the rising number of both leisure and business travelers. Similarly, since the announcement of the Jeddah Season, which includes a series of cultural and entertainment events and festivals, punctuated by the F1 Grand Prix, the city has been attracting an increasing number of visitors.”