Riyadh’s office market remained strong in 2Q 2024, supported by 3.4% y-o-y growth in the non-oil sector, according to Savills Research’s Riyadh Office Market report (pdf). Occupancy rates for “grade A” offices in the capital remained unchanged at 98% in the quarter.

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Soaring rents in the capital: Commercial rents rose 3% q-o-q, and 13% y-o-y last quarter with a sharper 23% y-o-y increase in North Riyadh, and 20% in North-East Riyadh, the LSE-listed real estate consultancy said. Central Riyadh seems to currently offer the most-affordable price per sqm in the city.

Companies are making trade-offs between rent budget + office space: Inquiries to Savills from clients seeking office spaces smaller than 250 sqm rose accounted for 39% of all inquiries last quarter, up from 13% in the previous quarter. Meanwhile, demand for offices between 1-2k sqm accounted for 23% of total inquiries, up from 19%.

What they said: Prices are pushing businesses “to settle for a less-than-ideal space,” Partner and Head of Research, Faisal Durrani said in a press release ” last month. “What is extraordinary about the market dynamics is the sheer shortage of prime office options, with occupancy rates as high as 98% in Riyadh,’” Durrani added.

New entries accounted for 50% of all commercial rent transactions last quarter, after there were none recorded in the previous quarter, “indicating a positive market sentiment for business expansion.” Renewal contracts maintained a 25% share, while relocation fell to 25%, down from 75%.

REMEMBER- Rent has been the big culprit behind inflation: Actual housing rents — which weighs the heaviest of all components in the Saudi consumer basket — experienced the most significant y-o-y rise, growing 10.1% in June compared to the same month in 2023 on the back of a 7.9% increase in villa rents.

Foreign interest in the local market: Nearly 70% of inquiries received by Savills originated from abroad, down from 74% in the previous quarter, with a notable 50% interest from the US and the UK, it said.

WHAT’S NEXT? Expect improved supply to cool-off rents: Savills sees some 650k sqm of new Grade A office space being added to the market by the end of 2025, with the additional supply “expected to enhance tenant choice and mitigate the potential for substantial rental increases, even in a scenario of sustained demand,” read the report.

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