From offices to warehouses, real estate needs more room

Supply constraints are the common theme across the real estate market in 1Q 2026. Office occupancy in Riyadh remains near full capacity, industrial rents are climbing amid a shortage of modern logistics space, and developers are racing to deliver new projects as occupiers increasingly prioritize quality, affordability, and operational standards.

The office crunch

Good luck finding an empty desk in Riyadh: Corporate space in the capital is virtually full, with Grade A office occupancy holding at 98% amid continued demand from multinational firms establishing regional headquarters in the capital, now numbering more than 780, according to CBRE’s 1Q Real Estate Market Review (pdf). Meanwhile, office rents in Riyadh were up 3.5% y-o-y. The demand profile is increasingly concentrated among technology companies, which accounted for 53% of new office requirements during the quarter.

Secondary markets pick up the slack: The premium supply squeeze is forcing tenants to look outside Riyadh. Jeddah’s Grade A occupancy holds a tight 94%, while Dammam's market has split into two halves. Top-tier assets in Dammam are operating at 91% occupancy, but older Grade B buildings are struggling to retain tenants due to a lack of modern infrastructure.

A slight easing is on the cards: Despite around 560k sqm of new office supply due this year and more than 1.5 mn sqm planned by 2028, CBRE MENA research head Matthew Green does not expect Riyadh’s office market to loosen significantly, he tells EnterpriseAM. While rental growth and occupancy are likely to moderate, they should remain “in a healthy range” due to continued demand from domestic occupiers and companies relocating under the RHQ program. “We have already seen the trend of aggressive growth start to moderate in recent quarters,” he says, adding that the trend is likely to continue as economic growth softens.

The bigger risk for developers may be execution. Rising construction material costs, higher transportation and ins. expenses, shipping disruptions, and longer delivery times for imported materials are all compressing development margins and increasing the risk of delays, Green says. Even so, projects completing over the next 12 months are still expected to enter a structurally undersupplied market.

Housing downsizes, rent surges

Trading the mansion for a studio: The residential sector is adjusting as 1Q transaction values dropped 4.5% y-o-y. High land costs and a cautious market have buyers walking away from large villas and opting for smaller high-liquidity apartments in the SAR 300k-500k range.

The trend is more than just financing conditions. “The increasing demand for apartments, particularly those in the more affordable space, likely reflects partly the point in the market cycle following a period of price growth,” he says. He also points to growing investor activity, with both domestic and foreign buyers increasingly targeting smaller, higher-yielding units as buy-to-lease investments. Developers, meanwhile, are expanding their focus on affordable apartment projects to appeal to younger buyers and first-time homeowners.

The rental market is faring better. Ejar lease contracts rose 37% in February, supported by growing numbers of professionals relocating under the RHQ program. While average rents in Riyadh declined 2.1% in March, Green attributes much of this to the September 2025 rent-freeze regulations which have primarily affected owners of existing leased assets. Landlords with legacy rent profiles “no longer have the ability to raise rents in line with the market” when contracts expire, he says. New projects, however, have enough flexibility to set rents at or above prevailing market levels before leasing begins.

In the industrial space

Shipping headaches make warehouses expensive: Maritime bottlenecks have forced cargo re-routing and squeezed logistics margins, but warehouse real estate isn’t slowing down. A lack of premium space, paired with government mandates to stockpile essential goods, has sent rents climbing. Warehouse spaces in Riyadh East saw a 21.8% y-o-y rent jump, while Jeddah East retained its position as the premium industrial corridor.

The shortage of modern industrial space has triggered a wave of partnerships aimed at accelerating development, Green says. He points to AG Logistics Partners — the joint venture between Artar and Germany’s Garbe Industrial — as well as the partnership between Saudi Aramco, DHL Supply Chain, and Arcapita to develop a 1.4 mn sqm logistics facility at Spark.

Retail clicks and staycation safety nets

Traditional malls are changing into entertainment hubs as online shopping gains ground, with digital transactions hitting 85% of total retail payments. Brick-and-mortar retail is surviving on local food, beverage, and fashion spending. While mall rents have remained steady, a wave of supply is still inbound when The Avenues and Westfield pipelines drop over 200k sqm of new retail and office space into Riyadh and Jeddah this year.

Looking ahead

The next challenge is operations, not construction. As the real estate market matures, tenant expectations around property management and maintenance are rising, particularly among government entities and multinational occupiers, Green says. With a wave of new supply due by 2030, “the winners and losers in the Saudi market are likely to be defined by those that can firstly deliver a high-quality product, but then also maintain that same level of quality standard and customer service through the operational phase of the asset,” he says.