Market Trends of Saudi Arabia Office Real Estate Industry
This section covers the major market trends shaping the Saudi Arabia Office Real Estate Market according to our research experts:
Increasing Demand for Office Spaces in Key Commercial Cities
Despite a lack of availability, the Saudi office market remains centered on Riyadh. Increased demand for occupiers in Jeddah, and to a lesser extent in Dammam and Khobar. In the 12 months to September 2022, Riyadh's Grade A office rents increased by 5.9%, while Grade B rents increased by 3.5%. As a result, demand for office real estate is increasing, as evidenced by rising occupancy rates in Grade A buildings. The Saudi real estate industry's momentum toward decarbonization and transparency has propelled the country to the top 50 most transparent real estate markets in the world.
In both Riyadh and Jeddah, demand is robust for offices that have a wider provision of facilities (such as F&B outlets within buildings) and projects with flexible floorplates to cater to a range of tenant requirements. In the first half of this year, DMA activity levels remained relatively low, with no significant changes in rents or vacancy rates recorded. Office rental values in Makkah fell by about 3% year on year. In the short term, we expect occupiers in both office markets to maintain a strong negotiating position.
Increase in Retail Sector backed by Government Initiatives
As the largest market in the GCC and characterized by a strong consumer base with high disposable income, Saudi Arabia's retail market has managed to bounce back from the effects of the pandemic. The retail market has shown signs of stability in the first half of 2022, following a subdued performance in 2020-21 due to the pandemic. However, it will take some time to get back on track, owing to increased market competition, which is putting downward pressure on rental rates. Combining retail with other complementary real estate components such as entertainment, hotel, office, or residential could be a good idea for increasing foot traffic. As Riyadh establishes itself as a premier tourist destination, an influx of inbound and domestic tourists can be expected.
Saudi Arabia's real estate market could boom in the next ten years, attracting investors attracted to the Kingdom by the government's multibillion-dollar economic projects like NEOM. The country is attempting to reinvent its economy with its Vision2030 plan, which aims to diversify the country's income away from oil revenues by investing in industries such as esports and video gaming, as well as the development of the futuristic city NEOM. As a result, the value of the country's real estate market may rise, and property investors may flock to the country.
With USD 1 trillion slated for real estate and infrastructure project development, the Kingdom of Saudi Arabia (KSA) will see sustained property market growth, fueled by Vision 2030 and the Iskan program. At least eight new cities are planned, primarily along the Red Sea coast. Many projects are also planned for existing major cities. Riyadh's population is expected to exceed 15 million by 2030, with the ambitious goal of becoming one of the world's ten largest cities. The retail property market in Saudi Arabia has a lot of long-term growth potential. Real estate will gain from various new programmes to provide local housing and invigorate the business and financial sectors via investments in commercial real estate.
It's also worth noting that landlords have been implementing various strategies to attract and retain tenants, such as incorporating F&B and entertainment facilities into their retail centres to increase footfall. Currently, developments with such positioning outperform the market in terms of occupancy and footfall.
