As the deadline for the Regional HQ (RHQ) Programme approaches, leasing activity in Riyadh, Saudi Arabia, has intensified, setting the stage for continued growth in the office market rental sector, says global real estate services provider Savills.

With Grade A office occupancy rates hitting an impressive 98%, one of the highest globally, the surge in demand has naturally led to increased rental values. Savills’ Q3 2023 research report on the Riyadh office market reveals a substantial 23% year-over-year increase in rents on average.

The strategic presence of key government agencies, coupled with the availability and future supply of sought-after Grade A office developments, has positioned Riyadh as the preferred entry point for numerous global companies.

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While Saudi Arabia’s overall economic growth is expected to slow to less than 1% in 2023, primarily due to voluntary oil cuts impacting the oil sector, Savills anticipates a robust 5.1% growth in the non-oil sector. This growth is attributed to increased interest and investments from major corporates globally.

Ramzi Darwish, Head of Saudi Arabia at Savills Middle East, notes, “Saudi Arabia is witnessing unprecedented interest from major global corporations amid extensive development in the kingdom.”

The North-East Riyadh micro-market, featuring structures like Granada Business Park, Riyadh Business Gate, and Roshn Business Front, has experienced the most significant rental rate increase in Q3 2023, with rents climbing by an average of 30% year over year.

Occupiers seeking proximity to premium options will likely drive demand for Grade B spaces due to the scarcity of Grade A stock and affordability, according to Darwish.

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Swapnil Pillai, Associate Director, Middle East Research at Savills, highlights that 58% of transactions involved companies from consulting and legal sectors. Additionally, inquiries from engineering, manufacturing, technology, media, telecom, legal services, and BFSI sectors have been noteworthy.

“Of the total transactions concluded by Savills, 71% of the demand is for office units under 1,000 sqm. Going forward, inquiry levels and pipeline for the next few months remain strong,” states Pillai.

On the supply side, nearly 420,000 sqm of space is set for completion by 2024, including prominent projects like Kayanat Business Park, STC Square by Aqalat, and Laysen Valley Phase 2.