Riyadh Office Rents Soar Amid Property Shortage as Regional HQ Deadline Looms

Saudi Arabia's capital city, Riyadh, is experiencing a surge in office rents as businesses scramble to secure space before a January 2024 deadline for establishing regional headquarters. With a limited supply of prime office space and high demand, rents have soared, putting landlords firmly in the driver's seat.

Key factors driving the rental increase:

• Regional HQ Program: The Saudi government's Regional HQ Program encourages multinational companies to establish their regional hubs in Riyadh. This has led to an influx of businesses seeking office space, pushing up demand significantly.
• Limited Prime Office Space: The current supply of prime office space in Riyadh falls short of the rising demand. This scarcity has created a competitive market, allowing landlords to command higher rents.
• Grade A Occupancy: Occupancy rates for Grade A office space in Riyadh are currently at a staggering 98%, indicating the acute shortage of prime space.
• Businesses Settle for Less: With limited options available, some businesses are settling for Grade B office space, causing rents to rise in this category as well.

Impact of rising rents:

• Increased costs for businesses: The rising rent prices are putting a strain on businesses' budgets, potentially impacting their bottom line.
• Shift towards build-to-suit options: Some companies, such as Arabian Oud, Jarir, and Alinma Bank, are opting for build-to-suit solutions to secure the space they need.
• Focus on co-working spaces: The growing demand for office space is also driving the popularity of co-working spaces, which offer flexible and affordable solutions for smaller businesses.

Prospects for the future:

While the current market favors landlords, the situation is expected to evolve in the coming years. With several new office developments in the pipeline, the supply is projected to catch up with the demand by 2026. This is likely to lead to a stabilization of rents and provide businesses with more options.

Here are some additional insights:

• The average rent for prime office space in Riyadh has increased by 23% year-over-year.
• The most significant rent hikes have been observed in the northeast Riyadh sub-market, where buildings like ROSHN Business Front, Riyadh Business Gate, and Granada Business Park are located.
• The rising demand for office space is also benefiting the construction sector, with several new projects creating jobs and boosting the economy.

Overall, the surge in office rents in Riyadh highlights the booming economy and the city's growing importance as a regional business hub. While the current shortage poses challenges for businesses seeking space, the long-term outlook remains positive, with the expected increase in supply leading to a more balanced market in the future.