Saudi Arabia office space demand sees unparalleled boom

Riyad city

Demand for office space in Saudi Arabia increased significantly, especially in Riyadh commercial hub amid higher occupancy rates to a record 97% for Grade A office space, according to the global property consultancy Knight Frank.

Saudi Arabia's office sector sees a consistent strengthening of demand across its three primary cities - Riyadh, Jeddah, and Dammam Metropolitan Area (DMA), with an occupancy rate of 85% for Grade B office space.

Saudi Arabia's multi-faceted real estate market is currently experiencing a dynamic expansion across all sectors, said Knight Frank, adding that office space is in the lead.

Prime rents remained under upward pressure and climbed by 19% in Riyadh over the last year and about 9% in Jeddah. Vacancy rates also remain marginal at 6% in Jeddah and just 3% in Riyadh.

The pipeline of supply remains slim, with around 800,000 square meters of new offices planned in Riyadh by 2025.

“We expect demand to far outstrip this, particularly as businesses remain focused on best-in-class space, which is likely to drive a bigger delta in the performance of Grade A and Grade B rents," said Knight Frank.

The Saudi Vision 2030 plan's innovative initiative is a game-changer for the Kingdom’s hospitality sector. This increase in activity isn't just a temporary boost; it ensures a continuous influx of tourists throughout the year.

The consultancy anticipated a positive impact on hotel performance, particularly with the projected supply increase by 2025: 27% in Riyadh, 7% in Jeddah, and 21% in DMA.

The residential sector, on the other hand, appears to see a significant decline in activities across the Kingdom, while facing growing affordability pressures and market dynamics change, according to Knight Frank.

The residential segment is facing increasing pressures to cut rates to affordable levels.

The real estate transactions continued to drop, in line with Knight Frank forecasts, declining by 57% in Riyadh, and 67% in Jeddah by the end of Q1 2023.

Riyadh villa prices increased by 40% in 2022, while prices of housing units rose 50%, weighing on the home purchase demand.