Knowledge Tower’s IPO offering price is set at $11 on the parallel market of the Saudi Stock Exchange

RIYADH: Saudi Arabia’s capital, Riyadh, continues to experience growing demand for prime office space, with occupancy levels for Class A offices increasing by 4% year-on-year to 98%, according to global real estate consultant Knight Frank.

The increased level of requirements means landlords are firmly in the driver’s seat, Knight Frank said, adding that office rental rates continue to climb in the wake of growing demand.

Average rental rates for prime office space in Riyadh have increased by 18% over the past 12 months to about SR1,775 ($472) per square meter, he said.

“As the Kingdom’s economic transformation plan unfolds, business activity is growing at an extraordinary rate,” said Knight Frank Partner, Middle East Research Manager Faisal Durrani.

He added that 70 companies have now pledged to relocate their regional headquarters to Riyadh, including Aldeham Education Group and French rolling stock manufacturer Alstom.

Foreign investment licenses issued in the second quarter of the year increased by almost 700% compared to last year. This was led by retail, construction, manufacturing, hotel, restaurant and business service companies, he said.

Separately, foreign direct investment into the Kingdom reached SR3.5 billion in 49 deals during the second quarter, compared to 37 in the previous quarter, Knight Frank noted.

This alone has created 2,000 new jobs “which will inevitably trickle down to the office market in the form of new space requirements”, said Faisal Durrani.

He added that Class B rents have also seen an increase.

“Average Class B rents have increased by 10% over the last year,” Durrani said, adding that high demand levels in prime commercial locations such as King Fahad Road and Olaya Street have increased rents. category B rents here by 6%.

“While citywide Category B occupancy levels now stand at 75%; the highest level for at least five years,” he added.

Meanwhile, Jeddah’s office market is also seeing a “resurgence” in needs as multinational and national companies strengthen their presence in Saudi Arabia’s second-largest city.

As is the case elsewhere in the world, the focus is on the best Grade A offices, however, Knight Frank said the lack of supply and rising costs mean that “many companies are also exploring the ‘category B space’.

Rents for Class A offices in Jeddah are around SAR 1065 psm, reflecting a 6.5% increase from the same period last year, according to the global consultancy firm. He added that Class B rents also increased by 8.5% over the same period. “Vacancy levels continue to decline, standing at 8% for Class A offices and 20% for Class B buildings,” he added.

This comes as positive economic sentiment has also impacted office demand in the Eastern Province. Knight Frank noted that increasing office needs in the Dammam metropolitan area has driven rental rates for Class A space by 5% over the past 12 months to SR950 psm.

Donald E. Patel