Press release

Saudi Arabia’s office market performance expands in Q3 2023 as quality supply looms

CBRE releases its Saudi Arabia Office & Industrial Market Review Q3 2023

November 22, 2023

KSA_Q3_2023_report_image

Saudi Arabia’s office market performance expands in Q3 2023 as quality supply looms.

Office
As at Q3 2023, Riyadh’s King Abdullah Financial District (KAFD) has recorded upwards of 60% of its office space as leased. For occupiable supply, this rate is substantially higher at 92.2%. Landmark transactions within KAFD included the acquisition of around 22,000 sqm of office space by two major management consulting firms. Whilst demand remains very much centered towards Riyadh, we continue to see demand trickle into Jeddah and the Dammam Metropolitan Area (DMA). In terms of upcoming quality supply in the next two years, key additions in Riyadh’s office market include 166,100 square metres in KAFD, 200,000 square metres in EZDI Park, 60,000 square metres in STC Square and over 60,000 square metres in phase two of Laysen Valley.

The aforementioned drive for office space in Riyadh, particularly for quality space in the likes of KAFD, has driven Prime rents to record growth rates of 23.6% in the year to Q3 2023, where rents currently stand at SAR 2,617 per square metre. Grade A rents grew by 12.9% over the same period, reaching an average of SAR 1,900 per square metre. Grade B offices increased by 18.9% in the 12 months to September 2023, settling at the average rent of SAR 1,529 per square metre. Occupancy levels in Riyadh’s Grade A segment of the market have reached full occupancy as at Q3 2023. During the same period, the average Grade B occupancy rate remained stable at 99.4% and the average prime occupancy rate increased by 8.2% to reach 92.2%.

Dammam and Khobar’s office market recorded growth across all segments in Q3 2023. Starting with Dammam, the Grade A segment saw its average rents grow by 7.5%, settling at SAR 950 per square metre, while Grade B rents increased by 4.8%, registering on average at SAR 550 per square metre. In Khobar, Grade A offices grew by 9.0%, with rents in this segment now averaging SAR 1,090 per square metre. Average occupancy in the two cities progressed positively in Q3 2023, with the Grade A segment in Dammam and Khobar increasing annually by 3.3% and 7.1% to reach 83.0% and 82.1% respectively. Dammam’s Grade B average occupancy rate rose 2.2% in the year to Q3 2023, to reach 68.6% average occupancy.

Both office segments in Jeddah saw their average rents rise in the year to Q3 2023 as Grade A offices reached SAR 1,356 per square metre to register a 17.9% growth. Grade B segment managed to incur a 1.0% rise in average rent to reach SAR 707 per square metre. Average occupancy within both segments witnessed upticks of 2.5% for Grade A and 4.7% for Grade B, resulting in average occupancies of 92.5% and 80.0% respectively.

Industrial
In Q3 2023, the industrial sector saw the introduction of “LOGISTI” platform, which targets to provide 59 logistics centres across Saudi Arabia by 2030, up from the 21 which are currently operational. The programme, alongside the National Transport & Logistics Strategy (NTLS), aims to supply the required infrastructure and associated services to help enable the development of these future centres. Among the key goals for LOGISTI is achieving a top-10 ranking in the Logistics Performance Index, processing 40 million containers and transporting 4.5 million tonnes of air cargo. Moreover, the third quarter of 2023 marked the materialisation of several key agreements within MODON, where EVA Pharma acquired 50,000 square metres of land in Sudair in the North Riyadh to establish an industrial complex to produce over 990 million units annually. Another agreement was signed with retailer “B4L” to create a 38,000 square metre fully automated distribution centre.

In Riyadh, average industrial and logistics rents increased to SAR 195 per square metre, representing an increase of 30.3% in the year to Q3 2023. Industrial and logistics rents in Eastern and Central Riyadh stand at SAR 294 per square metre and SAR 119 per square metre, the highest and lowest in the capital respectively. In the 12 months to Q3 2023, Jeddah’s industrial and logistics average rents have softened marginally by 0.7% compared to a year earlier. In terms of rates achieved, average rents in Northern Jeddah stood at SAR 223 per square metre, whereas Southern Jeddah rents reached SAR 137 per square metre. Dammam and Khobar’s average rents improved in the year to Q3 2023 by 19.8% and 16.4% respectively. In Dammam, average industrial and logistics average rents rose to SAR 252 per square metre, while in Khobar average rents currently stand at SAR 235 per square metre.

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Throughout the third quarter of 2023, the commercial real estate market in Saudi Arabia demonstrated high levels of demand for quality office space, notably in Riyadh. This uptick in demand is resulting from the influx of new international companies, driven mainly by “Program HQ”, paired with increased requirements from emerging domestic entities. All these new occupiers seek to acquire upcoming quality office supply, which is continually being leased before entering the market. For the remainder of the year, we anticipate performance levels to remain strong due to the quality supply shortage in the market, as additional entities look to set up in the Kingdom.
Taimur KhanHead of Research