Riyadh – Sharikat Mubasher: Riyadh’s office market again showed a strong performance in Q2 2024, reflecting the strength of the non-oil sector.
This sector is considered a key driver of the economy, and it grew by a solid 3.4% year-on-year in the first quarter of this year, exceeding initial estimates, as per the latest Saudi commercial market report by Savills. Continued non-oil activity is expected to push GDP growth to a projected 5% this year.
Low inflation, which is currently at a moderate 1.6% year-on-year for a third straight month in May 2024, is another positive sign for the business environment. The Purchasing Managers’ Index (PMI) was steady in the expansionary zone at 56.4 in May, marking the 45th consecutive month above the neutral 50 mark that indicates expansion.
A surge of corporate interest is pushing Riyadh to the lead in the region, with foreign direct investment (FDI) increasing by 5.6% year-on-year in Q1 2024 and is expected to persist throughout the rest of the year. This momentum is attributed to several factors, including the strategic focus of Saudi Vision 2030 on attracting foreign capital and the government’s investment incentives, including tax breaks, which are proving highly attractive to international corporations seeking to establish regional headquarters within the Kingdom.
This strategy has yielded positive results, with over 120 foreign firms relocating their regional headquarters to Riyadh in Q1 2024, which represents a remarkable 477% increase compared to the same period last year. This sentiment is further bolstered by the recent establishment of regional headquarters in Riyadh by prominent entities such as PayerMax and Ernst & Young. The city’s expanding market and promising economic prospects are attracting leading businesses across diverse industries, cementing Riyadh’s position as a vital hub for regional and global commerce.
Ramzi Darwish, Head of Saudi Arabia at Savills Middle East, comments: “The Kingdom’s ongoing efforts to diversify its revenue streams and create an attractive business environment are proving successful, as evidenced by the high volume of international inquiries. In the second quarter of 2024 alone, nearly 70% of inquiries received by Savills originated from outside Saudi Arabia, with a significant portion of 50% coming specifically from US and UK corporations.”
Savills observed a significant increase in leasing activity during the second quarter of 2024. This growth was driven by a variety of sectors, including Technology, Media & Telecommunications (TMT), Consulting & Engineering, Manufacturing, and IT/ITes.
Notably, 50% of these completed transactions involved new entrant companies, indicating a positive market sentiment for business expansion. The momentum is expected to continue, with a robust pipeline of inquiries for the rest of the year.
Engineering & Manufacturing, Legal Services, and pharmaceutical companies are at the forefront of this interest, collectively representing nearly 50% of all inquiries received by Savills. A significant portion, estimated at 60% of these inquiries, focused on office spaces under 1,000 square meters, suggesting a growing preference for agile and efficient work environments.