Saudi office rentals rates plummet by 7%, but SME workspace demand rises

Hospitality sector in Riyadh is broadening due to the country's fledgling entertainment sector, according to CBRE
Saudi office rentals rates plummet by 7%, but SME workspace demand rises
The Saudi Ministry of Housing has been particularly active in meeting such demand through a number of programmes including the ‘Sakani’ initiative aimed at increasing the national rate of home ownership to 70 per cent by 2030.
By Alicia Buller
Mon 11 Feb 2019 04:11 PM

Rental performances in Saudi capital Riyadh have slumped in primary and secondary office locations, according to new data released by CBRE.

Rates are down four per cent and seven per cent year-on-year respectively, the global real estate consultancy firm said.

However, increased incentives by landlords, discounts for long-term leases, energy efficient units and unique design offerings are expected to help mitigate declines in the market.

Meanwhile the Saudi government’s mass privatisation plans are driving strong demand for SME office space in Riyadh, said the firm’s ‘Market Snapshot for 2018’ report.

Total office stock in Saudi Arabia’s capital stood at 4.2 million sqm of gross leasable area (GLA) by the end of 2018, with an additional 870,000 sqm of GLA expected to be delivered by 2022.

The report also highlights a growing trend towards office supply as part of mixed-use projects.

Hospitality sector widens

The hospitality sector in Riyadh is broadening due to the country’s fledgling entertainment sector, according to CBRE.

The recent change in legislation to promote tourism, entertainment and leisure has enhanced opportunities for more diverse stock in the medium and long-term.

In the short-term, CBRE states that it expects daily rates to remain under pressure given the volume of supply that is due to enter the market in the next few years.  According to the firm, more than 5,000 keys are expected to be delivered to the market by 2022.

Simon Townsend, head of strategic advisory at CBRE MENAT and general manager, CBRE KSA, said: “The recent economic and social initiatives and legislation introduced by the Saudi government have already had an extremely positive impact on the country’s real estate sector.

“Meanwhile, the increased government spending on large-scale infrastructure and mega-projects is expected to further stimulate the overall market, with a positive trickling down effect on all key sectors.

CBRE figures reveal a current supply of 1,252,000 residential units with an expected delivery of 130,000 additional units by 2022.

This demand reflects an ongoing focus by the government to provide citizens with increased affordable housing options.

The Saudi Ministry of Housing has been particularly active in meeting such demand through a number of programmes including the ‘Sakani’ initiative aimed at increasing the national rate of home ownership to 70 per cent by 2030.

The Government has also signed a number of PPPs to develop affordable housing units.

Rental rates within the retail sector have fallen – with super regional and regional mall rental rates down 7.5 per cent year-on-year according to CBRE.

However, the introduction of cinemas and other entertainment offerings into the city’s malls is likely to increase footfall in the long-term.

The report suggests that diversification will prove key in the coming years with an expected 320,000 sqm of GLA expected to enter the retail market by 2022.

For all the latest real estate news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.