Prime office rents up 6pc in Saudi Arabia
Riaydh, April 23, 2014
Office rents in Saudi Arabia witnessed a 6 per cent year-on-year increase in the first quarter, aided by growth in the finance and business services and public administration sectors, a report said.
The best performing market within the kingdom was Jeddah, where rental values were up 9pc on the same part of the preceding year, said the Knight Frank report.
Like Riyadh and the Eastern Province, Jeddah does not have a central business district (CBD), with the better quality office stock located along a number of main roads, including Tahlia Street, Prince Sultan Street, Madinah Road and King Abdul Aziz Road. However, even Jameel Square – considered one of the best office buildings in the city – continues to suffer from parking and access issues.
Looking ahead, while Jeddah should see the completion of around 100,000 sq m of new space this year, the majority of it will come from a single office development – the Head Quarter Building on the Corniche.
Meanwhile, Riyadh continues to develop as the commercial centre of Saudi Arabia, with the majority of the large financial and banking institutions currently located in the city. Demand for office space in the capital has been rising – Granada Business Park and Riyadh Business Gate, for example, are nearing 100pc occupancy, which helps to explain the 4pc annual increase in rents in the first quarter of 2014, the report said.
Going forward, a number of master-planned schemes are expected to reach completion such as the King Abdullah Financial District (KAFD) and Information Technology Communications Complex (ITCC). If these projects are delivered as planned, the capital’s office stock could rise sharply over the next few years, which in turn may exert downwards pressure on rents, it said.
Demand for office space in Saudi Arabia’s Eastern Province has historically been driven by the oil sector, although this is starting to change as the service sector has started to expand in recent years. However, Grade B stock remains popular among occupiers, with parking and ease of access taking precedence over quality. That said, in the first quarter of 2014, prime office rents rose by 5pc year-on-year, although it is likely that rents will stabilise in the short to medium term as a number of new projects are due to be delivered over the next few years, the report said.
Stefan Burch, general manager Bahrain and Saudi Arabia, said: “Year-on-year, Grade A rents across the kingdom have performed well in comparison to regional markets. While large amounts of supply are due to be released to the market over the coming year, growth in the non-oil private sector looks set to underpin demand for commercial office space in the short to medium term. Going forward we expect Grade A rents to stabilise over the coming twelve months while Grade B rents will soften as poorly designed space becomes increasingly hard to lease.” -TradeArabia News Service