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Riyadh's office market likely to pick up pace in Q2

RIYADH, July 15, 2019

The office market in the Saudi capital Riyadh was subdued in Q1, but is expected to pick up from the next quarter following government initiatives to promote participation and investment of the private sector in the country’s economy, according to Ken Research. 
 
The government is looking forward to extend support to more small and medium enterprises for its growth, stated Ken Research in its latest report “Riyadh Office Market Outlook to 2023." 
 
The announcement of developing the first special economic zone (SEZ) in Riyadh which is to be situated in King Khalid International Airport is another step taken by the government to attract multinational companies to Riyadh. 
 
The report pointed out that premium office spaces were in high demand as they offered several additional amenities and are located in the centre of the city. Rent for grade B offices are reducing over the years due to falling demand for such offices. 
 
According to Ken Research, Riyadh will witness an evolution of product offerings across its office market. The supply for office spaces have been consistently increasing over the years to accommodate the increasing number of companies in the capital. However, the supply has always exceeded demand, it added. 
 
The excess supply has not only affected the occupancy rate starkly but has also affected the developers indirectly by putting pressure on decreasing rents.
 
Infrastructure development trends over the past few years in Riyadh indicates that the capital city is growing towards the northern areas, where the properties have the highest sale prices and experience faster absorption rates, stated the report.
 
The eastern region of Riyadh can be utilised for office purposes as the prices there are lower. it stated. 
 
According to the report, the north of Riyadh is evaluated with highest sale prices along highest absorption rates for office spaces including government and private firms owing to better infrastructure and the completion of a number of high profile projects for instance, KAFD, Rafal Tower, and PNU. 
 
Some of the major factors influencing Riyadh office space are strong government initiatives, emergence of international companies in Riyadh, positive economic development, increase in women workforce, location factor, expat exodus or Saudization, and physical conditions of office premises.
 
In terms of performance, market-wide rents and occupancy levels have been under pressure since 2016, with the trend continuing into 2018 amid increasing levels of supply and subdued occupier demand. There had been improvement in business sentiment in 2018 with rents and occupancy likely to remain under pressure as increased demand has met with new supply. 
 
Vacancy rates therefore were expected to rise placing downward pressure on rents. In this context, it has been witnessed that landlords will continue offering incentives in order to maintain occupancy levels amid an increasingly competitive market.
 
According to the report, the occupancy rates of offices in Riyadh are influenced by a number of factors such as location, commercial activities around the location, ease in commutation and special amenities. 
 
The supply and demand disparity in the market has further fuelled the occupancy rates to remain stable throughout 2018. A number of high profile occupiers are upgrading to premium offices but the market wide demand of offices in Riyadh is stable. 
 
Locations such as King Fahd Road, Eastern Ring Road and Olaya streets are found to have higher occupancy rates because of the premium infrastructure and higher commercial activities available around those areas.
 
The average rentals of offices spaces are influenced by a number of factors such as location, connectivity with other parts of the city, company size and budget of the company. 
 
The financial status of the company clearly determines the location preference and their office layout preferences. The decline in the rent of offices is majorly due to lack of supply for premium offices. Grade-A office rents are also underpinned due to shortage in supply. 
 
The grade B offices are not tenant friendly and are not preferred due to difficulty of accessibility and lack of parking space and would continue to decline. The lease and rent norms are very stringent and do not provide flexibility hence there was a consistent decline in the average rents of office spaces, it added.-TradeArabia News Service
 



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