Arab News, Thursday, Dec 6, 2018 | Rabi Al Awwal 28, 1440
Saudi Arabia’s office market needs more high-quality space
Office space rents
remain under pressure in Saudi Arabia this year due to subdued occupier demand
and a sluggish economy, according to a new report.
While the Kingdom recorded a pick-up in economic
growth in 2018 due to improved oil prices, declines recorded in late 2017 still
drag on the office-space rental market, the research published on Tuesday by
real estate consultancy Knight Frank found.
Saudi Arabia’s major cities and business hubs
continue to suffer from a lack of the high-quality grade A stock most
sought-after by private and public companies.
Rents for the lower-end and increasingly dated
grade B space have softened, with potential renters put off by issues such as
poor accessibility or lack of parking. “The slowdown in the office market
continued in 2018, as subdued occupier demand weighs on market-wide rents and
occupancy levels; while key prime schemes continue to perform better than the
average market as a result of limited stock of high quality assets,” said Raya
Majdalani, research manager at Knight Frank.
Demand could recover in the longer term as reforms
under the government’s National Transformation Plan and Vision 2030 begin to
feed into the economy, the report said.
Economic growth is projected to reach 2.2 percent
this year and 2.3 percent in 2019, according to the International Monetary Fund
Urban regeneration initiatives such as mixed-use
communities will act as a “catalyst” for the sector, Knight Frank said.
Demand in the capital city of Riyadh remains flat,
with only a handful of grade A properties such as Kingdom Tower, Al-Faisaliah
tower and Business Gate retaining high occupancy levels, the report found.
The King Abudullah Financial District is set to
hand over phase 2 stock after 2021, which is expected to boost supply of quality
Average third-quarter Riyadh rents for grade A
property stood at SR1,550 per square meter per year, while grade B rents stood
at SR775 per square meter.
Renters in Jeddah are also waiting for a fresh
supply of high-end office space, with the planned Jeddah Gate project, from the
Dubai-based developer company Emaar, set to deliver about 230,000 square meters
of high-quality office space in a mixed-use environment.
Knight Frank said that it remained “cautious”
about the “timely delivery” of scheduled projects, adding it expects further
delays given market conditions.
Grade A rents in the Red Sea city declined by 4
percent year-on-year and Grade B rents fell by 13 percent.