RIYADH: The office market in Riyadh continued its strong performance in the second quarter of 2024, thanks to government investment incentives attracting international corporations to establish regional headquarters. According to the latest Saudi commercial market report by Savills, over 120 international companies relocated their regional headquarters to the Kingdom’s capital in the first quarter of this year, marking a 477 percent increase compared to the same period in 2023. The moves came after the Saudi government announced a range of benefits for those companies that set up Middle East bases in Riyadh, including a 30-year exemption from corporate income tax, withholding tax on headquarters activities, as well as discounts and support services. Ramzi Darwish, head of Saudi Arabia at Savills Middle East, said: “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.” He added: “In the second quarter of 2024 alone, nearly 70 percent of inquiries received by Savills originated from outside Saudi Arabia, with a significant portion of 50 percent coming specifically from US and UK corporations.” This growth in leasing activity was driven by sectors such as technology, media and telecommunications, consulting and engineering, manufacturing, and IT, with 50 percent of transactions involving new entrants, reflecting a positive market sentiment for expansion. The British real estate consultancy firm noted that this trend is expected to persist, supported by a strong pipeline of inquiries for the remainder of the year. The report also noted that the increase in leasing activity in the capital led to rent prices in North and North-East Riyadh seeing annual increases of 23 percent and 20 percent, respectively. These price rises sit alongside foreign direct investment in the city rising 5.6 percent year-on-year in the first quarter of 2024. “Limited prime office space in Riyadh, coupled with strong business confidence, has driven Grade A occupancy as high as 98 percent, and rents are increasing steadily, rising by 3 percent quarter-over-quarter in Q2 and a significant increase of 13 percent year-on-year,” said Amjad Saif, head of transactional services at Savills in KSA. Savills noted that the city’s expanding market and promising economic prospects were attracting leading businesses from various industries, reinforcing Riyadh’s role as a crucial hub for both regional and global commerce. It also noted that prominent companies such as PayerMax and Ernst & Young have established their regional headquarters in the Kingdom. Other notable firms include Northern Trust, Bechtel, and PepsiCo, as well as IHG Hotels & Resorts, PwC, and Deloitte. Riyadh office market The UK-based firm noted that limited prime office space in Riyadh drove Grade A occupancy rates to 98 percent by the end of the second quarter, with these facilities commanding higher rents due to their location, modern infrastructure, and newer construction. “This trend reflects a thriving office market in the Saudi capital. Fuelled by robust demand, however, a significant increase in Grade A office space supply is anticipated by the end of 2025. This anticipated influx of over 650,000 square meters of new space is expected to enhance tenant options and mitigate the potential for a supply shortage,” added Savills in the report. The analysis noted significant leasing activity in the second quarter of this year, led by engineering and manufacturing companies, followed by legal services and pharmaceutical firms. According to Savills, around 60 percent of leasing inquiries were focused on office spaces under 1,000 sq. meters, indicating a rising preference for agile and efficient work environments. Non-oil sector Savills noted that Saudi Arabia’s non-oil sector emerged as a key economic driver, expanding by 3.4 percent in the first quarter of 2024 compared to the same period last year. The firm pointed out that Saudi Arabia’s moderate inflation rate of 1.6 percent in May is a positive indicator for the non-oil business environment. Savills, citing data from S&P Global and Riyad Bank, added that the Purchasing Managers" Index remained steady in the expansionary zone at 56.4 in May, marking the 45th consecutive month above the neutral 50 threshold, which signals growth in the Kingdom’s private sector. The latest S&P Global report on July 3 revealed that the PMI stabilized at 55, driven by increased demand, higher output levels, and rising employment. In that report, Naif Al-Ghaith, chief economist at Riyad Bank, observed that the growth figures for the second quarter suggested a positive outlook for Saudi Arabia’s non-oil GDP, with expectations of growth surpassing 3 percent. He noted that the strong performance of non-oil sectors throughout the quarter continued to drive economic growth and diversification efforts in the country. In another report released earlier this month, Savills noted that Riyadh is projected to be among the top 15 fastest-growing cities by 2033, driven by a 26 percent population increase and ongoing government infrastructure spending. The analysis highlighted that Riyadh is the only non-Asian city on the list, with its growth attributed to a population surge from 5.9 million to 9.2 million over the next decade. In May, S&P Global also indicated that the establishment of free economic zones and the regional headquarters program could further boost foreign direct investment inflows into the Kingdom.