Demand in Saudi Arabia’s office sector remained strong throughout the third quarter of 2024, with occupancy rates still close to capacity. In its latest market review, CBRE Middle East revealed that new supply is expected to enter the market more noticeably starting from the second half of 2025, but dynamics are likely to remain in the landlord’s favor for some time.
In the office sector, Riyadh has remained the focal point of occupier demand in Q3 of 2024 while other cities in Saudi Arabia, including Jeddah and Khobar, were slightly more subdued, in line with the government investment focus. The report also revealed that leasing activity is being constrained by the acute lack of available office space for rent, particularly in Riyadh, where occupancy rates are running close to 100 percent.
Property repurposing remains a trend
With supply in the office sector remaining tight, the repurposing of other real estate uses has remained an ongoing trend in Saudi Arabia, particularly within the retail sector which has more occupiable supply ready and available to lease. Conversion into flex and serviced offices is a relatively straightforward process with landlords looking for quick fixes to the current undersupply of office accommodation.
As a result, rental averages in Saudi Arabia’s office sector have increased. In Riyadh’s prime, grade A and grade B segments, rent increased by 6 percent, 14 percent and 19 percent, respectively. Undersupply also continued to drive rental values higher in Jeddah, where grade A and grade B office rentals increased by 5 percent and 21 percent, respectively.
“The Saudi market has continued to benefit from the strong non-oil sector, which expanded by 4.3 percent in the year to Q3 2024. This has been further supported by the government’s continued investment drive, which continues to attract global occupiers to set up operations in the Kingdom. This has been to the significant benefit of real estate in Riyadh, with office occupancy rates close to capacity, and availability of quality residential properties, similarly tight. Whilst new supply will start to enter the market later in 2025, for now, these dynamics are likely to persist,” stated Matthew Green, head of research MENA at CBRE.
Saudi Arabia’s residential market sees notable surge
During Q3 of 2024, Saudi Arabia’s residential market also continued to demonstrate strong demand fundamentals, with annual improvements in sale transaction volumes across the main metropolitan areas of Riyadh, Jeddah and Dammam.
In the 12 months to Q3 2024, transaction volumes in Riyadh rose by 31 percent year-on-year reaching 24,000 sales. The increase in Dammam was even higher, with growth of around 37 percent year-on-year to 3,200 transactions. Jeddah’s increase was lower but still positive, rising by 7 percent to more than 9,000 transactions.
Villa prices rise 5 percent
The average villa price in Riyadh has risen by more than 5 percent in 12 months. CBRE Middle East expects growth to continue in 2025 as better-quality modern stock enters the market and demand dynamics remain tight. Villa sales values are currently averaging nearly SAR6,000/sqm, with more room to grow in the coming quarters.
Meanwhile, the growth in apartments has been a little weaker at around 4 percent year-on-year, with rates now averaging close to SAR5,000/sqm. In Jeddah, values for apartments are slightly lower, averaging around SAR4,027 per square meter. However, villas are notably higher at just over SAR5,800/sqm.
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Occupancy rates soften
Looking at the hospitality sector, Saudi Arabia’s tourism industry has continued to experience solid growth, with 60 million tourists arriving during the first six months of the year. Average Daily Rates (ADRs) and Revenue Per Available Room (RevPAR) continued to rise, up 2.3 percent and 0.7 percent, respectively.
The strongest markets for occupancy growth were Dammam and Jeddah. With tourism firmly at the forefront of Vision 2030, as a vehicle for economic and social development, growth in annual visitor numbers will likely persist through the remainder of the year, with expectations to comfortably better last year’s numbers.
