03 Nov 2024
JEDDAH: Saudi Arabia’s commercial real estate sector is witnessing robust growth, driven by rising demand across key industries, including offices, hospitality, and data centers.
The sector is also evolving with a focus on smart technologies, sustainability, and specialized assets, reflecting the Kingdom’s broader economic transformation goals.
Strategic government initiatives, such as Vision 2030, and increased foreign investment are playing a crucial role in this expansion, as highlighted by the latest Knight Frank report.
The Kingdom’s major cities are becoming regional hubs for commercial activity, attracting international businesses and supporting Saudi Arabia’s economic diversification efforts.
As the Kingdom continues to implement its Vision 2030 strategies, the commercial real estate sector is poised to play a pivotal role in shaping the future of the country’s urban landscape and economic growth.
The capital city, Riyadh, remains at the center of this surge, attracting numerous regional and international companies, while other cities such as Jeddah show early signs of growth.
According to Knight Frank’s biannual review of key trends and the performance of the market in the Kingdom for summer 2024, this growth is driven by rising demand and supported by strategic government reform initiatives.
The report by the London-based global real estate consultancy firm showed that the office market in Riyadh is particularly dynamic, benefiting from the regional headquarters program initiative, which has attracted European companies and spurred demand for office space.
In 2023, Saudi Arabia’s non-oil revenue reached 50 percent of gross domestic product for the first time, amounting to $453 billion, according to the Ministry of Economy and Planning.
The report added that this economic growth has significantly boosted demand for commercial real estate across all sectors, with Riyadh’s office market seeing the most benefit as office space demand rises.
The commercial real estate sector remains strong, with office yields holding at 7.75 percent, supported by shrinking availability and fast-increasing rents.
Investor interest in Saudi Arabia is also surging, with the government granting a record 2,884 investment licenses in the last quarter of 2023, marking a 125 percent year-on-year increase.
Knight Frank further noted that in the first quarter of 2024, the Kingdom recorded 104,000 new business registrations, up 59 percent from the same period the year before, bringing the total to over 1.45 million registrations.
Speaking to Arab News, Elias Abou Samra, CEO at RAFAL Real Estate Development Co. highlighted the current trends shaping the commercial real estate market in Saudi Arabia which has seen Riyadh become a magnet for commercial real estate at a regional level.
“The capital has attracted more than 500 regional and international companies since the launch of the headquarters program by Royal Commission of Riyadh City in 2021. We are expecting a new supply of approximately 5 million sq. meters of office space by 2030, and we believe this will barely match the pent-up demand,” he said.
Abou Samra added that as for other major cities the demand remains local and growth is organic, pending the roll out of certain initiatives and incentives such as special economic zones in King Abdullah Economic City and Eastern Province.
The executive pointed out that Riyadh has absorbed 90 percent of the demand in recent years and is expected to continue to do so for the next four years. He also added that the coast city of Jeddah is witnessing early signs of growth as major master plans and infrastructure projects reach advanced design stages.
“Other cities continue to serve their local and regional markets with a healthy 5 percent growth per year that is sustained, yet no paradigm shifts are sensible yet,” he said.
The sector will continue to benefit from ongoing digital transformation efforts, with technology playing a crucial role in shaping smarter, more efficient spaces.
Mamdouh Al-Doubayan, managing director at Globant for Middle East and North Africa, said that government support coupled with a growing focus on sustainability and the implementation of smart technologies will drive the market’s expansion.
“Key factors such as foreign investment, the evolution of regulatory frameworks, and demand for innovative, flexible workspaces will also play a critical role in the sector’s growth, he said, adding that his company is well-positioned to support this transformation.
Regarding the future success drivers for Saudi Arabia’s sector, Abou Samra highlighted that they go beyond basic supply and demand, emphasizing the market’s shift toward mixed-use and transit-oriented developments, reflecting greater sophistication.
“As such, part of demand springs from upgrades within existing stock of office space, and conversion of old stock to alternative asset classes. Another driver is the modernization and openness of the regulatory environment and quasi-governmental entities that are jointly paving the way for innovative products,” the CEO said.
Abou Samra added that the Mukaab at Riyadh’s New Murabba mega project is a testament to the new frontiers of commercial real estate in Saudi Arabia.
Addressing the impact of Saudi Vision 2030 on the strategic direction of commercial real estate development, Rafal’s CEO noted that the Kingdom’s decade-end plan touches all sectors of the economy, enhancing existing industries and introducing new ones like mining, tourism, and cloud computing.
“As a result, we are migrating from a one-size-fits all commercial real estate market to specialized assets,” he said.
Abou Samra identified data centers as the leading new addition to the commercial real estate market, followed by logistics and biomedical sectors. He emphasizes that these developments are driven by Saudi Arabia’s Vision 2030, which aims to diversify the economy by fostering new industries and reducing dependence on oil.
Shedding light on the areas or sectors within commercial real estate that are currently attracting the most investment, Abou Samra noted that, in addition to mainstream commercial office space, the industrial and logistics sectors have experienced double-digit growth since 2021.
He also highlighted that major regional players are entering these markets, and foreign direct investments in these sectors continue to flow into the Kingdom.
On the other hand, technology has become essential to the success of every industry, and commercial real estate is no exception.
Globant’s Al-Doubayan said technological advancements, including smart building technologies and digital platforms, are shaping the commercial real estate industry in Saudi Arabia, emphasizing their transformative impact on the sector in the Kingdom.
“Smart building technologies, integrated with IoT, AI, and data analytics, are enabling the creation of more intelligent, efficient, and adaptive spaces,” he said, adding that his company focuses on enhancing connected experiences within smart venues, allowing building owners and operators to offer seamless experiences for tenants and visitors, while optimizing resource management.
He further said that digital platforms are also revolutionizing property management, making it possible to monitor and automate operations in real time. “This evolution is key to supporting the Kingdom’s broader vision of smart cities and sustainable urban growth.”
The Saudi government is prioritizing the real estate sector, enacting over 18 pieces of legislation, as of May, to drive its growth and significantly boost its GDP.
These include real estate systems, executive regulations, and regulatory rules, reflecting the government’s commitment to this sector as part of Vision 2030.
The sector’s role and contribution to the Kingdom’s GDP reached 5.9 percent in the fourth quarter of 2023.
Reflecting on the impact of recent regulatory and policy changes on the commercial real estate market, the Al-Doubayan stated that Saudi Arabia’s regulatory shifts, including the implementation of more transparent property laws and foreign investment incentives, have significantly increased the market’s attractiveness.
“These reforms are creating an environment conducive to international investment and collaboration, which aligns with Vision 2030’s goals of diversifying the economy, as more policies are introduced to attract global businesses,” he said.
Moreover, he anticipated that the real estate sector will see continued growth, especially in digital transformation projects that enhance operational efficiency and sustainability.
Al-Doubayan added that sustainability is central to the future of commercial real estate in Saudi Arabia.
He emphasized that the country is making strides toward green building practices, which are increasingly becoming a priority for developers and tenants alike.
“Certifications such as Leadership in Energy and Environmental Design, or LEED, are gaining traction, encouraging buildings to reduce energy consumption and carbon emissions,” he said.