Demand for Offices in Saudi Arabia Remains Strong in Q1 2023 Despite Limited Supply
Saudi Arabia’s real estate market remained resilient in the first quarter of 2023, with demand for quality office spaces and residential properties remaining strong despite limited supply in the market. According to the latest report from global consultancy firm CBRE, most offices in Riyadh witnessed nearly 100% occupancy, resulting in Grade A and Grade B properties recording a year-on-year rise in average rental rates of 9.3% and 14%, respectively. Jeddah also saw its Grade A office rents increase by 13.8% in the 12 months to March 2023, whereas Grade B rents slightly rose by 1%.
Office Sector
The Kingdom’s second-largest city witnessed occupancy rates for Grade A and Grade B offices rising to 91.8% and 79.3%, respectively, in the first quarter. However, there is a considerable lack of Grade A stock available for immediate occupation, which is driving strong performance in this segment of the market across the Kingdom, according to Taimur Khan, CBRE’s head of research for the Middle East and North Africa.
Residential Sector
In the residential sector, the average apartment price in Riyadh increased by 17.3% annually. However, in Jeddah, Dammam, and AlKhobar, the average apartment prices dropped by 0.7%, 2.5%, and 1.6%, respectively. In the villa segment, major cities in Saudi Arabia mainly saw positive performances in the first quarter, with average prices improving in Dammam, Jeddah, and Riyadh by 28.1%, 10.2%, and 6%, respectively.
In the first quarter, the volume of residential transactions reached 30,213 deals, with the overall value hitting SR22.8 billion ($9.58 billion). Houses made up the majority share of new loans with 68.8%, apartments retained 25.8%, and land accounted for the remaining 5.4% in the first quarter of 2023.
Tourism Sector
Saudi Arabia’s tourism markets exceeded pre-pandemic levels amid a massive push to develop the Kingdom’s tourism and hospitality sectors, revealed the report. All key performance indicators of hotels improved in the first quarter of 2023, with the average occupancy rate in the year to date to March 2023 increasing by 11.5 percentage points. This helped hotels improve their average daily rates, which increased by 32.3%, resulting in their revenue per available room seeing massive growth of 58.6% over the same period last year.
Conclusion
Despite limited supply in the market, demand for quality office spaces and residential properties remained strong in Saudi Arabia’s real estate market in the first quarter of 2023. The office sector saw nearly 100% occupancy rates in most offices in Riyadh, resulting in Grade A and Grade B properties recording a year-on-year rise in average rental rates. The residential sector saw an increase in average apartment prices in Riyadh, while major cities in Saudi Arabia mainly saw positive performances in the villa segment. The tourism sector exceeded pre-pandemic levels, with all key performance indicators of hotels improving in the first quarter of 2023.