SMEs, startups drive demand for office space in Riyadh: CBRE

Riyadh is witnessing rising demand for office space that caters to SMEs and startups despite a strong supply pipeline this year, consultancy firm CBRE said in a recent report.

Total office stock in Riyadh stood at 4.2 million square meters of gross leasable area by 2018-end, with an additional 870,000 square meters expected to be delivered until 2022, it added.

Increasing demand from SMEs follows a number of government-led initiatives aimed at stimulating private sector growth and promoting a spirit of innovation and entrepreneurship in line with Vision 2030.

According to CBRE, there is a growing trend for office supply as part of mixed-use development in the capital. However, rents remain under pressure with both the primary and secondary office rents declining by 4 percent and 7 percent year-on-year, respectively.

Increased incentives by landlords, discounts for long-term leases, and other tenant perks are likely to help to mitigate declines in the market, the report said.

“The recent economic and social initiatives and legislation introduced by the Saudi government have already had an extremely positive impact on the country’s real estate sector,” said Simon Townsend, head of strategic advisory at CBRE MENAT and general manager, CBRE KSA.

“Meanwhile, the increased government spending on large-scale infrastructure and mega-projects is expected to further stimulate the overall market, with a positive trickling-down effect on all key sectors,” he noted.

While oversupply is a challenge, growing entertainment sector presents promising opportunities for diversification of retail portfolios in the capital.

On the hospitality side, CBRE expects daily rates to remain under pressure as more than 5,000 keys are supposed to be delivered by 2022.

In the residential sector, the consultancy estimates delivery of 130,000 additional units by 2022 which will increase the inventory to 1.25 million units.