In the first quarter of 2024, Riyadh has become a hotspot for foreign businesses, with more than 120 companies moving their regional headquarters to the Saudi capital. This marks a dramatic increase of 447 percent compared to the same period last year, according to a recent report by Savills Middle East. The substantial influx of international businesses highlights Riyadh’s growing significance as a business hub in the Middle East.
Driving Factors Behind the Relocation
Several key factors are driving this unprecedented move of foreign companies to Riyadh:
- Non-Oil Sector Growth: Saudi Arabia’s economy is diversifying beyond oil, with the non-oil sector experiencing robust growth. This diversification is making Riyadh an attractive destination for businesses seeking new opportunities.
- Government Initiatives: The Saudi government has implemented strategic initiatives, including the HQ mandate. This mandate requires foreign firms to establish their regional headquarters in Riyadh to qualify for lucrative government contracts. These incentives are drawing businesses to the capital.
- Foreign Direct Investment (FDI): There has been a notable increase in foreign direct investment in Riyadh. In Q1 2024, FDI grew by 5.6 percent compared to the previous year, reflecting the growing investor confidence in the Saudi economy.
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Growth in Riyadh’s Office Sector
Riyadh’s office sector has experienced significant growth. In Q1 2024, the sector expanded by 3.4 percent compared to the previous year, surpassing initial expectations. This growth is expected to contribute to an anticipated 5 percent increase in the city’s GDP for the year.
Increased Demand and Rising Rents
With the surge in foreign companies relocating to Riyadh, the demand for prime office space has skyrocketed. This has led to a shortage of Grade A office space, with occupancy rates reaching 98 percent. As a result, office rents have been steadily rising:
- Quarterly Increase: In Q2 2024, office rents increased by 3 percent compared to the previous quarter.
- Annual Increase: Over the past year, rents have risen by 13 percent.
Some areas, particularly in North and North-East Riyadh, have seen even steeper rent hikes, with annual increases reaching 23 percent and 20 percent, respectively.
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International Interest in Riyadh
The interest from international businesses is significant. In the second quarter of 2024, nearly 70 percent of inquiries received by Savills came from outside Saudi Arabia. Of these, 50 percent were from companies based in the US and the UK. This indicates a strong global interest in Riyadh as a business destination.
Sector-Specific Relocations
The relocation of businesses spans various sectors, including:
- Technology
- Media & Telecommunications
- Consulting & Engineering
- Manufacturing
- IT/ITes
Notably, half of the recent lease transactions involved new entrants to the market. This suggests a positive outlook for continued business expansion in Riyadh.
Future Outlook: More Office Space on the Horizon
As Riyadh’s business landscape evolves, the city is preparing to accommodate the growing demand for office space. By the end of 2025, an additional 650,000 square meters of Grade A office space will be added to the market. This increase in supply is anticipated to alleviate the current shortage and provide more options for businesses looking to establish a presence in Riyadh.
Riyadh’s remarkable growth as a business hub is a testament to Saudi Arabia’s successful economic diversification and strategic government initiatives. The relocation of over 120 foreign firms to the city in early 2024 underscores its rising importance on the global business stage. As the office sector continues to develop and expand, Riyadh is poised to offer even more future business opportunities.
