The demand for office space in Saudi Arabia is expected to pick up in the long term as economic reforms under the National Transformation Plan and Vision 2030 start feeding through the wider economy, translating into an acceleration of growth in the non-oil private sector, property consultancy Knight Frank said in its report on Tuesday.
Moreover, the implementation of various urban regeneration initiatives including mixed-use communities and large-scale infrastructure projects, is expected to act as a catalyst for the real estate market, the report added.
Furthermore, it expects that the planned wave of privatization will boost investment and foster growth in the business environment creating favorable conditions for the office sector.
The report added that whilst there have been a number of notable commercial office transactions throughout 2018, as key occupiers both from the public and private sector look to expand or move to upgraded premises, the market continues to be dominated by a lack of Grade A stock and a large supply pipeline.
“In terms of performance, market wide rents and occupancy levels have been under pressure since 2016, with the trend continuing into 2018 amid increasing levels of supply and subdued occupier demand,” it noted.
Key prime schemes continued to perform better than the market average as a result of a lack of high quality stock.
However, it said, a major headwind is that a large portion of upcoming supply falls within this category, which could put pressure on performance in this segment.
“Against the backdrop of a highly elastic supply dynamic, we see rents for Grade B assets softening further in the short term where buildings that suffer from poor accessibility and parking arrangements will struggle for occupancy,” Knight Frank’s report added.
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