Demand for high-quality offices in Riyadh has increased after Saudi Arabia said foreign firms should move their regional headquarters there to be able to do business with the kingdom, real estate consultant Knight Frank said in a report.
Saudi Arabia, the world's top oil exporter, and largest Arab economy said in February that it would give foreign firms until the end of 2023 to set up headquarters in the country or risk losing out on government contracts, a move aimed at attracting investment and generating jobs for Saudis.
"The burgeoning demand for Grade A office space in the Saudi capital, Riyadh, has unsurprisingly placed upward pressure on Grade A office lease rates, which have risen 2.9% in the 12 months to the end of Q3 2021," Knight Frank said.
Last month, Saudi Arabia said it had licensed 44 international companies to set up regional headquarters in the capital.
In a separate report this week, real estate consultancy CBRE said visitation to workplaces in Saudi Arabia during the third quarter has surpassed its pre-pandemic baseline, according to Google's mobility data.
It is forecast that office supply in Riyadh will increase by 8.1% this year.
The Saudi headquarters ultimatum, part of efforts by Crown Prince Mohammed bin Salman to wean the economy off oil by creating new industries, put the kingdom in competition with the regional business hub - the United Arab Emirates.
"Clearly, the decision to position Riyadh as a regional rival to Dubai comes with its own considerations", Knight Frank said, mentioning issues such as the quality of office space available as well as taxation differences.
"Despite this, Saudi Arabia is the region's largest economy and has a population of around 35 million, strongly suggesting that there is room in the region for more than one business hub," the consultant said.