Riyadh, as one of Saudi Arabia's most significant real estate markets, accounts for 44% of the country's total real estate transactions. In recent years, with the influx of new modern buildings, older apartments and shopping centers built decades ago have become outdated, offering relatively lower rental yields. To enhance their attractiveness and rental income, many owners are opting to renovate and even convert residential properties into office spaces to meet the market's demand for modern and efficient work environments.
According to a report by Knight Frank, villa prices in Riyadh rose by 0.5% last year, while apartment prices increased by 4.5%, reflecting sustained demand for high-quality residential properties. Meanwhile, Jeddah's real estate market has experienced a declining trend, highlighting the differing supply-demand dynamics between cities.
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CBRE's analysis suggests that Saudi government policies promoting the establishment of regional headquarters in Riyadh have driven rapid increases in office space rents, with new buildings being pre-leased before completion. These initiatives have not only attracted domestic enterprises but also sparked international interest in Riyadh's business environment.
The transformation of Saudi Arabia's real estate market is primarily driven by domestic demand, particularly from a young population (63% under 30 years old) seeking modern housing and convenient amenities. This trend has spurred the repurposing and modernization of some older properties to better meet new market demands.
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There is also a significant growth in demand for commercial spaces, especially in core cities like Riyadh, where government initiatives are driving the market towards modern office spaces. CBRE's Alsharif notes that commercial buildings from the 1980s and 1990s are being renovated into new spaces that meet modern commercial standards, catering to market demands and increasing foot traffic.
While much attention is focused on new projects and developments, Chestertons highlights that Saudi Arabia still has a considerable number of underperforming existing properties, particularly those in prime locations but poorly designed or managed. Renovating and modernizing these properties not only improves their energy efficiency and facilities management but also attracts new tenants and achieves higher rental yields.
In Riyadh, the growing demand for commercial space has driven rent increases, particularly significant in high-quality office spaces. CBRE's report indicates that rents for premium office spaces in Riyadh surged by 20.7% last year, while Class A office rents increased by 13%.
