Higher levels of demand for office properties in Riyadh and Jeddah in Saudi Arabia during the first half (H1) of the year were offset by new office completions, leading to stable vacancy rates over the period, a report said.

As a result, office rents were also unchanged in the two cities, added the Saudi Arabia Office Market Update, H1 2015 released by Knight Frank, a leading independent global property consultancy.

In H1 2015, Grade A and B office rental values in the capital stood at SR1,300 ($346) and SR900 per sq m per annum, respectively. Meanwhile, Grade A (SR1,200 per sq m per annum) and Grade B (SR700 per sq m per annum) rents in Jeddah were also flat, the report said.

In the Eastern Province, demand for office space was flat in the 12 months to June 2015.

There is little to indicate that demand will rise in the near-term – suggesting that the completion of new office projects will exert upward pressure on vacancy rates, according to Knight Frank.

However, with landlords in the market largely insensitive to changing supply-demand dynamics, it is difficult to see rents budging from their current levels (in H1 2015, Grade A and B office rents stood at SR1,050 and SR700 per sq m per annum, respectively).

Saudi Arabia’s economy expanded by 3.5 per cent last year (faster than the 2.7 per cent increase seen in 2013) – underpinned by the oil sector re-entering positive territory after two years of decline. Meanwhile, growth in the non-oil economy eased in 2014 – however, the pace of expansion remained robust.

On a sector-by-sector basis, the finance, real estate and business services and the government services sectors – together accounting for almost 24 per cent of total GDP (gross domestic product) in Saudi Arabia – saw weaker growth last year, of 4.1 per cent and 3.3 per cent respectively (in 2013, the former grew by 9.2 per cent and the latter by 4.9 per cent). – TradeArabia News Service