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Subdued interest from multinational corporates in Gulf region

Saudi Arabia will deliver about 1.1 million square metres of office space in Riyadh alone between 2009 and 2014, according to analysts from Jones Lang LaSalle.

Most of this space will, however, not be delivered until the completion of the King Abdullah Financial District and the General Organisation for Social Insurance projects in 2012 and beyond.

The majority of new office supply in Riyadh is concentrated in the CBD area between Olaya and King Fahd Road where about 25 buildings are currently under construction.

The public sector has been driving demand for office space in 2009 in Riyadh, according to the report. Ministries are constructing several buildings for their own occupation, especially along the East Ring Road.

Public agencies have also been the most active source of demand in the leasing markets. The Castle and Murjan buildings on King Fahd Road were leased in their entirety to public agencies taking the opportunity to consolidate previously scattered occupancies into single new facilities.

Although demand from overseas companies has been subdued over the past six months analysts expect this to pick up as opportunities for foreign businesses increase in Saudi Arabia. Multinational corporates are predicted to return to the sector in 2010.

The sector faces challenges. As density has increased, parking and access have become more of a challenge for businesses and their customers. This is driving some tenants to move to peripheral locations and developers in the CBD will have to deliver better parking and access.

With an abundant supply of new buildings there has been no increase in rents over the past six months. The report said it expects rental levels to remain stable over the next six months before private sector demand recovers in 2010. There should be a resumption in rental growth until 2013 when large amounts of new supply will put pressure on rents.