Economic Changes, Challenges and Solutions
During the last five years, the world has witnessed major economic and political changes, some of which were sudden and difficult and affected investment, wealth creation, and capital accumulation, most notably the Corona crisis, which affected the movement of trade, imports, and transportation of goods and raw materials significantly. The Russian-Ukrainian war and the sanctions imposed on Russia also had a major impact on The global economy and Arab investment. Where it led to:
- The slowdown in economic growth due to the health restrictions imposed to confront the Corona pandemic and the slowdown in economic growth in many countries, including Arab countries. Different sectors have been affected differently, and closures and restrictions have caused a decline in economic activity.
- Foreign investment was affected: Investment rates in businesses and large projects declined as a result of economic uncertainty.
- Decline in oil prices: Arab economies are closely linked to oil prices, and these prices declined sharply at times during the crisis, which negatively affected national income resources. Due to the decline in demand for oil and its derivatives, the Kingdom’s government’s theory of the necessity of diversifying its sources of national income was confirmed.
- The impact of global political tensions, which make the movement of money and investment risky.
These and other reasons make it necessary to search for sources of investment and diverse economic activities that are not linked to the fluctuations of global events, by increasing national wealth in real estate and gold, as well as developing other sectors such as technology and tourism.
Vision 2030, an Economic Ambition to Diversify Sources of Income in the Kingdom
The Kingdom’s government has realized the importance of diversifying sources of income, so that it is not limited to oil and its refining, but rather goes beyond it to include real estate, tourism, and manufacturing in a major equation that exploits strong Saudi expertise and supports the citizen’s standard of living. Therefore, the Kingdom of Saudi Arabia’s vision for the year 2030, known as Vision 2030, aimed to diversify the economy and strengthen non-profit sectors. Oil, and because real estate is the backbone of any development or investment, whether it is residential, commercial, administrative, or hotel real estate, these major activities must have an impact on real estate and real estate investment.
The Most Important Economic Features of Vision 2030
- Developing real estate and residential projects. Encouraging investment in commercial and residential real estate projects that support local economic development and tourism.
- Infrastructure development makes cities more attractive to investors and citizens, and this leads to higher real estate values.
- Opening the door to foreign investments in real estate can have a positive impact on real estate wealth.
- Developing the tourism sector, which increases the demand for apartments that are rented by the day, as well as chalets and hotel rooms.
- Implementing new laws and regulations in the field of real estate to regulate the market and improve the investment environment, in addition to reviewing real estate taxes.
Real Estate Investment in Administrative and Office Properties
Real estate investments vary between buying a residential property and renting it out, flipping properties (buying a property, renovating it or finishing it, then selling it at a higher price), buying land and developing it, or even buying administrative offices in a commercial center or business district and renting them to companies or government institutions as their headquarters.
The value of the rental return when leasing an office depends on many factors specific to the local market. Office rent is usually quoted at a price per square meter (or it may be per square meter per year).
When purchasing a shop, office, or any commercial property for the purpose of renting it, the return on investment (ROI) is higher than the rental return for an apartment, house, or any residential property, as it starts from 8% and easily reaches up to 15% (and more in some important areas).
Commercial real estate does not require large maintenance expenses, especially if it is a commercial store, as its owner works to improve its condition and decorations to attract customers and be an honorable showcase for his business.
Factors that must be taken into consideration when investing in real estate in administrative and office properties
- Location: Location is a big factor in the rental price. Offices in central urban areas and commercial Saudi cities usually attract higher rents.
- Space: Office space has a major impact on revenue. Larger offices guarantee larger rents.
- Condition and facilities: Offices equipped with modern and comfortable facilities may rent at higher rates.
- Supply and demand levels: The condition of the local real estate market plays a role in determining the return. If there is too much supply and too little demand, this may drive down rental prices.
- Time period of the lease: The extent of the lease term (such as an annual or long-term contract) affects the return.
- Maintenance and management costs and municipal fees: Remember that there are periodic costs and fees.
The Most Important Cities in the Kingdom that are Suitable for Administrative Real Estate Investment
There are many cities in the Kingdom of Saudi Arabia that are considered good areas for administrative real estate investment, especially those in which oil companies and international companies are concentrated. These cities include:
- Riyadh: As one of the largest cities in the Kingdom and its economic center, there are many opportunities to invest in offices and administrative real estate.
- Jeddah: Jeddah is a modern commercial city and an important port and is developing rapidly, making it an ideal place to invest in offices and administrative headquarters.
- Dammam: The city of Dammam is an important business center and includes many areas that are suitable for administrative real estate investment.
- Industrial cities: Industrial cities such as Jubail, Yanbu, and petroleum cities offer investment opportunities in offices and administrative real estate.
Remember to turn to professionals and consult experienced real estate agents and companies to understand the market and current opportunities in the city in which you intend to invest.