Will the new financial district remain empty?
The Economist magazine recently published a disturbing report about the King Abdullah Financial District that is being built in Riyadh and is expected to be completed by the end of this year. I also wrote a similar piece about the project more than a year ago.
The magazine reports that the 800,000 square meter project will remain unoccupied.
The Economist says in its report (May 11) that until now the developer has leased only 10 percent of the office space that means there are still 720 square meters vacant. The report explained that the project if utilized fully would provide triple the number of offices available in the city.
The Economist also explained that there are many banks in the Kingdom, which have their headquarters in Riyadh such as the National Arab Bank, National Commercial Bank and the Saudi French Bank. I think that they might open small branches in the new financial district but would not move their headquarters there. The only bank that owns a building in the new district is Samba.
I once mentioned a study explaining how the demand of the administrative offices in Riyadh would not exceed 300,000 square meters once the project was completed. There are many other similar projects by the Social Insurance and the Public Pension Agency. These projects put together will provide more than 2.5 million square meters of office space.
This makes us wonder what would happen to the independent developers who built the skyscrapers on King Fahad Road in Riyadh. They had bought the land at high prices hoping to be compensated by the rents in this upscale area of Riyadh. However, the rate per square meter has dropped to lower than SR 600. Two years ago the price was more than SR 1,300.
The magazine tried to explain why the demand is low saying that although the Kingdom has a lot of revenue, the country’s economy is based on oil exports only.
The report suggests that even if all the large companies move to this district, they will only occupy one-third of the space provided. The report pointed out that Riyadh has only a few legal and financial firms compared to the size of the city and its economy.
The other reason we have a low demand for office space is absence of the international forums and conferences. We all know that we have social and logistic obstacles in making Riyadh a center for such dynamic activities.
The social isolation, segregation and visa issuance policy in addition to the poor hospitality services are enough reasons to push the conference organizers to Dubai.
We have to decide which way to take. Should we continue following the current narrow economic channel, which will never help ease the unemployment? Or should we adopt some kind of a moderate outlook that would help improve the quality of services and thus expand activities to other cities creating more jobs.
It is worth mentioning in this article that only a fifth of the new graduates will find decent jobs in the Kingdom’s economy.
This adds more pressure to make the change. There are more than 20 million Saudis and there is a need for a more inclusive development policy that takes care of all Saudi cities. It is important that development not be confined to big cities but also cover the rest of the country.