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Foreign Companies Rush To Set Up Riyadh Offices as Saudi Deadline for Move Expires

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  • The kingdom is requiring international companies seeking Saudi government contracts to establish regional headquarters in Saudi Arabia, or risk losing out on billions of dollars in planned investments

Foreign Companies Rush To Set Up Riyadh Offices as Saudi Deadline for Move Expires

Companies have been rushing to establish Middle East regional headquarters in Riyadh, the Saudi capital, after the kingdom’s deadline requiring them to do so or risk losing out on government contracts went into effect on Jan. 1.

Saudi Arabia’s Council of Ministers issued a directive in December 2022 mandating that foreign firms interested in seeking Saudi government contracts had to establish their regional headquarters in the country before the beginning of 2024. The kingdom plans to invest some $175 billion in industrial and other large projects over the next five years.

The main advantage of relocating to Saudi Arabia now is the opportunity to gain access to governmental contracts

“The main advantage of relocating to Saudi Arabia now is the opportunity to gain access to governmental contracts,” Anas Salhieh, a lead partner at MMJS Consulting, told The Media Line.

“Automotive, construction, and big tech companies are establishing new regional headquarters in Riyadh. At the same time, the government is undergoing significant changes and investing in the digitalization, construction, education, and healthcare sectors to ensure a proper transformation,” he said.

Anas Salhieh Mohd Fakhri e1704362310372

Anas Salhieh, a lead partner at MMJS Consulting. (Moh’d Fakhri)

Salhieh said that several leading companies have relocated their regional headquarters from Dubai in the United Arab Emirates to Riyadh with his firm’s assistance. Among them is Nortal, an international strategic change and technology company based in Tallinn, Estonia, with operations in the United States, Europe, Africa, and the Middle East.

Nortal CEO Taavi Einaste told The Media Line that his company is relocating from Dubai to Riyadh to continue its contract with the Saudi Census Agency and to provide digital services for the planned megacity Neom, currently being constructed in the northwestern Saudi province of Tabuk. The megacity is one of Saudi Crown Prince and Prime Minister Mohammed bin Salman Al Saud’s most ambitious initiatives.

Taavi Einaste. Nortal website

Nortal CEO Taavi Einaste. (Nortal website)

“We noticed that the demand for our services is growing faster in Riyadh. Our company has always believed in developing global teams and offices, so it makes sense for us to establish the regional headquarters in Riyadh and grow our Saudi team,” Einaste said.

“This will allow us to serve our customers better and expand our reach in the region, especially with big projects like Neom.”

As well as requiring companies to establish headquarters in the kingdom, the Saudi Investment Ministry has also announced incentives to encourage the move, including a 30-year break from corporate taxes and a 10-year exemption from “Saudization” workforce rules that require firms to hire at least three Saudi nationals for every international hire.

Einaste said that his company has taken active measures to train and recruit locals despite being legally allowed to postpone “Saudization.”

“Our company launched a program called ‘Saudi Changemakers’ last year,” he said. “The program was a huge success, and we received over 400 applications from young Saudi graduates interested in interning with us. It gives us great pleasure to see that almost all of the interns who completed the program have joined our company and are working with us successfully.”

However, despite the Investment Ministry’s claim that there is adequate commercial space for relocating firms, market data indicates that Riyadh needs more office space to meet the increasing demand from companies.

Demand for Grade A office space has exceeded the available supply, as occupancy has reached 97% to 98%.

Rents for corporate workspaces in Riyadh’s prime locations have reached a record high of $560 per square meter. This is still significantly lower than in Dubai, where a similar space can cost $735 per square meter to rent.

New areas have been developed in Riyadh to accommodate the growing number of construction, engineering, law, and consulting firms taking advantage of the Saudi government’s initiatives.

Real estate experts report significant demand for the 3-square-kilometer (1.2-square-mile) King Abdullah Financial District in Riyadh.

King abdullah Financial District Mohd Fakhri

The King Abdullah Financial District in Riyadh (Moh’d Fakhri)

Amjad Saif, associate director and head of corporate services for Saudi Arabia at the UK-based property brokerage Savills, told The Media Line that there was intense demand from tech, management consulting firms and financial institutions looking to relocate to the financial district.

“Of 39 office towers, 25 are fully leased or committed to tenants. The remaining buildings will be ready for handover in either six months or two years, with MOI or MOU agreements in place for leasing,” Saif said.

“Smaller office spaces are in short supply now, with no availability in the district for office spaces of 100 square meters [120 square yards] or below, as far as I know, but those looking to take larger offices, from 300 square meters [359 square yards] up to a full floor and above, can find something.”

New York-based international law firm White & Case has announced it will move into the state-of-the-art Tadawul Tower, a 43-story building in the financial district that houses the Saudi Stock Exchange on the top seven floors.

Over the past two years, White & Case has worked with Saudi Arabia’s Public Investment Fund, chaired by the crown prince, to establish LIV Golf. In June 2023, the PGA Tour and LIV Golf agreed to merge to end a months-long legal dispute between the traditional tour and the new player.

“White & Case has been advising on Saudi matters since the 1950s and is the only international law firm with a seven-decade track record of support for Saudi Arabia,” Waad Alkurini, White & Case Office executive partner in Riyadh, told The Media Line.

In May, the firm was instrumental in finalizing an $8.4 billion agreement between ACWA, a green energy and water desalination firm, and the NeomGreen Hydrogen Company. That deal aims to build and operate the world’s largest green hydrogen facility in Neom.

Establishing a direct presence in Saudi Arabia opens a new chapter in our firm’s enduring relationship with the kingdom

“Establishing a direct presence in Saudi Arabia opens a new chapter in our firm’s enduring relationship with the kingdom. Our lawyers in Riyadh, the wider Middle East, and throughout our global network will continue to advise leading international and domestic clients on their most important, complex, multijurisdictional and local deals and disputes involving Saudi Arabia,” Alkurini said.

In November, Saudi Investment Minister Khalid Al-Falih announced that over 180 foreign companies had secured licenses to establish their headquarters in the country.

This was more than the original target of attracting 160 international firms by the end of 2023.

Riyadh is aiming to rival the reigning regional hub, Dubai, but still has work to do. Despite having a larger population, with 7.6 million people in Riyadh compared to 3.3 million in Dubai, only 30% of the 196 Fortune 500 companies with offices in the Middle East and North Africa have regional headquarters in the Saudi capital. The remaining 70% have made Dubai their business center, according to research conducted by Infomineo.

“It will not be a case of one or the other, Dubai versus Riyadh, for businesses operating in the Gulf,” Taimur Khan, head researcher in the CBRE commercial real estate and investment firm’s UAE office, told The Media Line.

“The reality is, firms and people will have to have a presence in both countries, and it’s great for the region if that’s the case.”

Source
Themedialine.org

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