The priciest street in Riyadh… and you paid for its traffic

1“I’ve got another offer”

A year later he finds the street really is packed. But the traffic is people in a hurry to get home, parking is scarce, and orders are below plan. The rent hasn’t moved.

2Draw the map with me

Take a sheet of paper and draw a hypothetical district. Not a real one; a shape you’ll find in most of our cities:

• Street A: a wide commercial road crossing the sheet from east to west. Put a thick arrow on it: heavy traffic, most of it passing through at the evening peak. The units along it sit in the top rent band.
• Street B: an inner street running parallel, one residential block behind. A thin arrow: less traffic, but it’s people who live here. Parking is easier. Units here are in the middle rent band.
• The residential blocks: to the north and south. Around each site draw two circles, a ten-minute drive-time and the delivery radius. Notice that the circles for A and B cover almost the same homes.
• The new destination, C: at the edge of the sheet, a hatched square. A mall under construction, opening within two years.

Now look at it as a restaurant owner. The customer who orders from you lives in the same blocks whether you open on A or on B. The rent gap between them is large; the gap in homes served is small.

3The traffic belongs to the landlord

In 1817 the English economist David Ricardo wrote a chapter on rent. His point: the advantage of better land, or better-located land, goes to the landowner, not to whoever works it. And he turned the usual argument on its head: “Corn is not high because a rent is paid, but a rent is paid because corn is high.”¹

In Street A’s terms: the street isn’t expensive because of its rent. The rent is high because its traffic is valuable, and the landlord prices that advantage in. You’re not just renting a unit. You’re buying the traffic from the landlord up front, whether the cars stop at your door or drive past.

4The winner’s curse

When several tenants compete for the same corner, a second error shows up.

In 1971 three engineers at Atlantic Richfield, Capen, Clapp and Campbell, published a study of offshore oil lease auctions in the Gulf of Mexico. They noticed that winning companies earned low returns, and explained it with what came to be called the “winner’s curse”: the winning bid is often the one whose bidder most overestimated the field’s value.²

In 1988 Richard Thaler put it in a picture anyone can follow: a jar full of coins auctioned in a classroom. The winner often pays more than the jar holds.³ Nobody knows the value exactly. Estimates scatter around it, and the winner is the highest estimate, which usually means the biggest error.

The packed corner is a jar of coins. Three brands estimate its worth, and the one that “got it” is usually the one that overestimated most.

5What changed this year

A year ago, on 25 September 2025, the Real Estate General Authority (REGA) announced provisions governing landlords and tenants in Riyadh. They cover residential and commercial property within Riyadh’s urban boundary for five years, during which the total rent in existing or new contracts may not be increased. A previously leased unit takes the value of its last contract registered on Ejar; a unit never leased before is priced by free agreement, then frozen.⁴

On the other side, Knight Frank estimates that about 2.2 million square metres of retail space are scheduled for completion in Riyadh by 2028, against about 4.17 million square metres standing at mid-2025.⁵ Scheduled projects can slip, but the direction is clear.

My reading, which is analysis rather than published fact: the risk has moved. Before the freeze, the worry was a rent rise at renewal. Now rent is fixed, and the risk sits in two places. The first is the signing moment on a new unit, because it’s the only moment the price is set freely, and then you live with it for five years. The winner’s curse now comes locked into a contract. The second is destination C on the map: the traffic you paid for may move to a new mall, and your rent won’t move down with it.

This is not legal advice. Renewal terms, notice periods and what applies to your particular lease should be checked with a lawyer before you sign.

6The napkin: rent ÷ sales

For every existing branch, work out annual rent ÷ annual sales. Rank your branches and take the ratio of your best three. That’s your ceiling, not a rule of thumb traded around the market.⁶ I found no published Saudi benchmark for this ratio in restaurants, so don’t trust a figure quoted at a majlis without a source.

Then compare the two sites on the map by the difference, not the average.

7The Sunday-morning question

One question, one metric, one rule

Rival bids tell you what they think, not what the site earns for you.⁷

9The jar and the key

The photo of the key in the group chat isn’t a victory. It’s the start of five years of the same rent.

The ideas belong to their owners: Ricardo understood two centuries ago that a location’s advantage goes to the landlord; Capen, Clapp and Campbell gave the winner’s curse its name; Thaler put it in a jar. “I’ve got another offer” is ours.

Next episode is about a question nobody raises at the opening meeting: where does the cash that funds the new branch come from? “New branches are paying off the old ones’ debts… and you don’t know it.”