GCC Real Estate Market

GCC Real Estate Market
July 2016
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Despite oil price fluctuations, the GCC real estate market is likely to be resilient and
register growth at a slow pace by the end of 2016 and beyond. Mega events such as Dubai
Expo 2020 and Qatar FIFA World Cup 2022 are likely to provide the boost in region’s
tourism and real estate industry in the future. Tourism sector is likely to help accelerate
growth of GCC real estate market. While the hospitality, residential, and office lease
markets remain buoyant in the GCC, the retail segment is expected to continue its
aggressive expansion in the coming years. Within the residential sector, there is likely to be
a continued shift of activity to the affordable sector. UAE and Qatar are likely to be top
real estate markets in 2016.
OVERVIEW OF THE GCC REAL ESTATE MARKET
The real estate sector has become one of the key economic barometers for the GCC region’s growth. The market is one of
the fastest growing sectors across the world and is likely to remain resilient and register growth at a slow pace by the end
of 2016 and beyond, despite oil price fluctuations. UAE and Qatar are likely to remain leaders in the real estate market in
2016 as both the countries are investing heavily in new infrastructure and real estate projects to service major events such
as Expo 2020 and 2022 FIFA World Cup. The tourism sector is likely to help accelerate growth of the real estate market
in the GCC, especially for UAE. While hospitality, residential and office lease markets remain buoyant in the GCC, the
retail segment is expected to continue its aggressive expansion in the coming years.
Cluttons' 2016 Middle East Private Capital Survey, in partnership with YouGov, shows that 63% of GCC High Net Worth
Individuals (HNWI) plan to invest in their preferred real estate locations during 2016. Of those surveyed, 27% identified
Dubai in their top three destinations within the GCC; while 21% chose Abu Dhabi and 8% selected Sharjah. Elsewhere in
the region, the survey shows that 63% of HNWI investors in both Muscat (Oman) and Manama (Bahrain) are likely to
invest in their preferred locations in 2016, while 65% of investors in the remaining GCC countries (Kuwait, Qatar and
KSA) will target investments in their preferred locations throughout 2016.
SNAPSHOT OF GCC CONTRACTOR AWARDS
Q1 2016 has clearly been a busy period for GCC's construction industry, as dwindling oil prices led construction firms to
reconsider their planned pipeline of projects and activities for the year. The GCC construction contractor awards across
the building, infrastructure and energy markets are forecast to decrease from US$ 168,254 million in 2016 to US$ 165,710
million in 2017 (refer Figure 1).
The GCC building construction market forms the largest market of the total construction market. Mega events such as
Expo 2020 and FIFA World Cup 2022, growing population, and increasing tourist arrivals are driving the demand for
building construction projects. UAE is likely to have the highest contractor awards in the building sector in 2016 and 2017
(refer Figure 2). The UAE has been impacted by lower oil prices less than other GCC countries. Expo 2020 is anticipated
to result in an increase in the building construction contractor awards from US$ 28,566 million in 2016 to US$ 28,989
million in 2017.
Figure 1 represents the GCC construction contractor awards from 2016 to 2017.
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Source: Ventures Onsite MENA Projects Database: www.venturesonsite.com
Figure 2 represents the GCC building construction contractor awards split by country from 2016 to 2017
Source: Ventures Onsite MENA Projects Database: www.venturesonsite.com
There are a number of large property developments — some of them partly or fully privately financed — underway in the
UAE, including Meydan City, The Lagoons, Mohammad Bin Rashid City, Jumeirah Garden City, Dubai Creek extension
and Arabian Canal, Deira Islands, Dubai Waterfront and Bluewaters Island in Dubai, as well as Al Maryah Island, Khalifa
City, Al Reem Island, Al Raha Beach, Saadiyat Island with the Cultural District and the ongoing development of Masdar
City in Abu Dhabi. Moreover, there are also a number of other developments such as new or extended hotels, hospitals,
schools, expansion of airports, and shopping malls.
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Synopsis of outlook for each GCC
country
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According to Knight Frank, UAE’s real estate outlook in the long-term remains positive
due to government’s commitment to infrastructure spending and development projects,
stronger growth forecasts (IMF), and the UAE’s safe haven status making it a
favourable real estate destination.
UAE
The real estate
market is poised to
remain a
favourable real
estate destination
with primary
growth drivers
being the rising
population, Expo
2020, and Abu
Dhabi
government’s new
real estate law.
The UAE’s residential market is expected to soften over H2 2016. Dubai recorded US$
15 billion of real estate transactions in Q1 2016, through 12,568 transactions, according
to Dubai Land Development (DLD). Buildings and units transactions exceeded 8,722,
while 1,796 commercial units were acquired along with 1,535 building units, with a
total value of US$ 3.2 billion through 8,892 transactions. Dubai’s growth in travel and
tourism and wholesale and retail have helped offset construction sector slowdown,
according to the Emirates NBD Dubai Economy Tracker Index. The Expo 2020 has led
to a flurry of development across the city and created thousands of new jobs, attracting
expat talent and helping the real estate sector with heightened demand. The growing
population is another factor for the city’s thriving realty market. Abu Dhabi’s new
property law, introduced in January 2016, has made buying properties more transparent
and secure, and is likely to draw more investors to the emirate and generate higher
levels of confidence and sustained demand. The city is now emerging as a popular
regional tourism and business destination.
Dubai leads the office space market in the Middle East and is ranked 23rd globally,
according to CBRE. Dubai’s position as first choice for regional new entrants is very
important. In addition to direct real estate considerations, the relative depth of the
labour pool and the quality of the aviation transport sector are cited as important in
corporate decision making. Overall the market fundamentals in the commercial sector
remain positive particularly for well-located buildings of good quality, according to
CBRE industry experts. In the long-term, the UAE’s commitment to diversifying its
economy through continued investment in developing the sectors’ supporting
infrastructure (e.g. Jebel Ali Port & KIZAD) and enhancing legislation is likely to boost
the industry further, according to Knight Frank.
The medium-to-long term outlook for the hospitality sector remains positive for the
UAE, and will be rooted in the delivery of major demand generators that will help drive
tourism demand – particularly from the leisure segment. These demand drivers are
underscored by the continued investment in airline infrastructure, which will further
increase the accessibility of Abu Dhabi and Dubai. Dubai’s hotel market is expected to
record a further softening in 2016, followed by growth in activity from 2017 onwards
with the delivery of Dubai Parks and in the run up to Expo, where the government is
expecting 20 million guests by 2020. Eleven new hotels were announced to add 3,028
keys to the pipeline over the next three years, according to ValueStrat.
UAE’s retail market is expected to see slower growth over H2 2016, as economic
uncertainty and unfavourable currency exchange rates continue to impact both tourist
and domestic spending. However, the retail market is expected to regain momentum due
to growth in the hospitality and tourism industry, in the long-term and as global
uncertainties begins to ease and confidence in the market picks-up.
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Low oil prices will continue to impact KSA’s real estate market in 2016, along with a
slowdown in GDP and government spending. However, the government’s vision is
hugely encouraging as it is undertaking measures to adjust, diversify and prepare the
economy for a continuing low oil price scenario. This environment is also an
opportunity for the government to make structural changes and embark upon a rapid
diversification drive, which would ultimately have a positive long-term impact on real
estate, according to JLL experts. Additionally, the 2016 Saudi budget will have
implications for the real estate market, and there will be particular opportunities for
certain market segments such as affordable housing.
KSA
2016 Saudi budget
will have
implications for
the real estate
market, and there
will be particular
opportunities for
affordable
housing.
In 2016, more efforts may be seen towards empowering low and middle income families
and addressing their basic needs such as affordable housing. The government is taking
significant steps in addressing the shortage of affordable housing – revenues from the
white land tax will also contribute towards the funding of affordable housing
projects. The ministry has 187 affordable housing projects in its pipeline, providing
233,651 homes in an attempt to solve the country’s escalating housing crisis. According
to JLL, a total of 17,000 residential units were handed over in Riyadh and 20,000 new
units in Jeddah. Around 2,250 land plot were handed over to end users in Riyadh. In
terms of future supply, 28,000 units are scheduled to be completed in Riyadh and
24,000 in Jeddah in 2016. Out of 24,000 units, around 15,000 units fall in the affordable
category.
According to Knight Frank, 2016 is expected to see a more selective approach to the
development of residential real estate projects. Lower oil prices, reduced market
liquidity and a tightening budget are likely to see the re-prioritisation of projects, with
direct emphasis on the delivery of affordable housing and other critical infrastructure.
Over the longer term, the country’s recently announced 15-year National
Transformation Plan to further diversify the economy would have a positive effect on
the housing market.
The world’s biggest commercial property firms are seeking to expand in KSA at a time
when the economy is going through a rough spell trying to reduce the country’s
historical oil dependence. The expansions also show that the firms see opportunity as
KSA turns to real estate as part of its diversification strategy. A 2.5% white land tax and
revisions to mortgage law are expected to revive demand in sales. Over the medium to
long term these development strategies are expected transform cities for the better,
improving the quality of life, affordability, safety and health of local communities – a
central objective of the kingdom’s leadership.
Saudi Vision 2030 aims to boost the kingdom’s hospitality industry by more than half
and attract 1.5 million tourists by 2020, according to industry analysts. Religious
tourism will remain a key demand driver and will get a further boost if the number of
foreign pilgrims increases.
The performance of the commercial real estate sector in the short term is expected to be
to be steady rather than growing, according to BMI research. As with residential
segment, it is likely that the actual delivery of office space will be much lower than
scheduled in 2016.
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Qatar
Government’s
spending on
committed capital
projects integral to
FIFA World Cup
2022 is likely to
stablise the real
estate market for a
significant period.
Qatar has the world's fastest growing economy and a rapidly expanding population,
which together are making for a buoyant local real estate sector, in retail, residential and
commercial property. Despite the emergence of more challenging regional and global
economic conditions, Qatar’s real estate sector is expected to perform reasonably well in
2016 and beyond. The government is expected to continue spending on the committed
capital projects (although certain projects integral to the World Cup have been
prioritised with increased efficiency), which should keep the market stable for a
significant period, and hence would not bring any sudden impact on the real estate
sector, according to KPMG experts. Real estate markets, especially residential and
retail, are highly dependent on government spending on capital and current expenditure
accounts.
Increasing consumer confidence and spending, alongside greater governmental
investment, will present opportunities in the retail and office sub-sectors in 2016 and
2017, supported by improvements to infrastructure that will benefit the broader real
estate market. The retail real estate market in Qatar will witness a growth of nearly
100% by 2017 with the completion of the large commercial markets spread across the
country. Qatar is expected to continue its aggressive expansion in the coming years as
the supply of retail space is expected to nearly double to reach 1.5 million square metres
of GLA in 2017, in light of the FIFA World Cup 2022.
The size of the retail sector is expected to triple by 2016, with another 14 malls due to
enter the market, bringing the total to 1.7 million square metres (sqm) of shops (Oxford
Business Group estimates). There are approximately 11 malls currently under
construction in Doha, which are forecast to increase retail GLA in the city by
approximately 1.1 million sqm by 2019, more than double of the existing stock. Doha
will be central for office developments. The city is the focus of most tenant interest and
will see continued higher levels of demand leading up to the 2022 FIFA World Cup,
with a particular appetite for premium grade units from international investors. On the
other hand, Al Khor and Al Wakra are seeing little interest for higher-grade space, as
developers are unwilling to build due to the economic focus on Doha, according to BMI
research.
According to DTZ, it is likely that occupancy rates in the Qatar hospitality sector will
experience further pressure in the coming years, due to the pipeline of new hotels being
developed throughout Doha. Based on official Qatar Tourism Authority (QTA) figures,
56 hotels and 13 hotel apartment buildings, with a total of 26,653 rooms, are currently
under construction and due to be released within the next five years. Of these, the QTA
expects 20 hotels and hotel apartments to open in 2016 and there are proposals for
another 130 establishments. In an effort to support the expanding hospitality sector, the
Qatar National Tourism Sector Strategy Plan 2030 has set out a program to invest US$
45 billion in tourism projects over the next 15 years. The aim of the program is to attract
a larger amount of tourist numbers from outside GCC, with an ambitious target to
increase overall annual arrivals to 7 million by 2030.
.
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Kuwait
The real estate
market is expected
to be stable in H2
2016 with
residential market
picking up pace in
May 2016.
According to property experts, Kuwait’s real estate market may remain stable in the
second half of 2016 due to the summer holidays’ season, regional conditions, and steady
oil prices. The local property market is steady despite the global economic crisis,
particularly the bearish trends in bourses and realty markets. Experts have predicted that
the property prices are expected to be firm in the coming months with some hikes in the
housing sector.
According to NBK, real estate market sales totaled US$ 233.6 million by the end of Q1
2016. The residential market in Kuwait picked up in May 2016, following a lull during
April 2016, with the sector gathering sales of US$373 million, up 88% over April sales.
A total of 278 transactions were registered, up 49% year-on-year. The activity in the real
estate market improved ahead of Ramadan and the summer season, amid benign
macroeconomic conditions and enhanced consumer confidence in May. Kuwait needs to
build around 10,000 residential units to cope with the population growth rate which
increases by 4% every 18 months, according to real estate experts. The construction of
174,000 new housing units for Kuwaiti citizens by 2020, announced by the government,
is expected to create new opportunities for private investment and to extend benefits to
private construction contractors.
According to property experts, the real estate sector is currently witnessing a marginal
increase in rental rates due to continued demand and low levels of new developments.
Supply is decreasing about demand and the vacancy rate coming down. There is
sustained demand for modern units in all sectors, particularly the retail and industrial
sectors bolstered by consumer demand from the young population. The need for class
‘A’ office space is currently right in locations such as Kuwait City, with rental rates
rising over the past year. The retail real estate sector is seeing investment in new
shopping malls to meet consumer demand for more modern facilities. Rental rates have
risen over the past year in this industry and with new developments; growth in this area
is expected to pick up.
Kuwait had introduced 'New PPP Law' to provide a clear regulatory framework for the
implementation of PPP projects in January 2016. While Kuwait has experimented with
privatisation in the past, the reduced oil prices have pushed the country further into
involving the private sector into real estate projects. PPPs can help reduce the financial
burden on the state and limit growth in government spending and the public sector.
Kuwait’s US$ 106 billion Development Plan (2015-2019) requires around one-third of
the capital spending to come from the private sector.
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Oman
The removal of
fuel subsidies and
the government’s
plans to tighten
spending could
provide a welcome
boost for PPPs in
Oman’s real estate
market.
According to Oxford Business Group, Oman’s real estate sector has continued to grow
in recent years, and despite the fall in oil prices, demand, particularly from the private
sector, has helped in development. Projects that target niches, such as high-end offices,
units in integrated tourism complexes, shopping malls and gated communities are
flourishing. The removal of fuel subsidies and the government’s plans to tighten
spending could provide a welcome boost for PPPs in Oman’s real estate market,
according to Cluttons. The measures set in place by Oman’s government, such as plans
to remove utility subsidies, could also lead to a rise in the number of PPPs by enticing
additional foreign investment into Oman. PPPs offer a good alternative solution to the
government to continue driving major infrastructure projects and boost job opportunities
that will support economic growth, particularly when credit availability is low.
International interest in Oman’s real estate development has mainly come from a
handful of Gulf developers; however, large-scale projects such as Port Sultan Qaboos
Waterfront could open the market for foreign investors to gain a foothold in a highly
attractive market that has a good track record. Continued infrastructure spending has
also boosted business confidence and has contributed to stability in the country's
residential and commercial markets.
According to Savills, there is approximately 345,000 square meters of prime retail
(mall) space within Muscat Capital area, all fully leased and trading. A further 280,000
square meters (sqm) of confirmed projects will be completed by 2020 to include the
Mall of Oman, The Palm and retail elements of the Convention Centre. Whilst Oman
previously lacked the diversity of retailing offered by its neighbors, this has now
changed and along with it retail shopping habits, with retailers reporting rising spending.
Ongoing investments in major real estate projects are expected to offset adverse effects
of oil price drop. Although economic growth is expected to be slow in 2016, robust
demand in several segments, and the government’s desire to implement large projects,
are upsides for the market. New labour and residential laws could, if some
improvements were made to them, raise investor demand for real estate. Alternatively, if
expatriates who have had residency in Oman for more than 10-15 years were allowed to
buy properties in the sultanate, this would encourage an influx of capital investment into
the sector, according to experts. An expressway project set for completion in 2017 and
the game-changing Oman rail network will only increase interconnectivity between the
Sultanate's ports and local and regional markets. For the years ahead, the facilities
required to handle this surge in traffic are critical to the success of the local real estate
market. Great potential in the real estate market is likely to be seen in the following
areas – the port city of Sohar because of the railway project and the transfer of
commercial shipping activities from Port Sultan Qaboos to Sohar Port and Freezone,
and in Duqm and Salalah.
In the hospitality real estate market, it is estimated that by 2020 the number of hotel
rooms in the country will be more than 20,000, giving a major boost to the country’s
ambitious tourism growth strategy that hopes to attract five million visitors a year by
2040. Tourism is set to be one of the key pillars for economic growth in Oman in the
coming decades.
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Bahrain
The market is
projected to
witness even better
growth rates in the
coming years,
which will qualify
it to be a real
traction point for
real estate
investors.
Bahrain's real estate market has seen a significant growth in the last decade due to its
low investment and transaction costs compared to other GCC states. Despite the
cautious market performance after fall in the oil prices , the kingdom’s real estate sector
remained solid as deal values soared along with the sales and rental prices in the prime
areas, according to Weetas. Many real estate investment and development companies
entered the local real estate market, especially in the last two years, to participate in the
real estate boom. The kingdom continues to invest in the real estate sector as the
investors see the sector’s resilience and sustained growth patterns in 2016 and beyond
despite economic pressures such as falling oil prices. The government is keen on
providing all success requirements that enable the real estate sector to play its role as
one of the pillars of the national economy.
The low transactions costs in Bahrain position its real estate market in a privileged
position offering high investment yields and capital growth. Added to all this is the ease
of doing business in Bahrain for property investors and the kingdom's relatively low
cost of living for both citizens and expats. Bahrain is considered one of the most
convenient locations worldwide for expats due to its low rental and living prices. All
these factors contributed in stimulating the market’s activity. Besides the buying and
selling, the construction activity too picked up steam thus reflecting the companies’
confidence in Bahrain’s real estate market.
The government focused on developing different economic sectors including tourism
and real estate by holding a number of partnerships with domestic, regional, and
international entities. In the wake of ample prospects and robust economic performance,
the market is projected to witness even better growth rates in the coming years, which
will qualify it to be a real traction point for real estate investors despite its small area.
According to Cluttons, in the office market, there is likely to be significant opportunities
for landlords to improve facilities for occupiers and focus on core pull factors such as
high quality property management and adequate parking, both of which feature at the
top of occupiers’ wish lists. Bahrain’s retail sector remains resilient, with rents stable in
all of Manama’s main markets in Q1 2016, despite the economic slowdown. The
kingdom’s retail sector is still perceived to be a key retail and hospitality hub for
neighboring KSA, and weekend tourist traffic is a big draw for local and international
retailers. Significant retail openings in 2016 include Galleria in Zinj, a Dadabhai project
featuring over 42,000 sqm GLA, closely followed by the US$ 40 million Wadi AL Sail
retail mall in Riffa anchored by Geant. Community malls serving new residential
districts continue to emerge as a dominant theme in New Janabiya where no less than
four separate malls are under development or planned. The continued emphasis on the
retail and tourism sector and the attractiveness of Bahrain as a destination for
homebuyers and leisure travelers builds a lot of promise for 2016 and beyond. The real
estate sector is continuing to recover, with retail and hospitality capitalising on growing
number of visitors in recent years.
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Major GCC projects announced in
2016
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LIST OF MAJOR GCC PROJECTS ANNOUNCED IN 2016
Project Name
Country
Client
Est. Value
(US$ Mn)
Status
Dubai Wholesale City
UAE
Dubai Holding
8,000
Planned
Yas Acres
UAE
ALDAR Properties
4,400
Design
Saudi Mall in Riyadh
KSA
Al Futtaim Group
2,800
Design
Firdous Sobha in Umm Al Quwain
UAE
Sobha Group, Government of UAQ
2,500
Planned
Traders' Market & Logistics Hub - Mixed Use
Development
UAE
Jebel Ali Free Zone Authority (JAFZA)
2,000
Planned
The Avenues Riyadh
KSA
Mabanee Company, Kuwait
1,900
Design
Aykon City at the Dubai Canal
UAE
Damac Properties, Dubai, Meraas
Development
1,350
Design
Manaret Makkah Tower
KSA
Makkah Municipality
1,330
Tender for
Construction
Mina Sultan Qaboos Waterfront Project - Phase 1
Oman
Omran Office
1,300
Tender for
Consultancy
Masdar City in Abu Dhabi - Phase 2
UAE
Masdar (Abu Dhabi Future Energy
Company), Mubadala Development
Company, UAE
1,000
Planned
Hawar Island Eco-Friendly Development
Bahrain
Southern Area Development Company,
Bahrain Real Estate Investment Company
(Edamah)
930
Planned
City Centre in Ishbiliyah
KSA
Al Futtaim Group
900
Design
New Children's Hospital
Kuwait
Ministry of Public Works (MPW), Kuwait,
Ministry of Health, Kuwait
800
Design
Mixed Used Development in Sheikh Mohammed Bin
Zayed Road
UAE
Majid Al Futtaim (MAF) Properties
500
Planned
Mixed Use Development at Erkyah, Fox Hills, and
Marina Districts of Lusail
Qatar
Ariane Real Estate
160
Design
Source: Ventures Onsite MENA Projects Database: www.venturesonsite.com
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Future Outlook of GCC Real
Estate
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WHAT DOES THE FUTURE LOOK LIKE FOR THE GCC?
The GCC countries have announced a more conservative approach regarding their government spending in 20162017. While governments continue to spend on development and infrastructure projects, the level of this spending will
inevitably be curtailed over the medium term as spending needs are realigned with the reality of lower oil revenue.
According to the IMF, some of GCC countries have large savings from accumulated oil export surpluses of the past,
which could be put to use to iron out revenue shortfalls in the short term.
The demand for retail and affordable housing is likely to shape the future of the GCC real estate market. In addition,
the demand for healthcare real estate is rising on the back of increased medical tourism in the region. Growth drivers
include rising life expectancies, rapidly growing population and per capita incomes, a high incidence of lifestylerelated diseases, and ambitious medical infrastructure projects.
According to Emirates NBD, investor confidence has been hit due to lower oil prices. With perception remaining a
key determinant in decision to buy real estate in the region, weak sentiment has been a drag on prices especially in the
residential segment. The impact has so far been minimal in commercial segment as the medium to long term view still
looks positive. However, slowdown in the property market is likely to present opportunities for global and private
investors in the GCC real estate market in the next few years. Despite the significant development of commercial and
residential properties over recent decades, the number of commercial transactions involving foreign investors does not
adequately reflect the interest in real estate in the GCC and if the relative illiquidity could be solved here, according to
CBRE. Moreover, the GCC governments are increasing the involvement of private investors through laws, which is
likely to ease the strain on the financial burden. The PPP framework is expected to present opportunities in 2016 and
2017 for the real estate sector across the building segment. The UAE and Qatar are likely to hottest real estate markets
in the coming years.
In conclusion, the GCC real estate market is likely to be resilient, presenting opportunities and registering growth at a
slow pace despite the slump in oil prices by the end of 2016 and beyond. The GCC markets are still gaining a lot of
investors’ confidence as prices are still stable, which reflects the real estate market’s maturity in the wake of
plummeting oil prices
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