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GCC Real Estate Quarterly - 2Q11
GCC Real Estate Quarterly - 2Q11
Kuwait and Saudi residential markets remain the most attractive Dubai shows signs of stability, Abu Dhabi rates still pressured downwards Commercial property still suffering from oversupply across the GCC
Bahrain Rents remained under pressure in 2Q11 but demand for affordable housing still intact. Oversupply of office and retail space continues to exert a downward pressure on rental and selling rates. Kuwait The private housing segment remained active amounting for 55% of total transactions value in 2Q11, similar to the same share as in 1Q11 with a 19% increase in the number of transactions. The commercial segment continues to suffer from oversupply in all areas with vacancy rates still averaging around 20-25% as in 1Q11. Oman Residential rentals in Oman continued to decline in 2Q11 with industry sources putting the year to date average rental decline at 15%. Apartment monthly rents ranged between OMR350 and OMR750 in 2Q11 down from OMR350 and OMR800 in 1Q11 reflecting the lower demand for higher end properties versus affordable housing. Qatar The residential market in Qatar continued to show signs of stabilization in 2Q11 after a mixed performance in the previous quarter with rental prices still hovering around their 4Q10 levels in most areas with minor changes on both sides. Saudi Arabia The residential segment remains the most lucrative exposure as demand significantly outpaces supply on growing population, business activity and an inherent shortage of residential units. According to SAMAs 2Q11 inflation report, the index for housing rents and related items surged by 7.2% YoY in Saudi Arabia during the quarter after an 8.2% YoY increase in 1Q11. Saudi office market conditions remain feeble especially in Riyadh. UAE Dubai apartment rents decreased 2% in 2Q11 following a 2% decline in 1Q11 over the previous quarter while villa rents maintained their 1Q11 levels without any significant declines after a 1% drop in 4Q10. Selling prices, however, dropped by 3% for Dubai apartments led by Downtown Dubai, which dropped 8% QoQ and DIFC down 7% on new supply. In Abu Dhabi, rents of both apartments and villas declined at a fast pace, negatively affected by new deliveries during the quarter.
Market Performance The performance of Bahrain office market in 2Q11 was similar to that in 1Q11 and 4Q10 as the country still suffers from the oversupply of Grade A and Grade B office space. Rents remained under pressure in 2Q11 as a result of the political instability that hit the country in 1Q1. Average office occupancy rates is estimated to range between 60% and 70%, with approximately 300,000 sqm of built stock vacant in addition to 200,000 sqm of leasable space under construction, of which approximately 40,000 sqm will come in Diplomat City Tower and Dar II, which will come on stream at the end of 2011. The retail market is also oversupplied and is expected to worsen in 2011 given the current turmoil and the associated slowdown in spending. On the long term, the 450,000 sqm scheduled for delivery by 2015 will pressure yields downwards but several cancellations are expected given the current market oversupply situation. The residential market similarly suffered from falling prices and rents as new supply continues to hit the market in areas such as Juffair, Seef and Sanabis. All three areas saw rents falling in 2Q11. On the other hand, the large pent-up demand for affordable housing is still persistent. This has prompted the government to take measures such as the launch of the new housing scheme worth BHD2.5 billion launched in 1Q11 along with plans to construct 50,000 social housing units, to be completed over the next three years.
Residential Sales Rates 1Q11 - 2Q11
1200
1000 800
BHD/sqm
880
1000 900
740 730
600 400
200
0
Amwaj
Juffair
Sanabis
Seef
BHD/sqm/month
710
800
620
Source: Cluttons
1Q11
2Q11
1Q11
Source: Cluttons
2Q11
September - 2011
Diplomatic Area
Financial Harbor
Central Manama
Seef District
Market Performance The residential segment maintained its position as the most buyout segment in Kuwaits reality market. The private housing segment remained active amounting for 55% of total transactions value in 2Q11, similar to the same share as in 1Q11 with a 19% increase in the number of transactions. The increase was associated with a significant 52% increase in transaction value at KD527 million up from KD347 million in 1Q11. The overall trend remains in favor of strong demand for residential housing by Kuwaiti nationals. The investment segment share of total transactions dropped from an active 39% in 1Q11 to 34% in 2Q11 despite of the increase of the number of transactions 28% QoQ to 488 up from 381 in 1Q11. The value of transactions also increased 21% QoQ to KD329 million up from KD271 million. Demand for investment buildings remains buyout with occupancy rates registering healthy levels averaging between 90-95%. The commercial segment continues to suffer from oversupply in all areas with vacancy rates still averaging around 20-25% as in 1Q11. However, selling prices for some selective commercial space continued to report minor increases in prices during the quarter as a result of increasing demand after several slow quarters. The number of transactions increased 88% in 2Q11 over 1Q11.
Kuwait Average Land Prices 1Q11-2Q11
700
600
500
KWD/sqm
400
300
200 100 0
Capital Hawally Jahra Ahmadi Farwaniya
Investment, 34.3%
Residential, 55.1%
1Q11
2Q11
Source: Ministry of Justice
September - 2011
Market Performance Residential rentals in Oman continued to decline in 2Q11. Industry sources put the year to date average rental decline at 15%. Apartment monthly rents ranged between OMR350 and OMR750 in 2Q11 down from OMR350 and OMR800 in 1Q11 reflecting the lower demand for higher end properties versus affordable housing. Areas such as Bowsher and Mawaleh have seen increased demand due to lower prices while villa rents in The Wave and Muscat Hills remained in demand due to their higher quality. We still expect prices and rents to continue in a pattern of gradual decline throughout 2011, although the pace of decline appears to have slowed down. Rents in the office market continued to witness a declining trend as demand softens significantly following the pattern that started since 2008. Supply of grade A office space still lags behind that of lower grades and is renting at a significant premium that could reach up to 33%. An additional 158,000 sqm of grade A space is currently in the pipelines and is expected to be delivered over the upcoming year.
September - 2011
Market Performance The residential market in Qatar continued to show signs of stabilization in 2Q11 after a mixed performance in the previous quarter with rental prices still hovering around their 4Q10 levels in most areas with minor changes on both sides. Areas like Pearl Qatar are witnessing strong leasing activity with the delay of new handovers contributing significantly to rental price stability. The villa rental market followed a similar pattern with prices in most areas unchanged from 1Q11 except for a minor change in Al Dafna. Activity in the sales market is still muted due to the large disparity between buyer and seller quoted prices. As new projects are being delivered adding to the commercial stock, the amount of office space in the market remains abundant and is unmet by the slowing demand. Total office space in Doha is currently estimated at around 3.2 million sqm, and it is estimated that 30 high rise office towers are currently under construction in the Central Business District. Average monthly rents during 2Q11 dropped 3% from 1Q11 levels after a slight improvement in the previous quarter. We expect rents in the commercial segment to continue moving downwards over the medium term as new supply enters the market adding to the already existent vacancies.
Average 2 BR Apartment Rental Rates
14,000 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000
Al Sadd Najma Al Dafna Bin Omran Pearl Qatar
QAR/month
1Q11
Source: ASTECO & Global Database
2Q11
1Q11
Source: ASTECO & Global Database
2Q11
September - 2011
Market Performance The office market performance continues to be pressured downwards by new supply and low take up rates in the two major markets of Riyadh and Jeddah. Vacancy rates remain at an average of 5% in Jeddah, where the market suffers from undersupply of grade A over the past few years, and 15% in Riyadh, which suffers from significant oversupply in the office market. The residential segment remains the most lucrative exposure as demand significantly outpaces supply on growing population, business activity and an inherent shortage of residential units. According to SAMAs 2Q11 inflation report, the index for housing rents and related items surged by 7.2% YoY in Saudi Arabia during the quarter after an 8.2% YoY increase in 1Q11.
September - 2011
700 600
58 115
3,000
2,500 2,000 1,500 3,000
210
500
400 300
163
3,630
3,000 3,210
667
552
389 389
1,000
500 -
200
100 -
2010
2011 Completed
2012 New
2013
2010
2011 Completed
2012 New
2013
3,500
3,000
6,100 6,000
5,000
3,000 2,500
SAR/sqm
2,400
2,400
SAR/sqm
4,100 4,000
3,100 3,000
2,000 1,000
0
West
Source: Jones Lang LaSalle
Nortrh
North-East
61
sqm 000
101
800 86 600 400 641 641 200 857 727 130
1,043
950 900 2010
1,043
2011 Completed
2012 New
2013
2010
2011 Completed
2012 New
2013
September - 2011
Market Performance Dubai apartment rents decreased 2% in 2Q11 following a 2% decline in 1Q11 over the previous quarter while villa rents maintained their 1Q11 levels without any significant declines after a 1% drop in 4Q10. Selling prices, however, dropped by 3% for Dubai apartments led by Downtown Dubai, which dropped 8% QoQ and DIFC down 7% on new supply. Villa selling prices in established areas with average sizes across Dubai maintained their levels of the past two quarters while villas of larger size and/or new supply entering the market have dropped by 3-5% in 2Q11. In Abu Dhabi, rents of both apartments and villas declined at a fast pace, negatively affected by new deliveries during the quarter. Apartment rents dropped another 8% in 2Q11, same as 1Q11 compared to 7% in 4Q10 while villa rents dropped modestly on selective demand for ready to move in properties. The office market remains under pressure in both markets on the back of relentless oversupply and feeble business demand. In Dubai, office rents dropped 6% over the previous quarter led by Dubai Investment Park down 15% and JLT down 12%.City wide vacancy rates remained at around 45%. Average rents dropped around 2% after dropping 10% in 1Q11. In Abu Dhabi, office rents dropped 4% after 9% in 1Q11 with Grades B and C continuing their underperformance as tenants upgrade to better office space at affordable prices while selling prices moved down 3%. No new addition to Dubai retail space took place after the 530,000 sqf new supply in 1Q11 in and around DIFC. Vacancy rates citywide remained around 20% on average while rental values maintained 1Q11 after dropping 9% in the previous quarter. Abu Dhabi didnt witness any change in the retail segment as grade A supply remained limited with no additions in 2Q11 and accordingly vacancy rates are still low. Occupancy rates are higher in scattered retail outlets attached to older buildings in residential areas. Rents are expected to soften, however, as of 2H11 on new supply entering the market.
September - 2011
204
204
190
150
200
AED/Sqf
AED/Sqf
136
190
186
177 172
129
1Q11
2Q11
2,500
2,000 1,975
AED/sqf
1,500
1,000 500 0 4Q10 Apt. 1Q11 Villa 2Q11
1,075
1,075
1,044
AED/sqf
1,975
1,917
Average Abu Dhabi Residential Selling Prices 5,000 4,500 4,750 4,750 4,703 4,000 3,500 3,000 2,500 2,000 1,500 1,000 1,200 1,175 1,135 500 0 4Q10 Apt. 1Q11 Villa 2Q11
120 100 82 80
AED 000
105 96
73
60 40 20 0
Dubai Abu Dhabi Sharjah Ajman Ras AlKhaimah Fujairah Umm AlQaiwain
31 31
28 27
31 31
30 30
27 27
1Q11
Source: ASTECO
2Q11
September - 2011
10
11.42 (34.84)
40.50 36.70
27.40 21.84
(25.64)
0.14
0.10
5.96
2.35
2.35
All current prices are in local currency based on September 4th 2011 close unless otherwise mentioned. Source: Bloomberg
September - 2011
11
Disclaimer
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September - 2011
12
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