Date: February 28, 2015

AMAR FINANCE & LEASING COMPANY GCC Region – Real Estate Newsletter

AMAR FINANCE & LEASING COMPANY

Contents Executive Summary ...... 1 Economic Overview ...... 1 Real Estate Sector ...... 2 Residential Sector ...... 2 Commercial Sector ...... 3 Major Projects ...... 5 Kuwait ...... 6 Economic Overview ...... 6 Real Estate Sector ...... 7 Residential Sector ...... 7 Commercial Sector ...... 8 Major Projects ...... 9 The UAE ...... 10 Economic Overview ...... 10 Real Estate Sector ...... 11 Residential Sector ...... 12 Commercial Sector ...... 14 Major Projects ...... 16 Kingdom of Saudi Arabia (KSA) ...... 17 Economic Overview ...... 17 Real Estate Sector ...... 18 Residential Sector ...... 18 Commercial Sector ...... 20 Major Projects ...... 22 Kingdom of Bahrain ...... 23 Economic Overview ...... 23 Real Estate Sector ...... 24 Residential Sector ...... 24 Commercial Sector ...... 25 Major Projects ...... 26 Oman ...... 27 Economic Overview ...... 27 Real Estate Sector ...... 28 Residential Sector ...... 28 Commercial Sector ...... 29 Major Projects ...... 30 Qatar ...... 31 Economic Overview ...... 31 Real Estate Sector ...... 32 Residential Sector ...... 32 Commercial Sector ...... 33 Major Projects ...... 34

Contents infrastructure projects, stimulus measures, Executive Summary ...... 1 Executive Summary accommodative monetary policy, and social spending in Economic Overview ...... 1 One of the most defining events in 2014 for the GCC the form of generous grants, wage hikes for public sector Real Estate Sector ...... 2 countries was undoubtedly the sharp fall in oil prices, as it employees and large-scale subsidies. was completely unexpected at the beginning of the year. Residential Sector ...... 2 Figure 02: Real GDP Growth (%) of GCC According to Markaz, oil prices fell by a whopping 48%, 12% Y Commercial Sector ...... 3 to as low as USD 55.8/barrel in June 2014, because of - o

- 9% Major Projects ...... 5 increasing supplies from non-OPEC producers, stubbornness of OPEC producers to act as swing 6% Kuwait ...... 6 producers (a supplier or a close oligopolistic group of 3% % Growth Y Growth % Economic Overview ...... 6 suppliers of any commodity, controlling its global deposits 0% 2010 2011 2012 2013 2014 E 2015 F Real Estate Sector ...... 7 and possessing large spare production capacity), and subdued demand growth expectations. Oil GDP Non-Oil GDP Real GDP Residential Sector ...... 7 Source: IMF, January 2015 Commercial Sector ...... 8 GCC countries are focusing on diversification for a According to the IMF, real GDP grew by an estimated healthy survival in the long run. In H2 2014, almost all the Major Projects ...... 9 4.4% in 2014 and is likely to grow by 4.5% in 2015. It GCC countries displayed an optimistic economic outlook expects Qatar and the United Arab Emirates (UAE) to be The UAE ...... 10 as real estate recovered and political problems faded, the fastest growing economies in GCC this year. In Qatar, except in Bahrain. The countries renewed (or continued) Economic Overview ...... 10 government spending on infrastructure is likely to remain their efforts on diversification amid a positive growth a key driver of non-oil growth, as the country continues Real Estate Sector ...... 11 outlook for non-oil sectors, including real estate. This is to prepare for the FIFA World Cup. In the UAE, tighter Residential Sector ...... 12 resulting in the growth of real estate activities in the GCC fiscal policy is expected to continue in 2015 and the IMF Commercial Sector ...... 14 region. Real estate transactions and enquiries in the region expects growth in the region to continue to be driven by have increased, making realty a favored investment Major Projects ...... 16 the domestic private sector. In addition, consumer and medium. Real estate indices of the region have picked up investor confidence in the UAE has been buoyed by a Kingdom of Saudi Arabia (KSA) ...... 17 since 2012, after a major property slump during 2008– sharp recovery in real estate prices and the successful bid Economic Overview ...... 17 11(Fig 01). to host Expo 2020. Real Estate Sector ...... 18 The increase in housing demand from both expatriates Figure 03: Real GDP Growth (%) and citizens is putting pressure on prices in the GCC. This 10% Residential Sector ...... 18 trend is likely to support residential development in the 8% Commercial Sector ...... 20 region, as developers will construct projects suitable for 6% Major Projects ...... 22 the growing local and expatriate population, thereby 4% creating a balance between demand and supply. 2% Kingdom of Bahrain ...... 23 0% Figure 01: Real Estate Indices Economic Overview ...... 23 Bahrain Kuwait Oman Qatar Saudi UAE GCC 480 GDP growth Real rate (%) -2% Abu Dhabi Real Estate Index Arabia Real Estate Sector ...... 24 405 Dubai Real Estate and Construction Index 2012 2013 2014 E 2015 F Tawadul Real Esate Index Source: IMF, January 2015 Residential Sector ...... 24 330 Kuwait Real Estate Index Commercial Sector ...... 25 255 However, the present levels of government spending 180 across the region is skewed toward current expenditures Major Projects ...... 26 in the form of wages, grants and subsidies rather than on 105 capital expenditures in the form of infrastructure Oman ...... 27 Rebased Real Estate Indices 30 investments. This trend is unsustainable in the long term Economic Overview ...... 27 Jan-11 Jul-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Source: Zawya, Bloomberg and can push public finances into deficit as early as 2017. Real Estate Sector ...... 28 Residential Sector ...... 28 Economic Overview Inflation likely to remain subdued Commercial Sector ...... 29 Non-oil sector – the growth engine for 2015 Historically, the GCC countries have largely remained Major Projects ...... 30 immune to the rising global prices until rising oil prices Last year proved to be a reassuring year for the GCC pushed the inflation higher. While the rise in inflation will Qatar ...... 31 region. The oil-focused GCC economies displayed absorb some of the benefits from government spending impressive gross domestic product (GDP) growth, higher Economic Overview ...... 31 on per capita income, headline rates are expected to stay than the global average. According to the International at manageable, low single-digit levels throughout the Real Estate Sector ...... 32 Monetary Fund (IMF), despite the expected slump in real region. According to the IMF, in 2014, inflation remained Residential Sector ...... 32 oil GDP growth from 0.7% in 2013 to 0.6% in 2014 for subdued at 3.1% for the GCC region, and is expected to Commercial Sector ...... 33 the GCC region, due to the cutback in oil production remain at the same levels in 2015 at 3.1%, backed by the levels following the softening of oil prices globally, the Major Projects ...... 34 falling global food and oil prices and housing inflation. All overall real GDP growth is expected to increase from GCC economies, except Bahrain, are expected to see a rise 4.4% in 2013 to 4.5% in 2014, supported by large

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GCC Real Estate Newsletter in inflation this year. Inflation is expected to increase from Residential Sector 3.4% in 2014 to 3.5% in 2015 in Qatar and from 3.0% in 2014 to 3.5% in 2015 in Kuwait. Performance remains mixed; affordable

Figure 04: Inflation (%) housing still a concern in some places 4% The housing sector in the GCC has shown sturdy 3% performance in most regions, owing to a rising demand

2% backed by strong economies and increased number of expats. 1%

Average Inflation (%) Average Kuwait: Kuwait’s residential segment is driven by its fast- 0% Bahrain Kuwait Oman Qatar Saudi UAE GCC rising population, coupled with a shortage of adequate Arabia housing. The IMF estimates that the population of Kuwait 2012 2013 2014 E 2014 F will reach 4.6 million by 2019, growing at a CAGR of 2.8% Source: IMF, January 2015 during 2010–2019. On the supply side, there has been Real Estate Sector severe housing shortage. Currently, the waiting list for government-subsidized housing exceeds the 100,000 Project market remains strong mark and, 2015 onward, the list is expected to increase at the rate of 8,000 applications every year. Owing to the Since the global financial crisis in 2008-09, growth in the high housing demand, we expect the sector to witness GCC has been primarily driven by public sector spending, higher activity, mainly driven by government initiatives. especially on physical and social infrastructure, and Consumer sentiment has also improved significantly over buoyant private sector activity. Most of the GCC nations the last few months, and this is expected to translate into have long-term development strategies and planned higher demand for the residential segment. As a result, events, such as the Expo 2020 in Dubai and the FIFA prices and rental rates are expected to trend higher. World Cup 2022 in Qatar, which are boosting the construction sector in the regions. UAE: H2 2014 saw mixed performance in the Abu Dhabi residential market, as a decline in some areas offset growth According to Venture ME, the total value of completed in others. The residential market is now seeing increased projects in the GCC region reached USD 67.6bn in 2014. tenant activity, a resulted of the government’s decision to Of these, about 42% are attributable to the residential extend a housing allowance to employees staying in Abu sector while 16.9% came from commercial buildings and Dhabi. Additionally, the removal of rent cap has fuelled 10.6% from the educational sector. Hospitality, medical, the rental prices in the emirate. Prime development areas and retail buildings were also completed with total values have experienced steady rental growth of 10% y-o-y, of USD 4.4bn, USD 3.7bn, and USD 854mm, respectively. fuelled by strong demand and lack of availability. Jones The total awarded project value stood at USD 85bn. Lang Lasalle (JLL) expects the deflationary rental situation Among the markets, Saudi Arabia and the UAE topped in the secondary and tertiary locations to change. Lease across all the sectors, while Qatar ranked first with rates across the capital are expected to continue increasing completed retail projects worth USD 362mm. In 2014, in 2015. Saudi was the highest ranking market with USD 3.4bn, representing 43% of the market share followed by the Meanwhile, the residential market in Dubai is now UAE with USD 2.3bn, accounting for 31% of the market experiencing a broad-based recovery, with a few share. For the second successive year, the residential secondary locations outperforming prime areas in H2 sector accounted for 41.9% of the overall market, 2014. Further, the successful bid for Expo 2020 has led to followed by the commercial sector at 17.2% and announcements of large-scale infrastructure projects, hospitality sector at 13.5%. confirming recovery in the realty sector. According to Ventures ME, in 2015, the number of Saudi Arabia: The residential market witnessed solid completed projects is likely to grow by 6.5% to reach USD growth in H2 2014, as demand for housing rose due to 72bn and awarded projects by 21.2% to USD 103bn, increased availability of finance, supportive policies and regardless of the predicted economic slowdown in the initiatives by the government, and improved investor region due to the decline in oil prices. According to the confidence. With a large share of young population and a study, projects in the healthcare sector are expected to high single expat population, there is a high demand for grow by 91.1% from USD 3.7bn registered in 2014, to an small and affordable housing, particularly in the regions of estimated USD 7.1bn in 2015. Qatar will have the majority Makkah, Riyadh, and the Eastern Province. The supply of of healthcare buildings, worth USD 2.4bn, followed by housing units has not been able to keep up with the Saudi Arabia with USD 2.2bn and the UAE at USD 1.8bn. demand due to affordability limitations. Bahrain: Bahrain’s residential market witnessed increased activity, with a number of new developments being

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GCC Real Estate Newsletter GCC Real Estate Newsletter in inflation this year. Inflation is expected to increase from Residential Sector announced in 2014. The Housing Minister announced protests, is showing distinct signs of improvement. The 3.4% in 2014 to 3.5% in 2015 in Qatar and from 3.0% in that around USD 8bn will be spent on housing projects government’s latest policies and initiatives are expected to 2014 to 3.5% in 2015 in Kuwait. Performance remains mixed; affordable by 2017. Further, Bahrain’s Shura Council approved a increase foreign direct investment (FDI) inflows and reduction in registry charges of newly purchased improve the business environment, which in turn will Figure 04: Inflation (%) housing still a concern in some places 4% properties from 3% to 2% with the aim of further improve the demand for commercial spaces. The housing sector in the GCC has shown sturdy boosting real estate growth. 3% performance in most regions, owing to a rising demand UAE: Abu Dhabi’s increasing supply and demand The rapidly rising population, especially the imbalance is expanding the tenant-led market, forcing 2% backed by strong economies and increased number of Oman: expats. expatriate population, and an increase in the minimum property owners to be more flexible with their terms and 1% wage in the private sector has resulted in a huge boost to generous in their incentive packages, particularly for long-

Average Inflation (%) Average Kuwait’s residential segment is driven by its fast- Kuwait: the residential sector. The demand for better quality term lease agreements. The demand for Grade A office 0% rising population, coupled with a shortage of adequate Bahrain Kuwait Oman Qatar Saudi UAE GCC properties has increased in the lower income housing premises has increased, while Grade B and C continue to Arabia housing. The IMF estimates that the population of Kuwait segment. On the other hand, there is a strong demand witness a deflationary situation. 2012 2013 2014 E 2014 F will reach 4.6 million by 2019, growing at a CAGR of 2.8% from traditional Omanis for the already constructed, Source: IMF, January 2015 during 2010–2019. On the supply side, there has been Dubai’s office market remains fragmented, with better designed houses as people do not want to buy land severe housing shortage. Currently, the waiting list for traditional submarkets still struggling to attract tenants. Real Estate Sector and construct their houses. Within the rental market, a government-subsidized housing exceeds the 100,000 On one hand, prime locations are led by landlords while two-tier market has emerged that has increased rental gaps mark and, 2015 onward, the list is expected to increase at in other locations, tenants continue to benefit from Project market remains strong between the prime developed and poorly designed areas. the rate of 8,000 applications every year. Owing to the flexibilities offered by landlords such as rent-free periods. Since the global financial crisis in 2008-09, growth in the high housing demand, we expect the sector to witness Qatar: Qatar’s residential real estate market, especially Further, landlords are splitting the space on offer into GCC has been primarily driven by public sector spending, higher activity, mainly driven by government initiatives. Doha, is represented by high housing shortage resulting smaller floor-plates to attract potential tenants. Overall, especially on physical and social infrastructure, and Consumer sentiment has also improved significantly over from the influx of expatriate population. As more and the office market continues to improve, even though buoyant private sector activity. Most of the GCC nations the last few months, and this is expected to translate into more foreign workers arrive in the country to engage in growth is seen primarily in top quality buildings and prime have long-term development strategies and planned higher demand for the residential segment. As a result, development projects for the 2022 FIFA World Cup, the and newer locations. events, such as the Expo 2020 in Dubai and the FIFA prices and rental rates are expected to trend higher. housing market has come under increased pressure, Saudi Arabia: The office market in Riyadh is faced with World Cup 2022 in Qatar, which are boosting the sending the rents spiraling up. construction sector in the regions. UAE: H2 2014 saw mixed performance in the Abu Dhabi an oversupply situation, and the trend is likely to worsen residential market, as a decline in some areas offset growth Table 01: Annual Residential Rents in GCC – H2 2014 in the coming quarters. Landlords continue to see high According to Venture ME, the total value of completed in others. The residential market is now seeing increased Location Type Price occupancy rates despite offering attractive rent-free projects in the GCC region reached USD 67.6bn in 2014. tenant activity, a resulted of the government’s decision to Kuwait (‘000KWD) 1KWD=3.500 USD periods. According to JLL, 18–19% of the office stock is Of these, about 42% are attributable to the residential extend a housing allowance to employees staying in Abu Jabriya 2 BR Apt 5-7 unoccupied and there will be an upward pressure on sector while 16.9% came from commercial buildings and Dhabi. Additionally, the removal of rent cap has fuelled Salmiya 2 BR Apt 4.5-6.5 vacancy rates as new supplies are expected in 2015–2016. 10.6% from the educational sector. Hospitality, medical, the rental prices in the emirate. Prime development areas 2 BR Apt and retail buildings were also completed with total values Hawalli 4-5 The office space market in Jeddah continues to see strong have experienced steady rental growth of 10% y-o-y, of USD 4.4bn, USD 3.7bn, and USD 854mm, respectively. UAE (‘000 AED) 1AED=0.272 USD demand from both government and private sector tenants. fuelled by strong demand and lack of availability. Jones The total awarded project value stood at USD 85bn. Palm Jumeirah 2 BR Apt 150-155 Vacancies are expected to decline further in the short term, Lang Lasalle (JLL) expects the deflationary rental situation Among the markets, Saudi Arabia and the UAE topped Dubai Marina 2 BR Apt 100-110 until supply in the pipeline becomes ready for lease. in the secondary and tertiary locations to change. Lease across all the sectors, while Qatar ranked first with Abu Dhabi Corniche 2 BR Apt 75-190 Despite low vacancy, rents have remained relatively stable rates across the capital are expected to continue increasing completed retail projects worth USD 362mm. In 2014, Saudi Arabia (‘000 SAR) 1SAR=0.267 USD across the market and are unlikely to increase in the in 2015. Saudi was the highest ranking market with USD 3.4bn, Riyadh Central 2 BR Apt 36-40 current year, given the significant levels of potential supply. representing 43% of the market share followed by the Meanwhile, the residential market in Dubai is now 2 BR Apt Riyadh East 24-26 Bahrain: The office segment in the Kingdom remains experiencing a broad-based recovery, with a few UAE with USD 2.3bn, accounting for 31% of the market South Jeddah 2 BR Apt 25-30 oversupplied. Majority of the demand is from existing share. For the second successive year, the residential secondary locations outperforming prime areas in H2 Qatar (‘000 QAR) 1QAR=0.274 USD businesses that are expanding. Given the oversupply in 2014. Further, the successful bid for Expo 2020 has led to sector accounted for 41.9% of the overall market, West Bay 2 BR FF Apt 100-140 the office market, landlords are under pressure to show followed by the commercial sector at 17.2% and announcements of large-scale infrastructure projects, Pearl Qatar 2 BR FF Apt 140-190 flexibility in terms of the length of rent-free and fit-out hospitality sector at 13.5%. confirming recovery in the realty sector. Al Sadd 2 BR FF Apt 60-90 periods. Areas with better parking facilities and easy access

According to Ventures ME, in 2015, the number of Saudi Arabia: The residential market witnessed solid *Exchange rates as on December 31, 2014 were the top priorities for business houses. According to completed projects is likely to grow by 6.5% to reach USD growth in H2 2014, as demand for housing rose due to Source: Amar Finance Research CBRE, properties in prime locations that already have 72bn and awarded projects by 21.2% to USD 103bn, increased availability of finance, supportive policies and Commercial Sector tenants on long leases, along with good management, are regardless of the predicted economic slowdown in the initiatives by the government, and improved investor witnessing higher demands resulting in huge gaps in region due to the decline in oil prices. According to the confidence. With a large share of young population and a Office space performance remains mixed vacancy rates. We expect rental gaps to further widen study, projects in the healthcare sector are expected to high single expat population, there is a high demand for because of this preference. Most GCC countries are witnessing increased supply of grow by 91.1% from USD 3.7bn registered in 2014, to an small and affordable housing, particularly in the regions of office space, as compared with demand. As a result, Oman: Oman’s commercial market has two distinct estimated USD 7.1bn in 2015. Qatar will have the majority Makkah, Riyadh, and the Eastern Province. The supply of vacancy rates are mounting and putting a downward commercial tiers – spaces with adequate car parking and of healthcare buildings, worth USD 2.4bn, followed by housing units has not been able to keep up with the pressure on rental rates. spaces without it. According to Savills, the market remains demand due to affordability limitations. Saudi Arabia with USD 2.2bn and the UAE at USD 1.8bn. under acute rental pressure, as about 45% of all office Kuwait: Kuwait’s oversupplied office market, dragged Bahrain: Bahrain’s residential market witnessed increased spaces completed in the last 36 months are still vacant. down by the global financial crisis and continuous political activity, with a number of new developments being However, there is consistent demand for quality office

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GCC Real Estate Newsletter spaces with adequate car parking facilities. According to Mall, Ibn Battuta Mall, and Dragon Mart, new malls at Savills, smaller units, particularly those fitted out and ready JBR’s The Walk and Palm Jumeirah. The Mall of the to move into, are still in high demand, primarily from new World at Mohammed Bin Rashid City, when complete, startup companies. will be the largest retail space in the world. Saudi Arabia’s retail mall space, in particular, remains undersupplied and Qatar: The commercial real estate sector witnessed JLL anticipates that with the upcoming retail projects, significant revival in 2014. Vacancy rates dropped to 6% mall-based retail space is expected to reach 2.3mm sq m in the Diplomatic district, a prime office location. In the in Riyadh and 1.2mm sq m in Jeddah by the end of 2017. last decade, the office sector has witnessed a lot of changes as the government had moved public departments to West GCC tourism demand remains strong Bay. Prime/Grade A space in smaller sizes remains scarce. The demand for 200–500 sq m office space continues to The GCC region continued to attract tourists across the be strong, but the supply is limited. globe by promoting niche tourism segments such as religious tourism, events, and sports-based tourism as well Table 02: Annual Office Rentals in GCC in H2 2014 as MICE (Meetings, Incentives, Conferencing, and Location Rent Exhibition) tourism. This has resulted in the development Kuwait (KWD per sq m) 1KWD=3.500 USD of a large number of luxury hotels across the region. The Kuwait City 45-85 improving economic condition, government's support to Salmiya 80-100 the private sector, and strategic location of the GCC as an Hawalli 80-100 ideal transit point with better reach from the airline UAE ( AED per sq m) 1AED=0.272 USD industry are favorable conditions for the hospitality sector. Dubai International Financial Center 2,400-2,500 As per Markaz, the estimated room revenue in the GCC Dubai Business Bay 550-900 hotel sector is likely to see a CAGR of 6.9% between 2011 and 2016, reaching USD 24.9bn by 2016. Abu Dhabi Corniche 1,350-1,550 Al Reem Island 1,150-1,450 The GCC hospitality market is dominated by luxury hotels, Saudi Arabia (SAR per sq m) 1SAR=0.267 USD and its current pipeline also reveals a similar scenario. King Fahad Road, Riyadh 850-1,150 According to STR Global, as of December 2014, the Middle East and Africa hotel development pipeline Tahlia Road, Riyadh 700-950 comprises 633 hotels with a total of 147,953 rooms. Some King Abdullah Street, Jeddah 850-1,200 of the international hotel chains are increasingly showing Qatar ( QAR per sq m) 1QAR=0.274 USD the willingness to tie up with local players. Service West Bay 2,400-3,000 apartments have also grown in the GCC region, as Airport Road 1,650-1,750 business travelers and expatriates seek longer stays at C Ring Road 1,600–1,700 reasonable prices.

*Exchange rates as on December 31, 2014 Source: Amar Finance Research The industry is faced with the challenge of skilled labor shortage, and any domestic instability could impact the Retail attractiveness of GCC countries to tourism business of the region. boost retail sector development Overall, the outlook for the hospitality sector is promising, Most of the GCC countries are characterized by a strong and GCC governments and private stakeholders are and growing retail sector. Strong demographics, with committed to addressing the challenges through various young local and expatriate population, as well as improved measures. spending capacity are the primary drivers of the growing demand. It is further supplemented by demand from the growing tourism and hospitality industry that has benefitted from government development plans and an increase in private sector contribution. According to Markaz, the GCC retail market is set to become a USD 221bn industry by 2015, growing at an annualized growth of 7.9% during 2012-15. In the 2014 Global Retail Development Index by A. T. Kearney’s, four major GCC countries – the UAE (4th rank), Kuwait (8th), Saudi Arabia (16th), and Oman (17th) – retained their positions in the top 20 global retail performers list. In the UAE, especially Dubai, new malls as well as extensions to the existing malls are underway or are being planned. Some of the examples are extensions to Dubai

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GCC Real Estate Newsletter GCC Real Estate Newsletter spaces with adequate car parking facilities. According to Mall, Ibn Battuta Mall, and Dragon Mart, new malls at Major Projects Savills, smaller units, particularly those fitted out and ready JBR’s The Walk and Palm Jumeirah. The Mall of the to move into, are still in high demand, primarily from new World at Mohammed Bin Rashid City, when complete, Table 03 illustrates the major ongoing projects in the GCC. startup companies. will be the largest retail space in the world. Saudi Arabia’s Table 03: Major Projects in the GCC retail mall space, in particular, remains undersupplied and Qatar: The commercial real estate sector witnessed Project Name Type Value Location JLL anticipates that with the upcoming retail projects, (USD significant revival in 2014. Vacancy rates dropped to 6% mall-based retail space is expected to reach 2.3mm sq m bn) in the Diplomatic district, a prime office location. In the Saudi Arabia Ministry in Riyadh and 1.2mm sq m in Jeddah by the end of 2017. Saudi of Housing - 500,000 Residential 67.0 last decade, the office sector has witnessed a lot of changes Arabia as the government had moved public departments to West GCC tourism demand remains strong Houses Program Modon - Sudair Saudi Bay. Prime/Grade A space in smaller sizes remains scarce. Industrial Zones 40.0 Industrial City Arabia The demand for 200–500 sq m office space continues to The GCC region continued to attract tourists across the globe by promoting niche tourism segments such as ALDAR - Yas Island Community be strong, but the supply is limited. 40.0 UAE religious tourism, events, and sports-based tourism as well Development Development Table 02: Annual Office Rentals in GCC in H2 2014 Free as MICE (Meetings, Incentives, Conferencing, and Dubai World Central Zones/Economic 37.3 UAE Location Rent (DWC) Exhibition) tourism. This has resulted in the development Zones Kuwait (KWD per sq m) 1KWD=3.500 USD of a large number of luxury hotels across the region. The Kuwait PAHW - Kuwait City 45-85 improving economic condition, government's support to Khairan Residential Residential 27.0 Kuwait Salmiya 80-100 the private sector, and strategic location of the GCC as an City Kuwait PAHW - Sabah Community Hawalli 80-100 ideal transit point with better reach from the airline 27.0 Kuwait Al Ahmad Future City Development UAE ( AED per sq m) 1AED=0.272 USD industry are favorable conditions for the hospitality sector. Free As per Markaz, the estimated room revenue in the GCC SAGIA - Jazan Saudi Dubai International Financial Center 2,400-2,500 Zones/Economic 27.0 Economic City Arabia Dubai Business Bay 550-900 hotel sector is likely to see a CAGR of 6.9% between 2011 Zones and 2016, reaching USD 24.9bn by 2016. SAGIA - King Free Abu Dhabi Corniche 1,350-1,550 Saudi Abdullah Economic Zones/Economic 27.0 Arabia Al Reem Island 1,150-1,450 The GCC hospitality market is dominated by luxury hotels, City (KAEC) Zones and its current pipeline also reveals a similar scenario. Saudi Arabia (SAR per sq m) 1SAR=0.267 USD ADFEC - Masdar Community 22.0 UAE King Fahad Road, Riyadh 850-1,150 According to STR Global, as of December 2014, the Carbon Free City Development Middle East and Africa hotel development pipeline Oman Ministry of Tahlia Road, Riyadh 700-950 Community comprises 633 hotels with a total of 147,953 rooms. Some Finance - Duqm New 20.0 Oman King Abdullah Street, Jeddah 850-1,200 Development of the international hotel chains are increasingly showing Downtown Qatar ( QAR per sq m) 1QAR=0.274 USD the willingness to tie up with local players. Service Chemaweyaat - West Bay 2,400-3,000 Chemicals Industrial Industrial 20.0 UAE apartments have also grown in the GCC region, as City Airport Road 1,650-1,750 business travelers and expatriates seek longer stays at Modon - Jazan Saudi C Ring Road 1,600–1,700 reasonable prices. Industrial Zones 17.0

Industrial City Arabia *Exchange rates as on December 31, 2014 The industry is faced with the challenge of skilled labor ALDAR - Yas Island Source: Amar Finance Research Development - Yas Retail 12.8 UAE shortage, and any domestic instability could impact the Retail attractiveness of GCC countries to Mall tourism business of the region. ADFEC - Masdar Mixed boost retail sector development Carbon Free City - 10.0 UAE Development Overall, the outlook for the hospitality sector is promising, Phase 1 Most of the GCC countries are characterized by a strong and GCC governments and private stakeholders are Albilad - Water Garden Mixed 9.8 Bahrain and growing retail sector. Strong demographics, with committed to addressing the challenges through various City Development young local and expatriate population, as well as improved measures. Al-Mozaini Real Estate Mixed Saudi spending capacity are the primary drivers of the growing Investment Company - 8.0 Development Arabia demand. It is further supplemented by demand from the Riyadh East Sub Center KEC - Madinah Free growing tourism and hospitality industry that has Saudi Knowledge Economic Zones/Economic 7.0 benefitted from government development plans and an Arabia City Zones increase in private sector contribution. MOPM - Waad El Saudi Industrial Zones 6.9 According to Markaz, the GCC retail market is set to Shammal Mining City Arabia Kuwait MPW - Mixed become a USD 221bn industry by 2015, growing at an 6.0 Kuwait Bubiyan Island Development annualized growth of 7.9% during 2012-15. In the 2014 Community LREDC - Lusail City 5.5 Qatar Global Retail Development Index by A. T. Kearney’s, Development four major GCC countries – the UAE (4th rank), Kuwait Msheireb Properties - Community (8th), Saudi Arabia (16th), and Oman (17th) – retained 5.5 Qatar Msheireb Development their positions in the top 20 global retail performers list. JODC - Jabal Omar Mixed Saudi 5.5 In the UAE, especially Dubai, new malls as well as Development Development Arabia extensions to the existing malls are underway or are being Source: Zawya planned. Some of the examples are extensions to Dubai

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GCC Real Estate Newsletter

Figure 06: Total Credit Facilities Kuwait 30.0 10.0 9.8 9.6 28.0 Kuwait’s economy had not been keeping pace with its 9.4 GCC neighbors, but it started picking up in 2013. 9.2 26.0 9.0 According to the National Bank of Kuwait (NBK), non- 8.8 8.6 24.0 oil growth reached the regional average of 5.6% y-o-y in 8.4 Real Estate (KWD bn) Residents (KWD bn) 8.2 Total Credit Facilities to Facilities Credit Total 2013, compared with a 0.6% growth in 2012, driven by 22.0 8.0 Credit to Construction and capital spending and government’s aspiring development 2009 2010 2011 2012 2013 2014 plan. The NBK expects non-oil GDP growth to hover Total Credit Facilities to Residents Credit to Construction and Real Estate around 5–6% in 2014 and in the coming two years, as the Source: Central Bank of Kuwait, December 2014 government’s development projects get implemented. On the contrary, lending to the non-banking financial The Economic Intelligence Unit (EIU) expects real GDP institution plummeted, indicating that investment to fall to 1.8% in 2015 from 2.3% in 2014, owing to companies in Kuwait continued to be in troubled waters. subdued growth in the oil sector and falling oil prices. It Lending to this sector declined 12.4% y-o-y in 2014. anticipates GDP growth to moderate to an average 1.9% Kuwaiti investment companies, which suffered due to the in 2015-16 due to lower oil revenue and restrained financial crisis of 2009, are still recuperating. Several government expenditures, as a result of political and companies are deleveraging and restructuring their bureaucratic logjams. The non-oil sector is unlikely to balance sheets. Debt restructuring picked up pace in late perform well in 2015-16 because of insufficient public 2013 and is expected to continue in 2015, albeit at a slower expenditure or non-oil private consumption. However, pace. However, tighter global financing environment due the sector is likely to trend upwards in 2017-19 as to the US central bank tapering could worsen the funding development projects get under way. constraints. Figure 07: Credit facilities to Non-Banking Financial The EIU believes that real GDP growth will increase to Institutions and Total Credit by the Banks an average of 4.1% a year in 2017-19, led by rising 32.0 2.5 government and private consumption, and improving 30.0 2.0 investment growth. 28.0 1.5

Figure 05: Real GDP 26.0 1.0

4.8% bn KWD 5.0% 4.2% bn KWD 24.0 0.5 4.0% 3.2% 22.0 0.0 3.0% 2.3% 1.8% 2.0% 2.0% 1.5% Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Total Credit (LHS) Credit to Non-Banking Financial Institutions (RHS) 1.0% Source: Central Bank of Kuwait, December 2014

GDP Growth Rate (%) 0.0% 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E Inflation creeps up Source: EIU, February 2015 According to the data published by Central Statistical Economic Overview Bureau (CSB), annual inflation increased to 2.4% y-o-y in 2014 from 2.7% a year earlier. The increase is attributed Credit growth eases in 2014 to rising housing costs, which account for 28.9% of the Credit lending grew 6.2% y-o-y in 2014, reflecting gradual CPI basket. The housing inflation rose to 4.31% in 2014 recovery. However, credit growth was slower in 2014 from 3.91% in 2013 and ended the year at 5.03%, compared with that in 2013 held back by the acquisition indicating economic recovery following the 2008-09 of Family Fund loans and the pay down of legacy debt by financial crisis, which was accompanied by an increasing some corporates. Increased government spending and inflow of expatriate workers and subsequent shortage in comfortable monetary conditions support the increase in housing. Upward price pressures could also be seen in the domestic demand. The latest statistics published by the education, restaurant and hotels, transport, furnishing, Central Bank of Kuwait (CBK) revealed continued equipment and household maintenance, and clothing and expansion in the private sector credit lending, which footwear components over 2014, reflecting similar increased by 5.04% y-o-y in December 2014. The population pressures to those driving up housing inflation. expansion is supported by a 10.5% growth in personal In contrast, headline inflation has been contained largely facilities loans. Construction lending and real estate due to the moderating food inflation, the second largest lending, which together account for 31.9% of the total item in the CPI basket. Food inflation eased to an average lending, grew 2.9% collectively, reflecting a rise in housing of 2.89% in 2014, down from 4.03% in 2013. demand. According to the EIU, inflation is likely to remain at moderate levels as global food prices fall and credit

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GCC Real Estate Newsletter GCC Real Estate Newsletter

Figure 06: Total Credit Facilities expansion stabilize. Inflation is expected to average 3.7% Improved lending fuels realty growth Kuwait 30.0 10.0 9.8 in 2015-19, picking up later in the forecast period as 9.6 The robust recovery in the real estate sector is driven by 28.0 Kuwait’s economy had not been keeping pace with its 9.4 growth in private consumption strengthens and the GCC neighbors, but it started picking up in 2013. 9.2 declining global food prices begin to reverse. increased demand from the residential and investment 26.0 9.0 segments. According to NBK’s February 2015 report, the According to the National Bank of Kuwait (NBK), non- 8.8 8.6 Figure 08: Consumer Price Index 24.0 demand is supported by improved lending policies and an oil growth reached the regional average of 5.6% y-o-y in 8.4 5.0% 4.4% Real Estate (KWD bn) Residents (KWD bn) 8.2 increase in the number of disbursed loans. The total

Total Credit Facilities to Facilities Credit Total 4.2%

2013, compared with a 0.6% growth in 2012, driven by Credit to Construction and 4.5% 22.0 8.0 3.9% number of loans approved by the Savings and Credit Bank capital spending and government’s aspiring development 2009 2010 2011 2012 2013 2014 4.0% (SCB) in 2014 stood at 5,070, worth KWD 304.3mm, plan. The NBK expects non-oil GDP growth to hover Total Credit Facilities to Residents Credit to Construction and Real Estate 3.5% 3.2% 2.9% around 5–6% in 2014 and in the coming two years, as the Source: Central Bank of Kuwait, December 2014 3.0% 2.9% 2.7% down 23.5% in numbers and 22.4% in value from 2013. 2.4% However, the total number of loans disbursed increased government’s development projects get implemented. On the contrary, lending to the non-banking financial 2.5% Consumer Price Consumer Price Inflation 44.2% y-o-y in 2014, driven by the decision of the Public institution plummeted, indicating that investment 2.0% The Economic Intelligence Unit (EIU) expects real GDP 2012 A 2013 A 2014 A 2015 F 2016 F 2017 F 2018 F 2019 F Authority for Housing Welfare (PAHW) to disburse to fall to 1.8% in 2015 from 2.3% in 2014, owing to companies in Kuwait continued to be in troubled waters. Source: EIU Country Report, February 2015 12,000 units. The value of loans disbursed was primarily subdued growth in the oil sector and falling oil prices. It Lending to this sector declined 12.4% y-o-y in 2014. driven by new construction in 2014; this accounted for anticipates GDP growth to moderate to an average 1.9% Kuwaiti investment companies, which suffered due to the Real Estate Sector 68.5% (KWD 156.9mm) of the total loans disbursed. in 2015-16 due to lower oil revenue and restrained financial crisis of 2009, are still recuperating. Several Realty offers positive outlook for 2015 Figure 10: Total Approved Loans in Real Estate Sector government expenditures, as a result of political and companies are deleveraging and restructuring their 800 40 balance sheets. Debt restructuring picked up pace in late 700 35 bureaucratic logjams. The non-oil sector is unlikely to Real estate sales reached KWD 4.3bn in 2014, up 14.5% 600 30 2013 and is expected to continue in 2015, albeit at a slower against 2013, signifying a strong year for sales. H2 2014 500 25 perform well in 2015-16 because of insufficient public 400 20 pace. However, tighter global financing environment due was dominated by sales in the residential segment (44% of 300 15 expenditure or non-oil private consumption. However, 200 10 Approved Loans Loans Approved to the US central bank tapering could worsen the funding total sales), closely followed by the investment segment 100 5 KWD mm) (in the sector is likely to trend upwards in 2017-19 as 0 0 development projects get under way. constraints. (mainly apartments and buildings for rent) that accounted Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 of Value loans approvd No. of Additions & Renovations No. of Purchase of Existing Homes Figure 07: Credit facilities to Non-Banking Financial for 42% of the total sales. Strong activity in the investment No. of New Construction Value of New Construction The EIU believes that real GDP growth will increase to Institutions and Total Credit by the Banks segment pushed the full-year 2014 growth in this segment Value of Purchase of Existing Homes Value of Additions & Renovations an average of 4.1% a year in 2017-19, led by rising 32.0 2.5 to 29.6%. Source: NBK Economic Update, February 2015 government and private consumption, and improving Note: Bars represent Sales Value and the line represents number of 30.0 2.0 transactions investment growth. In Q4 2014, the commercial segment revealed a massive 28.0 1.5 jump, increasing 170.9% from Q4 2013 to KWD Figure 05: Real GDP 26.0 1.0 Residential Sector

4.8% bn KWD 249.2mm. The segment saw a 626.5% q-o-q growth in Q4 5.0% 4.2% bn KWD 24.0 0.5 and recorded a 22.4% y-o-y increase in 2014, indicating a Residential segment remains steady 4.0% 3.2% 22.0 0.0 solid recovery. 3.0% 2.3% The residential segment, unlike the rest of the realty sector, 1.8% 2.0% 2.0% 1.5% Q1 12 Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 The residential segment grew 9.6% y-o-y in Q4 2014, but has largely remained unaffected by disagreements between Total Credit (LHS) Credit to Non-Banking Financial Institutions (RHS) sales fell 12.2% in H2 2014 compared with that in H1 the government and the parliament. This segment 1.0% Source: Central Bank of Kuwait, December 2014 2014. However, the segment rebounded in Q4 2014,

GDP Growth Rate (%) accounts for the largest part of the total real estate pie in 0.0% 2013 A 2014 E 2015 E 2016 E 2017 E 2018 E 2019 E Inflation creeps up reflecting the fact that it recorded a 27.7% increase in Q4 Kuwait, contributing around 44% to it in H2 2014. Source: EIU, February 2015 2014 over Q3 2014. The growth momentum will continue According to the NBK, total transaction values for the According to the data published by Central Statistical in the near future because of healthy demand and residential property segment in 2014 increased by 1.3% y- Economic Overview Bureau (CSB), annual inflation increased to 2.4% y-o-y in upcoming supply. 2014 from 2.7% a year earlier. The increase is attributed o-y to KWD 1,899.5mm. The total number of Credit growth eases in 2014 to rising housing costs, which account for 28.9% of the Unlike other segments, the investment segment declined transactions declined by 14%, but the average transaction by 7.8% y-o-y in Q4 2014 and by 12% in H2 2014 over Credit lending grew 6.2% y-o-y in 2014, reflecting gradual CPI basket. The housing inflation rose to 4.31% in 2014 size for both homes and plots of land increased. The H1. However, it grew 29.6% in 2014 compared with 2013, recovery. However, credit growth was slower in 2014 from 3.91% in 2013 and ended the year at 5.03%, average transaction size was KWD 285,750, as of H2 2014. indicating economic recovery following the 2008-09 indicating that the declining trend in the second half is compared with that in 2013 held back by the acquisition Figure 11: Residential Property (self-use) Sales and Transaction temporary, as a notable increase in sales is expected in of Family Fund loans and the pay down of legacy debt by financial crisis, which was accompanied by an increasing 300 300 inflow of expatriate workers and subsequent shortage in 2015 supported by an active government real estate fund. 250 some corporates. Increased government spending and 225 comfortable monetary conditions support the increase in housing. Upward price pressures could also be seen in the Figure 09: Total Sales and Transactions in Real Estate Sector 200 education, restaurant and hotels, transport, furnishing, 1,400 2,500 150 150 domestic demand. The latest statistics published by the 1,200 equipment and household maintenance, and clothing and 2,000 100 Central Bank of Kuwait (CBK) revealed continued 1,000 75 footwear components over 2014, reflecting similar 1,500 Sales (KWD mm) 50 expansion in the private sector credit lending, which 800 ofNo. transactions increased by 5.04% y-o-y in December 2014. The population pressures to those driving up housing inflation. 600 1,000 0 0 400 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 In contrast, headline inflation has been contained largely 500 ofNo. transactions expansion is supported by a 10.5% growth in personal mm) Sales (in KWD 200 Residential Property Number of Transactions due to the moderating food inflation, the second largest 0 0 facilities loans. Construction lending and real estate Source: NBK Economic Update, February 2015 lending, which together account for 31.9% of the total item in the CPI basket. Food inflation eased to an average lending, grew 2.9% collectively, reflecting a rise in housing of 2.89% in 2014, down from 4.03% in 2013. Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 The recovery in Kuwait’s residential real estate segment in Residential Property Investment Commercial 2015 is expected to be driven by its fast-rising population, demand. According to the EIU, inflation is likely to remain at Residential Property Investment Commercial coupled with the shortage of adequate housing. According moderate levels as global food prices fall and credit Source: NBK Economic Update, February 2015 Note: Bars represent Sales Value and line represents no. of transactions to the IMF, in the last decade, Kuwait’s total population

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GCC Real Estate Newsletter grew at a CAGR of 4.4% to reach 4.0 million in 2014. The apartment prices have gone up because of the growing IMF believes that the country’s population will reach 4.6 demand from both young men and divorced and widowed million by 2019. Therefore, the demand for infrastructure Kuwaiti women who prefer buying flats and renting them is likely to continue fuelling activities in the infrastructure out to receive a steady income. The growing demand for and construction industry as well as the real estate sector apartments has also led to a demand for old buildings. The in the coming years. Further, improved investment increase in housing prices has resulted in rent increases. appetite over the last year indicates that the demand is Mid-range apartments that cover an area of 70−90 sq m likely to improve in the residential segment, and prices and are in high demand. Salmiya and Hawalli enjoy the rental rates are expected to go up. majority of the demand in the investment segment, Figure 12: Population leading to high property prices. This has also led to an 4.8 3.0% increase in the rentals of these properties. The Jabriya, 4.5 2.8% Salmiya and Salwa regions, located in west Kuwait, have a 4.2 2.6% large number of schools that create more demand. 3.9 2.4% Average rental rates for two- and three-bedroom 3.6 2.2% apartments in these areas range between KWD 500−800 3.3 2.0% and KWD 600−900 per month, respectively. 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E Population (mm) (LHS) Growth rate % (RHS) Source: IMF Table 04: Monthly Rental in Kuwait – H2 2014 Area Property Type KWD per month Investment segment remained muted Jabriya 2 BR Apt 400−560 Jabriya 3 BR Apt 600−850 Expat employment opportunities as well as growth in the Salmiya 2 BR Apt 400−600 expat population are the primary drivers for the Salmiya 3 BR Apt 600−800 investment segment. The segment, which comprises Hawalli 2 BR Apt 400−450 Hawalli 3 BR Apt 500−600 apartments and buildings for rent, remained muted in the Mangaf 2 BR Apt 300−350 second half of 2014 compared with the first half. As per Mangaf 3 BR Apt 350−400 the NBK, sales stood at KWD 848.4mm in H2 2014, Salwa 2 BR Apt 450−600 down 12.0% compared with H1. The number of Salwa 3 BR Apt 650−800 transactions, too, fell 32.2% to 694 in the same period. Source: Amar Finance Research The drop is mainly due to the base effect, as sales in the Commercial Sector first half were relatively high. However, total sales value increased 29.6% in 2014 to KWD 1.8bn. According to Oversupply eases due to higher sales NBK Capital, in December, apartments accounted for 46% of all the transactions, followed by whole buildings The commercial sector reported strong performance, with at 44%. The Ahmadi governorate once again witnessed total sales reaching KWD 225.4mm in H2 2014, a 25.8% bulk of the activity, with 47% of all transactions. The increase over H2 2013. In Q4 itself, the sector saw a Hawalli governorate accounted for 28%. 626.5% increase over the previous quarter and a 170.9% increase over the same quarter last year. The primary Figure 13: Sales and Transactions in the Investment Segment reason behind such a vast increase is two large 225 300 transactions worth KWD 7bn each in the Hawalli 200 250 175 Governate. The sale of plots for commercial use in Sabah 150 200 125 Al-Ahmed Sea City helped the commercial sector sales top 150 100 KWD 557mm in 2014 and record two consecutive years 75 100 of growth in the value of transactions: 57% in 2013 and Sales (KWD mm) 50 50 25 ofNo. transactions 40% in 2014. The two biggest commercial transactions of 0 0 2014 took place in Sabah Al-Ahmed Sea City, with a Jul-12 Jul-13 Jan-12 Jan-13 Jun-12 Jun-13 Sep-12 Sep-13 Feb-12 Oct-12 Feb-13 Oct-13 Apr-12 Apr-13 Mar-12 Mar-13 Dec-12 Dec-13 Aug-12 Aug-13 May-12 May-13 Nov-12 Nov-13 combined value of KWD 133mm. Investment Number of Transactions Source: NBK Economic Update, February 2015 Figure 14: Value of Sales and Units Sold in Commercial Sector 140 100 120 Kuwait witnesses sharp rise in house rents 80 100 High housing prices, coupled with legislation bottlenecks, 80 60 have driven many construction companies away from 60 40 building private houses in Kuwait. Several companies 40 Sales (KWD mm) 20 20 ofNo. transactions prefer building residential apartment buildings that can be 0 0 sold according to the conditions set by the Bank of Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 Savings and Credit (there is a prohibition on companies Commercial Sales Values Number of Transactions investing in land in any residential area). Experts said that Source: NBK Economic Update, February 2015

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GCC Real Estate Newsletter GCC Real Estate Newsletter grew at a CAGR of 4.4% to reach 4.0 million in 2014. The apartment prices have gone up because of the growing The latest government policies and initiatives, such as Hospitality sector looks promising IMF believes that the country’s population will reach 4.6 demand from both young men and divorced and widowed faster decisions on project approvals and big ticket million by 2019. Therefore, the demand for infrastructure Kuwaiti women who prefer buying flats and renting them projects, are expected to increase FDI inflows and According to industry experts, the tourism industry in is likely to continue fuelling activities in the infrastructure out to receive a steady income. The growing demand for improve the business environment, which in turn will Kuwait performed well in 2014 with its hotels getting the and construction industry as well as the real estate sector apartments has also led to a demand for old buildings. The increase the demand for commercial spaces. Markaz most business in the GCC market. Both public and private in the coming years. Further, improved investment increase in housing prices has resulted in rent increases. believes that the demand-supply trend will balance out in industry players are keen to further develop the market appetite over the last year indicates that the demand is 2015 due to the supply of ~1.17mm sq m of leasable area despite the fact that Kuwait has a limited scope to offer to Mid-range apartments that cover an area of 70−90 sq m likely to improve in the residential segment, and prices and and 176,000 sq m of under-construction land. tourists. To bridge this gap, the government released a are in high demand. Salmiya and Hawalli enjoy the rental rates are expected to go up. five-year tourism plan as it expects one million tourists by majority of the demand in the investment segment, Simultaneously, rental prices and occupancy rates have 2015. The World Travel and Tourism Council (WTTC) Figure 12: Population leading to high property prices. This has also led to an started stabilizing. Owing to the growing market optimism, expects international tourist arrivals to reach 331,000 in 4.8 3.0% increase in the rentals of these properties. The Jabriya, excess liquidity, and strong support from the government, 2013, growing 3.6% annually to 485,000 by 2023. 4.5 2.8% Salmiya and Salwa regions, located in west Kuwait, have a sales and rental prices are likely to remain strong. 4.2 2.6% large number of schools that create more demand. Industry experts believe that new leisure facilities such as 3.9 2.4% Figure 15: Average Deal Price in Commercial Market the Jumeirah Messilah Beach Hotel and Spa will Average rental rates for two- and three-bedroom 14,000 supplement the upcoming planned hotels. According to 3.6 2.2% apartments in these areas range between KWD 500−800 12,000 3.3 2.0% and KWD 600−900 per month, respectively. 10,000 Hotelier Middle East, four projects under the 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 8,000 InterContinental Hotel Group and Jumeirah Messilah Population (mm) (LHS) Growth rate % (RHS) 6,000 Source: IMF Table 04: Monthly Rental in Kuwait – H2 2014 Beach Hotel and Spa are scheduled to open by 2015. Area Property Type KWD per month 4,000 Other developments include the re-opening of the Jabriya 2 BR Apt 400−560 2,000 Investment segment remained muted KWD) ('000 Prices Average Radisson Blu Hotel following a USD 52mm renovation. Jabriya 3 BR Apt 600−850 0 Expat employment opportunities as well as growth in the Salmiya 2 BR Apt 400−600 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 The hotel will offer 307 five-star rooms and 4,000 sq m of Source: NBK Economic Update, February 2015 expat population are the primary drivers for the Salmiya 3 BR Apt 600−800 exhibition space. Authorities also plan to develop investment segment. The segment, which comprises Hawalli 2 BR Apt 400−450 properties in the Fair Ground, Al Salam Palace and Sabah Hawalli 3 BR Apt 500−600 Office rentals remain weak apartments and buildings for rent, remained muted in the Al Salem University by teaming up with the private sector. Mangaf 2 BR Apt 300−350 Although the oversupplied situation in Kuwait has The Kuwait Hotel Owners Association expects that second half of 2014 compared with the first half. As per Mangaf 3 BR Apt 350−400 the NBK, sales stood at KWD 848.4mm in H2 2014, Salwa 2 BR Apt 450−600 somewhat been reduced, it shows signs of stress due to an 10,000 new rooms will be available by 2015, reflecting a down 12.0% compared with H1. The number of Salwa 3 BR Apt 650−800 unfavorable regulatory framework for businesses as well one-third increase in supply. Source: Amar Finance Research as weak infrastructural progress that has deterred new transactions, too, fell 32.2% to 694 in the same period. Although Kuwait’s tourism is picking up, additions to the businesses from entering the country. The drop is mainly due to the base effect, as sales in the Commercial Sector existing attractions and retail developments is essential to first half were relatively high. However, total sales value Kuwait’s commercial landscape is further clouded by avoid oversupply. increased 29.6% in 2014 to KWD 1.8bn. According to Oversupply eases due to higher sales political instability. The country’s politicians and the ruling NBK Capital, in December, apartments accounted for family are at loggerheads, and this is hampering the The commercial sector reported strong performance, with Major Projects 46% of all the transactions, followed by whole buildings approval of many large infrastructure projects. However, total sales reaching KWD 225.4mm in H2 2014, a 25.8% at 44%. The Ahmadi governorate once again witnessed the situation is expected to improve following the Table 06 lists several major construction projects that are increase over H2 2013. In Q4 itself, the sector saw a bulk of the activity, with 47% of all transactions. The implementation of incentives announced by the new underway in Kuwait 626.5% increase over the previous quarter and a 170.9% Hawalli governorate accounted for 28%. government. The new regulations are expected to attract increase over the same quarter last year. The primary Table 06: Major Real Estate Projects in Kuwait more FDI and businesses into the country, thereby Figure 13: Sales and Transactions in the Investment Segment reason behind such a vast increase is two large Project Name Type Value Status leading to increased demand for office spaces. This will in (USD 225 300 transactions worth KWD 7bn each in the Hawalli 200 bn) 250 turn help in absorbing the extra supply in the market. 175 Governate. The sale of plots for commercial use in Sabah Kuwait PAHW − Khairan 150 200 Residential 27.0 Ongoing 125 Al-Ahmed Sea City helped the commercial sector sales top Markaz estimates rental prices to remain stable in 2015, Residential City 150 100 KWD 557mm in 2014 and record two consecutive years but will start increasing thereafter because of increased 75 100 Kuwait PAHW − Sabah Al Community of growth in the value of transactions: 57% in 2013 and demand from the private sector and the government. 27.0 Ongoing Sales (KWD mm) 50 50 Ahmad Future City Development 25 ofNo. transactions 40% in 2014. The two biggest commercial transactions of 0 0 Table 05: Office Space Rentals – H2 2014 Kuwait MPW − Bubiyan Mixed Ongoing 2014 took place in Sabah Al-Ahmed Sea City, with a KWD / sq m/ per Island Development 6.0 Jul-12 Jul-13

Jan-12 Jan-13 Area Jun-12 Jun-13 Sep-12 Sep-13 Feb-12 Oct-12 Feb-13 Oct-13 Apr-12 Apr-13 Mar-12 Mar-13 Dec-12 Dec-13 Aug-12 Aug-13 May-12 May-13 Nov-12 Nov-13 combined value of KWD 133mm. month Investment Number of Transactions Kuwait MPW − Failaka Mixed Kuwait City 4−7 3.3 Ongoing Source: NBK Economic Update, February 2015 Figure 14: Value of Sales and Units Sold in Commercial Sector Island Development Development 140 100 Salmiya 7−8 120 KU − Kuwait University Kuwait witnesses sharp rise in house rents 80 Hawalli 7−8 Education 3.0 Ongoing 100 City Farwaniya 4−6 High housing prices, coupled with legislation bottlenecks, 80 60 Kuwait MPW − Jaber have driven many construction companies away from 60 40 Khaitan 3.5−6 Ahmed Al Jaber Al Sabah Healthcare 1.6 Ongoing building private houses in Kuwait. Several companies 40 Fahaheel 6.5−8 Hospital Sales (KWD mm) 20 20 ofNo. transactions prefer building residential apartment buildings that can be Source: Amar Finance Research KIA/ MoH − Kuwait 0 0 sold according to the conditions set by the Bank of Health Assurance Company Healthcare 1.2 Ongoing Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 (KHAC) Hospitals Project Savings and Credit (there is a prohibition on companies Commercial Sales Values Number of Transactions investing in land in any residential area). Experts said that Source: NBK Economic Update, February 2015 Source: Zawya

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GCC Real Estate Newsletter

December. This indicates that individual or retail demand The UAE for credit is particularly robust and banks are increasingly Official statistics indicate that the UAE’s GDP has willing to lend to this sector. increased from AED 314.8bn to AED 1.54 trillion, in the The latest central bank data also reveals growth in deposits. past decade. The country has emerged as a major Total deposits increased to AED1.4 trillion, up 11.1% y- economic power in the MENA region. A report on online o-y. As loan growth has remained more or less similar to portal HotelandRest states that non-oil sectors accounted the deposit growth, the loan-to-deposit ratio increased to for 69% of the total GDP in the past 10 years, reflecting 98.23% in December. However, bankers admit that falling the country’s major transition from an oil-based to a oil prices have negatively impacted investors’ perception diversified economy. The IMF estimates the UAE’s GDP and could hit their risk appetite, which may be reflected in to reach AED 1.74 trillion by 2018. the loan growth figures in the first few months of 2015. According to the EIU, annual real GDP growth slowed to Figure 17: Loan and Deposits 4.6% in 2014 from 5.2% in 2013. Growth in the non-oil 1,450 100.0%

sector was stable while that in the oil sector remained 1,400 99.0% more or less static. The recovering realty market also 98.0% 1,350 supported the economy to a great extent. The UAE will 97.0% 1,300 continue to benefit from its safe haven status, backed by 96.0% (in AED (in AED bn) the construction and manufacturing sectors and 1,250 95.0% government spending in Dubai and Abu Dhabi. This will 1,200 94.0% Loan to Deposits Ratio (%) in turn help sustain non-oil growth. Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Total Lending Total Depostis Loan to Deposits Ratio Figure 16: Real GDP Growth Rate Source: Central Bank of UAE, Monthly Banking Indicators, Dec 2014 6.0% Inflation remained moderate in 2014 5.5% 5.2% 4.9% 5.0% 4.7% 4.6% According to the National Bureau of Statistics (NBS), 4.5% inflation in UAE was on an upward trend averaging 2.3%, 3.9% 3.8% 4.0% 3.7% as housing prices continued to increase. Overall inflation 3.3% 3.4% 3.5% in December was 3.1%, with housing bucket at 5.4% - the GDP Growth Rate (%) Rate GDP Growth 3.0% highest since early 2009. However, in recent months, 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2019F residential rent has started stabilizing and this is likely to Source: EIU Country Report, February 2015 bring down housing inflation in the coming months. However, EIU lowered its GDP growth projections for Figure 18: Consumer Price Index (CPI) the UAE due to weak global oil prices. It anticipates GDP 122.0 120.8 growth of around 3.3% in 2015. Annual growth will 120.0 118.1 116.8 average 3.6% in 2015-19, as preparations for the World 118.0 116.0 115.0 Expo 2020 will support economic activity towards the end 116.0 114.0 of the forecast period. Factoring in related infrastructure CPI Index 114.0 112.3 spending and the boost to employment, preparations for 112.0 the event should add to the GDP. The event itself will 110.0 draw in a large pool of visitors (government forecasts 19 2008 2009 2010 2011 2012 2013 2014 Source: National Bureau of Statistics, December 2014 million foreign visitors), boosting demand. However, the Expo also presents risks related to overcapacity, steep rise The EIU believes that a stabilizing domestic demand, in property prices and debt. weakening commodity prices and strengthening UDS is likely to bring down inflation levels to 2.1% in 2015. Economic Overview However, it expects inflation levels to rise, albeit remain at manageable levels, averaging at 2.8% a year between UAE loans growth hit 5-year high 2016 and 2019. The growth will be backed by rising global According to the data published by the Central Bank of food prices, robust population growth and scaling back of UAE, in the last five years, bank lending in the UAE subsidies, as is the case expected in Abu Dhabi in 2015. witnessed the fastest growth in November 2014 as it grew Figure 19: Inflation Rate (%) by 1.5% m-o-m and 10.2% y-o-y. At the end of 2014, the 3.5% 3.1% 3.0% 2.8% loans, advances and overdraft facilities reached AED 1.4 3.0% 2.5% trillion, up 9.5% y-o-y. Increasing loan growth, coupled 2.5% 2.3% 2.1% with falling oil prices, is an indication that the non-oil 2.0% 1.5% 1.1% sector has been performing strongly. Personal loans, Inflation (%) 0.9% 1.0% 0.7% which accounts for 22.8% of the total bank loans, 0.5% witnessed a much faster growth rate of 13.8% y-o-y in 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Source: EIU, February 2015

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GCC Real Estate Newsletter GCC Real Estate Newsletter

December. This indicates that individual or retail demand Real Estate Sector To further boost the hospitality and tourism industries, The UAE for credit is particularly robust and banks are increasingly the governments of Abu Dhabi and Dubai are developing Official statistics indicate that the UAE’s GDP has willing to lend to this sector. Projects worth USD 46bn awarded in 2014 islands such as Sadiyat, Al Reem Island and Yas Island. increased from AED 314.8bn to AED 1.54 trillion, in the This is driving the building construction sector in the The latest central bank data also reveals growth in deposits. signifies solid construction environment past decade. The country has emerged as a major Emirates. The construction market in Dubai is bouncing Total deposits increased to AED1.4 trillion, up 11.1% y- Among the GCC countries, economic growth in the UAE economic power in the MENA region. A report on online back from the downturn, driven by significant state o-y. As loan growth has remained more or less similar to is the fastest, backed by a boom in the construction sector portal HotelandRest states that non-oil sectors accounted spending for hosting the Expo; revival in retail markets; the deposit growth, the loan-to-deposit ratio increased to and sustained support from the oil and gas sector. Since for 69% of the total GDP in the past 10 years, reflecting population growth; and high visitor inflow. Nearly USD 98.23% in December. However, bankers admit that falling 2012, the Abu Dhabi and Dubai governments have the country’s major transition from an oil-based to a 300mm has been awarded to The Palmarosa in Dubailand oil prices have negatively impacted investors’ perception announced a number of development projects leading to diversified economy. The IMF estimates the UAE’s GDP project, an upcoming regional and international tourism and could hit their risk appetite, which may be reflected in the revival of the economy. to reach AED 1.74 trillion by 2018. hub. Another new tourism-based project, Mohammed bin the loan growth figures in the first few months of 2015. According to the IMF, UAE’s GDP is expected to grow Rashid City, is expected to feature world-class leisure According to the EIU, annual real GDP growth slowed to Figure 17: Loan and Deposits by 4% each year to reach USD 404bn in 2014 from USD facilities and provide a platform for development of 4.6% in 2014 from 5.2% in 2013. Growth in the non-oil 1,450 100.0% 390bn in 2013. The tourism and infrastructure sectors entrepreneurship and innovation. sector was stable while that in the oil sector remained 99.0% 1,400 boosted the GDP in 2013 and 2014. Now, with the UAE more or less static. The recovering realty market also 98.0% Property market continues uphill rally 1,350 winning the bid to host World Expo 2020, it is set to supported the economy to a great extent. The UAE will 97.0% through 2014 1,300 attract visitors from across the globe and in turn boost the continue to benefit from its safe haven status, backed by 96.0%

(in AED (in AED bn) domestic construction and tourism industries. This is the construction and manufacturing sectors and 1,250 The real estate environment, especially in Dubai and Abu 95.0% evident from the fact that a number of stalled projects kick government spending in Dubai and Abu Dhabi. This will Dhabi, continued to witness an upward trend, as predicted 1,200 94.0% Loan to Deposits Ratio (%) started in 2014. The total construction projects awarded in turn help sustain non-oil growth. Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 by industry players and analysts. Both the markets present Total Lending Total Depostis Loan to Deposits Ratio in the UAE in 2013 totaled USD 38bn, of which building strong growth, backed by property sales, steady supply, Source: Central Bank of UAE, Monthly Banking Indicators, Dec 2014 Figure 16: Real GDP Growth Rate and construction sector comprised ~59% while and rising investor confidence. Industry experts believe 6.0% Inflation remained moderate in 2014 infrastructure, oil and gas, and power and water together that the recent review (by the Regulatory Development 5.5% 5.2% 4.9% contributed 34% to the total construction project values. Unit of the UAE Central Bank) of global best practices 5.0% 4.7% 4.6% According to the National Bureau of Statistics (NBS), Figure 20: Construction projects awarded in UAE (USD mm) related to real estate mortgage loan regulations will impact 4.5% inflation in UAE was on an upward trend averaging 2.3%, 3.9% 3.8% 50,000 45,659 the supply-demand balance and may prove to be a critical 4.0% 3.7% as housing prices continued to increase. Overall inflation 38,149 3.3% 3.4% 40,000 market factor. With more regulations in place, there will 3.5% in December was 3.1%, with housing bucket at 5.4% - the 31,000

GDP Growth Rate (%) Rate GDP Growth be a major reduction in the speculation activities that are 3.0% highest since early 2009. However, in recent months, 30,000 24,792 2011A 2012A 2013A 2014E 2015F 2016F 2017F 2018F 2019F currently rampant in the market. Additionally, job creation residential rent has started stabilizing and this is likely to USD mm 20,000 Source: EIU Country Report, February 2015 may help sustain positive industry trends. bring down housing inflation in the coming months. 10,000 However, EIU lowered its GDP growth projections for According to Tasweek Real Estate, Abu Dhabi’s realty Figure 18: Consumer Price Index (CPI) 0 the UAE due to weak global oil prices. It anticipates GDP 122.0 2011 2012 2013 2014 sector is likely to observe solid growth and development 120.8 Source: Ventures Onsite growth of around 3.3% in 2015. Annual growth will 120.0 118.1 over the next decade. This will be backed by huge 116.8 average 3.6% in 2015-19, as preparations for the World 118.0 116.0 The growing population of the UAE has led to a rise in investment-backed island projects, such as Reem Island, 115.0 Expo 2020 will support economic activity towards the end 116.0 114.0 the demand for housing, office, and retail space. The Al Raha Beach, Saadiyat Island, and Yas Island, which are of the forecast period. Factoring in related infrastructure CPI Index 114.0 112.3 population was ~8.7 million in 2012, and is estimated to drawing significant investor interest. Recent turnovers, spending and the boost to employment, preparations for 112.0 reach 9.3 million in 2014. such as the second batch of the luxury Eastern Mangroves the event should add to the GDP. The event itself will 110.0 apartments, indicate end-to-end market expansion. The building and construction sectors are also benefiting draw in a large pool of visitors (government forecasts 19 2008 2009 2010 2011 2012 2013 2014 Source: National Bureau of Statistics, December 2014 from the growing tourism and hospitality sectors. The Other factors that are expected to drive growth in the local million foreign visitors), boosting demand. However, the expected preparations for the World Expo 2020 has market are: allocation of AED 330bn by the Abu Dhabi Expo also presents risks related to overcapacity, steep rise The EIU believes that a stabilizing domestic demand, boosted investor confidence, leading to several mega government for various projects across multiple sectors, in property prices and debt. weakening commodity prices and strengthening UDS is likely to bring down inflation levels to 2.1% in 2015. projects across the hospitality and tourism sectors. which has placed the Emirates among the top investment destinations in the world, and the announcement that Economic Overview However, it expects inflation levels to rise, albeit remain Abu Dhabi is actively upgrading its national infrastructure, employees of companies owned by the Abu Dhabi at manageable levels, averaging at 2.8% a year between airport, seaports, etc., in line with its Vision 2030 plans. UAE loans growth hit 5-year high 2016 and 2019. The growth will be backed by rising global government have to relocate to the capital before Figure 21: UAE construction projects by sector (2013) September to retain their housing allowance. According to the data published by the Central Bank of food prices, robust population growth and scaling back of Marine UAE, in the last five years, bank lending in the UAE subsidies, as is the case expected in Abu Dhabi in 2015. Industrial 2% Pipeline 4% 1% Dubai realty transactions witness fall in 2014 Power and Water witnessed the fastest growth in November 2014 as it grew Figure 19: Inflation Rate (%) 9% The Dubai Land Department (DLD) has revealed that real by 1.5% m-o-m and 10.2% y-o-y. At the end of 2014, the 3.5% 3.1% 3.0% 2.8% estate transactions in Dubai stood at AED 218bn, a loans, advances and overdraft facilities reached AED 1.4 3.0% 2.5% Oil and Gas trillion, up 9.5% y-o-y. Increasing loan growth, coupled 2.5% 2.3% 2.1% 11% marginal drop of 8.25% y-o-y from AED 236bn in 2013. 2.0% with falling oil prices, is an indication that the non-oil According to the latest numbers revealed by DLD, in 2014, 1.5% 1.1% Buildings sector has been performing strongly. Personal loans, Inflation (%) 0.9% 1.0% 0.7% Infrastructure 59% the total number of transactions in terms of sales reached 14% which accounts for 22.8% of the total bank loans, 0.5% 38,113 with their total value exceeding AED 112bn. The witnessed a much faster growth rate of 13.8% y-o-y in 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E mortgage market recorded 12,511 transactions, which Source: EIU, February 2015 Source: Ventures Onsite Database

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GCC Real Estate Newsletter exceeded AED 97bn, and the remaining operations Figure 24: Dubai Realty Investments in 2014 – 41,715 investors accounted 3,227 transactions with a total value of AED Arab

10bn. Of the total, transactions worth AED 157bn were Other Egypt Jordan Nations related to land mortgage and sales. The report by DLD Lebanon 0 1,500 3,000 4,500 6,000 stated that sales accounted for more half of the total value 30,000 7,500 Others of transactions at 51%, with the share of mortgages at Qatar 25,000 Other Kuwait Arab 44%, leaving all remaining operations at only 5% of the 6,000 Nations 20,000 Non-Arab total activity. Saudi Arabia 13% Nations 4,500 15,000 GCC According to DLD, Al Thenaya Al Thaletha area of Dubai 17% 10,000 Pakistan 3,000 5,000 was reported as the most attractive for investors, followed UAE Non-Arab Nations India by Al Thenaya Al Khamesa, and Al Barsha South 4. 1,500 70% 0

Business Bay was popular among investors looking to buy 0 apartments followed by Dubai Marina and Al Thenaya Al Source: Dubai Land Department, December 2014 Khamesa. Residential Sector Figure 22: 2014 RE Transaction Value Break-up by Type Other Transactions Demand supply continues to be widely 5% gapped in Abu Dhabi

Mortgages The residential market continues to remain undersupplied 44% due to changing demographics and limited supply of units in the market. According to Colliers, the gap between Sales residential demand and supply is currently ~21% across 51% Abu Dhabi indicating a significantly undersupplied market. The realty expert estimates that this gap is likely to reach Source: Dubai Land Department, December 2014 ~31% by 2018, given that the current timelines are met by Foreign investors continue to be active the existing developers. Figure 25: Abu Dhabi Residential Demand and Supply Dubai’s realty market is deemed a profitable investment channel because of its stability, diversity, and high returns. 4,00,000 Undersupply: 31% 3,50,000 Undersupply: 21% According to DLD, 41,715 investors contributed AED 3,00,000 109bn to the realty market in 2014. A break-down of this 2,50,000 2,00,000 investment shows that UAE investors, at AED 22.7bn, 1,50,000 contributed about 71% to the GCC investments in Dubai. 1,00,000 50,000 The fact that 4,452 UAE investors made bigger 0 transactions than the 8,165 other Arab investors implies 2013 2014 2015 2016 2017 2018 that the real estate industry sector is a sweet spot for Arab Undersupply Supply Demand Source: Statistics Centre Abu Dhabi, Colliers International Estimates nations. As per Colliers data, about 47,900 residential units are Figure 23: Dubai Realty Investments in 2014 – AED 109bn likely to enter the market during 2015-2018 – a 3.6% increase p.a. However, this will not be sufficient to Arab Egypt Other Jordan Nations

Lebanon accommodate the population growth (5.5% per annum). The declining housing sizes are also likely to add pressure 0 3 6 9 12 35 70 to the widening demand supply gap. Others 60 30 Qatar Arab Figure 26: Average Housing Size Kuwait Nations 50 Other Non- 25 Saudi Arabia 11% Arab 8 40 Nations 20 7 30 6 15 GCC 20 Pakistan UAE 30% Non-Arab 5 10 Nations 10 India 4 59% 7.5 5 0 3 6.1 5.4 5.2 0 2 4.3 Source: Dubai Land Department, December 2014 1 0 Meanwhile, there were 29,098 foreign investors (non- 1980 1985 1995 2007 2009 Arab investors) or 70% of the total number of investors Source: Statistics Centre Abu Dhabi, Colliers International Estimates who invested ~AED 64bn (~60% of the entire investment) in the Dubai realty market in 2014.

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GCC Real Estate Newsletter GCC Real Estate Newsletter exceeded AED 97bn, and the remaining operations Figure 24: Dubai Realty Investments in 2014 – 41,715 investors Abu Dhabi’s residential rent remains at toward new developments, resulting in sustained rental accounted 3,227 transactions with a total value of AED higher end – affordability an issue deflation in many older units. Arab

10bn. Of the total, transactions worth AED 157bn were Other Egypt Jordan Nations Lebanon The developments that will continue to be in demand related to land mortgage and sales. The report by DLD The second half of 2014 has been a relatively mixed period 0 1,500 3,000 4,500 6,000 include Al Bandar, Al Zeina and Al Muneera at Al Raha stated that sales accounted for more half of the total value 30,000 for Abu Dhabi’s residential market, as slump in some 7,500 Others areas was offset by growth in others. The residential Beach. These developments have become more attractive of transactions at 51%, with the share of mortgages at Qatar 25,000 Arab Other as retail outlets have opened and the communities have 44%, leaving all remaining operations at only 5% of the 6,000 Kuwait Non-Arab market is witnessing increased tenant activity, following Nations 20,000 established themselves as quality destinations. In addition, total activity. Saudi Arabia 13% Nations the government’s decision to extend housing allowance to 4,500 15,000 prime located properties on the Corniche and Saadiyat GCC employees staying in Abu Dhabi and remove the 5% rent According to DLD, Al Thenaya Al Thaletha area of Dubai 17% 10,000 Pakistan Island are likely to retain strong premiums. 3,000 cap. This means that landlords can now raise annual rents 5,000 was reported as the most attractive for investors, followed UAE India Non-Arab Nations by more than 5%, depending on the demand and supply Table 07: Average Villa Rentals in Abu Dhabi in H2 2014 by Al Thenaya Al Khamesa, and Al Barsha South 4. 1,500 70% 0 conditions in the realty market. The completion of a 3-BR 4-BR 5-BR Business Bay was popular among investors looking to buy (In AED ‘000 p.a.) 0 significant number of new residential units from master- Apt Apt Apt apartments followed by Dubai Marina and Al Thenaya Al Source: Dubai Land Department, December 2014 planned locations is also encouraging widespread Khalidiya / Bateen 160-195 200-230 250-300 Khamesa. Residential Sector relocation within the capital, as tenants look to benefit Al Nahyan Camp / Muroor 160-180 185-200 210-260 Figure 22: 2014 RE Transaction Value Break-up by Type from new and better quality housing options. Mushrif / Karama / 160-180 180-190 190-300 Other Transactions Manaseer 100-110 130-140 150-170 Demand supply continues to be widely JLL, in its latest report, mentioned that approximately MBZ / Mussafah 5% 100-125 135-150 150-190 gapped in Abu Dhabi 2,800 residential units were delivered in Abu Dhabi in H2 Khalifa A & B Sas Al Nakhl 160-180 180-210 220-280 2014, bringing its total residential stock to approximately Mortgages The residential market continues to remain undersupplied Al Raha Gardens 150-190 160-240 250-320 243,000 at the end of 2014. An additional 10,000 units are 44% due to changing demographics and limited supply of units Golf Gardens 190-230 240-280 320-350 in the market. According to Colliers, the gap between scheduled to be delivered in 2015 and, further, the Al Reef 110-120 140-150 160-170 aggregate supply could reach 264,000 by the end of 2016. Saadiyat Beach 275-300 290-330 500-800 Sales residential demand and supply is currently ~21% across 265-290 280-300 310-330 51% Abu Dhabi indicating a significantly undersupplied market. Figure 27: Abu Dhabi Future Visible Residential Stock Al Raha Beach 275 Source: Amar Finance Research The realty expert estimates that this gap is likely to reach Source: Dubai Land Department, December 2014 ~31% by 2018, given that the current timelines are met by 255 11 Table 08: Average Apartment Rentals in Abu Dhabi in H2 2014 10 (in AED ‘000 the existing developers. 235 1-BR Apt 2-BR Apt 3-BR Apt Foreign investors continue to be active p.a.) Figure 25: Abu Dhabi Residential Demand and Supply 215 253 Saadiyat Beach 95-135 125-190 175-245 Dubai’s realty market is deemed a profitable investment 236 243 243 4,00,000 Undersupply: 31% Al Raha Beach 95-120 140-180 170-275 channel because of its stability, diversity, and high returns. 195 206 3,50,000 Undersupply: 21% Khalidiya/Bateen 90-145 75-180 100-320 Number of Units ('000s) 194 According to DLD, 41,715 investors contributed AED 3,00,000 175 Marina Square 75-95 95-145 150-225 109bn to the realty market in 2014. A break-down of this 2,50,000 2011 2012 2013 2014 2015 E 2016 E 2,00,000 Corniche 60-130 75-190 100-280 Completed Stock Future Supply investment shows that UAE investors, at AED 22.7bn, 1,50,000 Shams Abu Source: JLL Abu Dhabi Real Estate Market Overview, Q4 2014 65-115 90-160 140-190 contributed about 71% to the GCC investments in Dubai. 1,00,000 Dhabi 50,000 Tourist Club Area 60-75 65-145 80-180 The fact that 4,452 UAE investors made bigger 0 For a country like Abu Dhabi, which has a high capita Reef Downtown 60-65 70-75 85-95 transactions than the 8,165 other Arab investors implies 2013 2014 2015 2016 2017 2018 Central Abu Undersupply Supply Demand income, affordable housing is deemed as a relative 55-90 75-150 70-190 that the real estate industry sector is a sweet spot for Arab Dhabi Source: Statistics Centre Abu Dhabi, Colliers International Estimates measure by industry experts as the residential market is Al Nahyan Camp 50-90 65-130 90-150 nations. undersupplied. The latest income and expenditure surveys Khalifa A 40-90 50-130 60-160 As per Colliers data, about 47,900 residential units are Figure 23: Dubai Realty Investments in 2014 – AED 109bn published by the Statistics Centre Abu Dhabi (SCAD) MBZ/Mussafah 40-65 50-85 60-90 likely to enter the market during 2015-2018 – a 3.6% suggest that an accepted guideline for spending on Source: Amar Finance Research increase p.a. However, this will not be sufficient to housing is about 37% of the income. This number is likely Arab Egypt Other Jordan

Nations Dubai residential segment stabilizes in 2014, Lebanon accommodate the population growth (5.5% per annum). to increase as a result of the removal of the rental cap by The declining housing sizes are also likely to add pressure trend to continue in 2015 0 3 6 9 12 the government in a market that is acutely undersupplied. 35 70 to the widening demand supply gap. As per Colliers, 72% of families in Abu Dhabi (excluding After two years of steep increase in housing prices, the Others 60 30 Qatar Arab Figure 26: Average Housing Size blue collar workers) earn between AED 9,500 and AED Dubai housing market witnessed corrections in 2014. The Kuwait Nations 50 Other Non- 25 Saudi Arabia 11% Arab 8 32,000 per month, and majority of them can afford rentals prices stabilized after increasing by almost 60% between 40 Nations 20 7 30 between AED 43,000 and AED 140,000 annually. January 2012 and June 2014. From the third quarter, 6 15 GCC residential rent dipped marginally by 1%. According to 20 Pakistan After a strong H1 2014, when rentals grew sizably, H2 UAE 30% Non-Arab 5 REIDIN, a company offering real estate information for 10 Nations 10 India 4 showed signs of stabilization, bringing the average annual 59% 7.5 5 0 3 6.1 emerging markets, rental index shows growth levels 5.4 5.2 increment in prime rent to 11% in 2014. In H2 2014, 4.3 dropping from 18% in 2013 to 15% in 2014. Similarly, the 0 2 rentals initially was more or less unchanged; however, in Source: Dubai Land Department, December 2014 1 sales market saw some cooling down as the REIDIN sales the last quarter, rentals increased by 4%. During Q3, 0 index points to a decline in growth levels from 23% in Meanwhile, there were 29,098 foreign investors (non- average rent increased by just 2% but the market was 1980 1985 1995 2007 2009 2013 to 20% in 2014. This is further supported by the Arab investors) or 70% of the total number of investors Source: Statistics Centre Abu Dhabi, Colliers International Estimates fragmented as rents of some properties were stable. drop in number and value of transactions in 2014 by 30% who invested ~AED 64bn (~60% of the entire As a large part of Abu Dhabi’s housing units are now and 14%, respectively. JLL, in its Q4 2014 report, suggests investment) in the Dubai realty market in 2014. outdated, there has been a general shift of preference

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GCC Real Estate Newsletter

that housing prices are likely to decline by 10% in 2015 Commercial Sector and rentals will also fall in parallel. Abu Dhabi office market remains more or However, positive market and economic fundamentals in the past year has seen a growing number of developers less flat while Dubai faces two tier market moving ahead with stalled projects as well as the launch of Abu Dhabi: The office sector in Abu Dhabi stabilized in multiple new schemes within a short period. Construction H2 2014. According to JLL, the current supply of office activity across established locations and newer stock stands at 3.1mm sq m, comprising 16% Grade A, developments such as Al Jadaf, DuBiotech, Dubai World 41% Grade B, 38% Grades C and D, and 4% other, with Central and Dubai Healthcare City Phase II is noticeably a total vacancy rate of 39% in H2 2014. The market up, resulting in a rapidly growing pipeline of residential expects an additional supply of 440,000mm sq m of GLA supply. As per JLL, 25,000 new units, which constitute by 2015. ~7% of the current stock, are likely to enter the market in Figure 29: Abu Dhabi Office GLA (2011 – 2016) 2015. Analysts believe that this stock will easily be 4.00 absorbed with the changing demographics and income levels. 3.50 0.08 0.36 Figure 28: Residential Stock (H2 2014) and Future Supply 3.00 440 3.5 GLA (in mm) 3.1 3.1 420 12 2.50 2.9 3.0 13 400 2.5 25 2.00 380 2011 2012 2013 2014 2015 E 2016 E 360 415 402 Current Supply Future Supply 340 377 377 Source: JLL Abu Dhabi Real Estate Market Overview, Q4 2014 356 366

Number of Number of Units ('000s) 320 342 300 With limited completions in H2 2014, vacancy rates 2011 2012 2013 2014 2015 E 2016 E 2017 E remained stable at 25%, while rentals for prime space Completed Stock Future Supply increased by 5-6% and secondary areas or Grade B offices Source: JLL Dubai Real Estate Market Overview, Q4 2014 remained unchanged. Grade A office rents increased by On the rental front, H2 2014 saw residential markets 12% y-o-y while Grade B office rents were unchanged, stabilize as average rent and sale prices remained relatively indicating evident disparity between good quality space flat in the final quarter of 2014. The apartment units saw and low-grade products. However, a more active leasing rent rising by ~18% y-o-y while villa rent increased by 5% market is expected to emerge with increased demand from y-o-y. According to JLL, the residential sector is likely to the private sector in the coming years. remain subdued over the next 12 months as the market is Table 11: Average annual office rentals in Abu Dhabi – H2 2014 expected to absorb 25,000 additional units in 2015. Area (AED per sq m) Table 09: Average Apartment Rentals in Dubai in H2 2014 Khalifa Street 850-1,250 (in AED ‘000 p.a.) 1-BR Apt 2-BR Apt 3-BR Apt Aud Al Touba Street 850-1,150 Discovery Gardens 45-50 70-75 n/a-n/a Main Street 850-1,250 Downtown Dubai 85-90 125-130 190-200 Senaya Street 500-700 Dubai Marina 70-75 100-110 135-150 International City 26-30 40-45 n/a-n/a Source: Amar Finance Research Jumeirah Beach Residence 80-85 100-110 140-140 Dubai: According to JLL, the current stock of office Jumeirah Lakes Towers 55-60 75-80 100-110 space in Dubai stands at 7.6mm sq m, with a vacancy rate Palm Jumeirah 100-105 150-155 190-200 Sheikh Zayed Road 80-85 120-130 140-150 of around 24%, and another 1.7mm sq m is expected to Source: Amar Finance Research enter the market by 2017. Demand continues to remain strong for single owned buildings in established locations Table 10: Average Villa Rentals in Dubai in H2 2014 and this is likely to keep rental rates and vacancy levels at (in AED ‘000 p.a.) 3-BR Apt 4-BR Apt 5-BR Apt manageable levels in the short term. However, as new Arabian Ranches 170-165 230-225 290-290 space enters the market, average rent is likely to decline as Green Community 215-200 230-230 265-260 tenants would want to optimize their space constraints Jumeirah 170-160 210-190 250-230 and consolidate their operations at one location. Jumeirah Islands n/a-n/a 325-300 375-350 Meadows 240-220 265-240 280-265 Dubai is witnessing a two-tier office market. Prime Mirdif 110-100 130-120 160-150 Central Business District (CBD) rents were stable in H2 Palm Jumeirah 330-325 425-400 575-550 2014 and they are expected to increase as demand remains Springs 160-145 n/a-n/a n/a-n/a strong for Grade A office space. Meanwhile, rent in Source: Amar Finance Research secondary locations are likely to remain under stress as more Grade A office space enters the market by 2015.

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GCC Real Estate Newsletter GCC Real Estate Newsletter

Figure 30: Dubai Office GLA (2011–2017) that housing prices are likely to decline by 10% in 2015 Commercial Sector Dubai, which accounts for 60% of the UAE’s luxury and rentals will also fall in parallel. 10.0 market, retains its second position in global retail 0.1 Abu Dhabi office market remains more or 9.0 0.4 destinations, as revealed by Bain & Company. The market However, positive market and economic fundamentals in 1.2 continues to be dominated by super-regional malls, such the past year has seen a growing number of developers less flat while Dubai faces two tier market 8.0 as Dubai Mall and Mall of the Emirates. However, with moving ahead with stalled projects as well as the launch of Abu Dhabi: The office sector in Abu Dhabi stabilized in 7.0 8.8 9.2

GLA (in sq m) increasing space constraints in these malls, increased multiple new schemes within a short period. Construction H2 2014. According to JLL, the current supply of office 7.4 7.6 7.6 6.0 7.1 demand for retail space is expected in secondary malls. activity across established locations and newer stock stands at 3.1mm sq m, comprising 16% Grade A, 6.3 5.0 developments such as Al Jadaf, DuBiotech, Dubai World 41% Grade B, 38% Grades C and D, and 4% other, with 2011 2012 2013 2014 2015 E 2016 E 2017 E Figure 32: Dubai Retail Stock (2011-2017) 4.0 Central and Dubai Healthcare City Phase II is noticeably a total vacancy rate of 39% in H2 2014. The market Completed Stock Future Supply up, resulting in a rapidly growing pipeline of residential expects an additional supply of 440,000mm sq m of GLA Source: JLL Dubai Real Estate Market Overview, Q4 2014 0.2 3.5 supply. As per JLL, 25,000 new units, which constitute by 2015. 0.3 Table 12: Average annual office rentals in Dubai – H2 2014 ~7% of the current stock, are likely to enter the market in 3.0 0.3 Figure 29: Abu Dhabi Office GLA (2011 – 2016) 2015. Analysts believe that this stock will easily be Area (AED per sq m) 3.5 4.00 2.5 3.2 GLA in mm sq m 2.9 2.9 2.9 absorbed with the changing demographics and income Bur Dubai 600-900 2.7 2.8 3.50 0.08 levels. Business Bay 500-800 2.0 0.36 Dubai International Financial Centre 1500-2500 2011 2012 2013 2014 2015 E 2016 E 2017 E 3.00 Figure 28: Residential Stock (H2 2014) and Future Supply Completed Stock Under Construction 440 3.5 Dubai Internet City 1000-1500 GLA (in mm) Source: JLL Dubai Real Estate Market Overview, Q4 2014 3.1 3.1 420 12 2.50 2.9 3.0 Dubai Investment Park 200-400 13 2.5 400 Jumeirah Lakes Towers 300-600 JLL revealed that the total mall space in Dubai at the end 25 2.00 380 2011 2012 2013 2014 2015 E 2016 E Sheikh Zayed Road 350-700 of 2014 was 2.9mm sq m, of which 19,300 sq m was added 360 415 Current Supply Future Supply to the market in Q3 2014. In 2015, retail space of 267,000 402 Source: Amar Finance Research 340 377 377 Source: JLL Abu Dhabi Real Estate Market Overview, Q4 2014 sq m will be added – of which 118,000 sq m is due for 356 366 Number of Number of Units ('000s) 320 342 completion in Q1 2015. This largely includes Phase II of With limited completions in H2 2014, vacancy rates Supply of retail space offers growth potential 300 Dragon Mart and three neighborhood centers, including 2011 2012 2013 2014 2015 E 2016 E 2017 E remained stable at 25%, while rentals for prime space The UAE is undergoing fast recovery in its retail property The Box Park by Meraas. An estimated 819,000 sq m of Completed Stock Future Supply increased by 5-6% and secondary areas or Grade B offices market, partly due to Abu Dhabi’s strong aspiration to retail space will enter Dubai by the end of 2017, including Source: JLL Dubai Real Estate Market Overview, Q4 2014 remained unchanged. Grade A office rents increased by catch up with Dubai. the Agora Mall, as well as the expansion of Ibn Battuta 12% y-o-y while Grade B office rents were unchanged, On the rental front, H2 2014 saw residential markets Mall, Phase II of the Avenue Mall, and the expansion of indicating evident disparity between good quality space Of late, various malls in Abu Dhabi have been running at stabilize as average rent and sale prices remained relatively the Dubai Mall. flat in the final quarter of 2014. The apartment units saw and low-grade products. However, a more active leasing almost 100% occupancy due to shortage of retail space. rent rising by ~18% y-o-y while villa rent increased by 5% market is expected to emerge with increased demand from JLL reported that the total retail space in Abu Dhabi was UAE hospitality portrays strong growth y-o-y. According to JLL, the residential sector is likely to the private sector in the coming years. 2.5mm sq m, and 0.3mm sq m was added in 2014. Retail ahead remain subdued over the next 12 months as the market is space in Abu Dhabi increased by 326,000 sq m in Q4 2013 Table 11: Average annual office rentals in Abu Dhabi – H2 2014 expected to absorb 25,000 additional units in 2015. following the delivery of Yas Mall – Abu Dhabi’s largest Data from United Nations World Tourism Organization Area (AED per sq m) mall to date (235,000sq m), together with Capital Mall data shows that the UAE ranked 31st among the world’s Table 09: Average Apartment Rentals in Dubai in H2 2014 Khalifa Street 850-1,250 (MBZ) and Al Reef retail. By end-2016, the total retail most-popular tourism destinations and is the most (in AED ‘000 p.a.) 1-BR Apt 2-BR Apt 3-BR Apt Aud Al Touba Street 850-1,150 space in the city is expected to reach 2.7mm sqm. Recently, popular in the Arab World, ahead of Egypt (ranked 32) Discovery Gardens 45-50 70-75 n/a-n/a Main Street 850-1,250 there have been announcements for the opening of new and Saudi Arabia (ranked 35), in terms of tourism receipts. Downtown Dubai 85-90 125-130 190-200 Senaya Street 500-700 malls, such as Sowwah Central, Saadiyat mall, Reem Mall, Official data reveals that tourism accounts for 8.5% of the Dubai Marina 70-75 100-110 135-150 UAE’s GDP, with a 4.5% y-o-y growth to AED 122.6bn Source: Amar Finance Research and the Marina Mall extension. These malls can increase International City 26-30 40-45 n/a-n/a the retail supply in Abu Dhabi substantially by 2017-18. in 2013. Jumeirah Beach Residence 80-85 100-110 140-140 Dubai: According to JLL, the current stock of office Jumeirah Lakes Towers 55-60 75-80 100-110 On the rental front, retail rent has remained stable in H2, Expo 2020 is expected to attract 25 million visitors to space in Dubai stands at 7.6mm sq m, with a vacancy rate Palm Jumeirah 100-105 150-155 190-200 with prime rent between AED 3,500–4,000 per sq m p.a. Dubai and generate USD 25–35bn in revenue. of around 24%, and another 1.7mm sq m is expected to Sheikh Zayed Road 80-85 120-130 140-150 With extra retail space entering the market over the next enter the market by 2017. Demand continues to remain As per JLL, Dubai currently has 64,200 hotel rooms and Source: Amar Finance Research two years, we expect downward pressure on retail rent. strong for single owned buildings in established locations is likely to see an inflow of 4,700 rooms in 2015, and a Table 10: Average Villa Rentals in Dubai in H2 2014 and this is likely to keep rental rates and vacancy levels at Figure 31: Abu Dhabi Retail Stock (2011-2016) total of 27,000 units until 2018. While most of the current 3.0 (in AED ‘000 p.a.) 3-BR Apt 4-BR Apt 5-BR Apt manageable levels in the short term. However, as new pipeline comprises upscale hotels, tourism authorities are 0.1 taking initiatives to promote and facilitate development of Arabian Ranches 170-165 230-225 290-290 space enters the market, average rent is likely to decline as 2.5 0.1 Green Community 215-200 230-230 265-260 tenants would want to optimize their space constraints mid-segment hotels. Consolidation in the Dubai Jumeirah 170-160 210-190 250-230 and consolidate their operations at one location. 2.0 hospitality market is anticipated after the sale of the 2.6 Jumeirah Islands n/a-n/a 325-300 375-350 2.5 2.5 Movenpick JBR in 2014. Dubai is witnessing a two-tier office market. Prime 1.5 2.2

Meadows 240-220 265-240 280-265 sqin '000s m GLA 1.7 1.8 Mirdif 110-100 130-120 160-150 Central Business District (CBD) rents were stable in H2 2014 and they are expected to increase as demand remains 1.0 Palm Jumeirah 330-325 425-400 575-550 2011 2012 2013 2014 2015 E 2016 E Springs 160-145 n/a-n/a n/a-n/a strong for Grade A office space. Meanwhile, rent in Completed Stock Future Supply Source: Amar Finance Research secondary locations are likely to remain under stress as Source: JLL Abu Dhabi Real Estate Market Overview, Q4 2014 more Grade A office space enters the market by 2015.

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Figure 33: Dubai Hotel Stock (2013-2016) 90,000 Major Projects

80,000 5,900 Table 13 provides a list of the major construction projects 8,000 in the UAE. 70,000 4,700 8,400 60,000 Table 13: Major Real Estate Projects in UAE No. of of No. Rooms

76,600 Project Name Type Value Status

50,000 68,600 64,200 64,200 (USD 60,200 60,200 57,000 40,000 bn) 2012 2013 2014 2015 E 2016 E 2017 E 2018 E ALDAR - Yas Island Community 40.0 Ongoing Current Supply Future Additions Development Development Source: JLL Dubai Real Estate Market Overview, Q4 2014 Free Ongoing DWC - Dubai World Zones/Economic 37.3 Abu Dhabi’s hospitality market grew significantly in 2014. Central Zones According to the Abu Dhabi Tourism & Culture ADFEC - Masdar Carbon Community 22.0 Ongoing Authority (TCA), in 2014, 3,494,063 guests checked into Free City Development the emirate’s 160 hotels and hotel apartments – up 25% y- Chemaweyaat - Chemicals Industrial 20.0 Ongoing o-y and beating TCA’s annual target of 2.7 million. JLL Industrial City ALDAR - Yas Island revealed that 1,550 hotel rooms were added during 2014, Retail 12.8 Ongoing and about 3,150 additional rooms are expected to enter Development - Yas Mall ADFEC - Masdar Carbon Mixed the market by end-2015. Overall supply is expected to 10.0 Ongoing Free City - Phase 1 Development reach about 25,000 rooms by end-2017, a CAGR of 7.1% SEHA - Sheikh Khalifa Healthcare 4.0 Ongoing from the 2011 levels. Medical City Mixed While the hospitality space in Abu Dhabi continues to be 3.3 Ongoing driven by the corporate and MICE (Meetings, Incentives, Waha Land - Almarkaz Development Al Barari - Al Barari - Mixed Conferencing, Exhibitions) segments, efforts are being 3.2 Ongoing Phase 2 Development made to diversify the demand base by focusing on the ALDAR Properties - Mixed 3.0 Ongoing leisure segment. Motor World Development ALDAR Properties - Al Figure 34: Abu Dhabi Hotel Stock (2011-2017) Residential 2.6 Ongoing 27,000 Falah 950 1,200 Damac Properties - Akoya Hotels 2.5 Ongoing 22,000 3,150 Community ADNEC - Capital Centre 2.2 Ongoing Development 17,000 Musanada - North 24,050

22,850 Residential 2.1 Ongoing

No. of of Rooms No. Wathba Development 12,000 19,700 19,700 18,150 15,700

13,987 Meraas - Bluewaters Mixed 1.6 Ongoing 7,000 Island Development Development 2011 2012 2013 2014 2015 E 2016 E 2017 E Tamouh - Jebel Hafeet Leisure & Current Supply Future Supply 1.4 Ongoing Glacier Entertainment Source: JLL Abu Dhabi Real Estate Market Overview, Q4 2014 Free

DWC - Dubai World Zones/Economic 1.4 Ongoing Central - Aviation City Zones

Al Qudra Holding - Ain Residential Ongoing Al Fayda - Phase 1 1.4

Mubadala - Sowwah Island - Phase 1 - Healthcare 1.3 Ongoing Cleveland Clinic Abu Dhabi (CCAD)

Mixed ALDAR - Central Market 1.1 Ongoing Development

Source: Zawya

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GCC Real Estate Newsletter GCC Real Estate Newsletter

Figure 33: Dubai Hotel Stock (2013-2016) Major Projects food and beverage and housing inflation eased from 5.8% 90,000 Kingdom of Saudi Arabia (KSA) and 3.5%, respectively, in 2013 to 3.3% and 3.4%, 80,000 5,900 Table 13 provides a list of the major construction projects According to the NBK, the KSA has recorded an average respectively, in 2014. The fall in housing inflation was a 8,000 in the UAE. 70,000 growth rate of 5.5% in the last five years. Backed by the result of a slowdown in the rent segment. Rental inflation, 4,700 8,400 government’s diversification and investment plans to an important constituent of housing inflation, slowed to 60,000 Table 13: Major Real Estate Projects in UAE No. of of No. Rooms stimulate employment, private sector activity, and 3.2% y-o-y in December, down from 3.4% in the previous 76,600 Project Name Type Value Status

50,000 68,600 64,200 64,200 (USD consumer demand, the economy is likely to experience month. According to Jadwa Investment, the rental 60,200 60,200 57,000 40,000 bn) moderate growth in 2015-16. We expect it to remain segment is likely to remain a major source of inflationary 2012 2013 2014 2015 E 2016 E 2017 E 2018 E ALDAR - Yas Island Community 40.0 Ongoing moderate because of the stabilization of oil production in pressure until housing initiatives by the government Current Supply Future Additions Development Development the country and continued downward trend in oil prices. contribute to the increased supply of affordable housing Source: JLL Dubai Real Estate Market Overview, Q4 2014 Free Ongoing units. DWC - Dubai World Zones/Economic 37.3 As per Al Rajhi Capital, real GDP declined further to 2.0% Abu Dhabi’s hospitality market grew significantly in 2014. Central Zones in Q4 2014 compared with 2.4% in Q3 2014 due to the The EIU believes that overall inflation will average 3.0% According to the Abu Dhabi Tourism & Culture ADFEC - Masdar Carbon Community 22.0 Ongoing continuous fall in crude oil prices. The Central in 2015, backed by a decline in global commodity prices. Authority (TCA), in 2014, 3,494,063 guests checked into Free City Development Department of Statistics and Information (CDSI) revised It also suggests that inflation will increase to a peak of the emirate’s 160 hotels and hotel apartments – up 25% y- Chemaweyaat - Chemicals Industrial 20.0 Ongoing the base year for economic indicators to 2010 from the 3.5% in 2017 due to the Saudisation program and the o-y and beating TCA’s annual target of 2.7 million. JLL Industrial City earlier base of 1999. Calculations on the new base show government plans to increase water charges for industries revealed that 1,550 hotel rooms were added during 2014, ALDAR - Yas Island Retail 12.8 Ongoing that GDP grew by 3.6% in 2014 compared with 2.7% in and government departments. and about 3,150 additional rooms are expected to enter Development - Yas Mall ADFEC - Masdar Carbon Mixed 2013, mainly due to revival in the oil sector and strong the market by end-2015. Overall supply is expected to 10.0 Ongoing Figure 37: Inflation Free City - Phase 1 Development growth in the manufacturing sector (+8.0% y-o-y). 6.0% reach about 25,000 rooms by end-2017, a CAGR of 7.1% 5.1% SEHA - Sheikh Khalifa Despite the falling oil prices, oil sector GDP recovered to from the 2011 levels. Healthcare 4.0 Ongoing 4.8% Medical City +1.7% in 2014 from -1.6% in 2013. However, non-oil 5.0% Mixed While the hospitality space in Abu Dhabi continues to be 3.3 Ongoing sector GDP dropped to 5.1% in 2014 from 6.4% in 2013. 4.0% 3.3% 3.5% 3.4% Waha Land - Almarkaz Development 3.2% driven by the corporate and MICE (Meetings, Incentives, 2.8% 3.0% Al Barari - Al Barari - Mixed Figure 35: GDP Breakdown 3.0% Conferencing, Exhibitions) segments, efforts are being 3.2 Ongoing 14% Phase 2 Development Average Inflation (%) made to diversify the demand base by focusing on the 12% 2.0% ALDAR Properties - Mixed 10.0% 3.0 Ongoing 10% 2014A 2015F 2016F 2017F 2018F 2019F 2017F 2018F leisure segment. Motor World Development 8% Source: EIU, January 2015 Figure 34: Abu Dhabi Hotel Stock (2011-2017) ALDAR Properties - Al Residential 2.6 Ongoing 6% 5.4% 27,000 Falah 3.6% Bank to curb lending on the onset of new 950 4% 4.8% 2.7% 1,200 Damac Properties - Akoya Hotels 2.5 Ongoing

22,000 (%) rate Growth 2% consumer credit rules 3,150 Community ADNEC - Capital Centre 2.2 Ongoing 0% Development Quarterly data from the Saudi Arabia Monetary Agency 17,000 -2% Musanada - North 2010 2011 2012 2013 2014 (SAMA) shows a gradual increase in loan disbursement by 24,050

22,850 Residential 2.1 Ongoing -4%

No. of of Rooms No. Wathba Development Oil sector Non-oil sector Real GDP 12,000 19,700 19,700

18,150 banks over the last two years, at a CAGR of 2.7%. Total

15,700 Source: CDSI, December 2014

13,987 Meraas - Bluewaters Mixed 1.6 Ongoing bank credit stood at SAR 1,251bn in 2014, up 11.6% y-o- 7,000 Island Development Development 2011 2012 2013 2014 2015 E 2016 E 2017 E The EIU has not included base year changes in its y. Credit to the construction sector witnessed a gradual Tamouh - Jebel Hafeet Leisure & Current Supply Future Supply 1.4 Ongoing projections, as CDSI projections are provisional. Despite Glacier Entertainment increase from SAR 71bn to SAR 83bn at a CAGR of 2.2% Source: JLL Abu Dhabi Real Estate Market Overview, Q4 2014 the global slowdown in the oil sector, it expects a robust and consumer loans for real estate have increased from Free

DWC - Dubai World Zones/Economic 1.4 Ongoing GDP growth averaging 3.5% a year in 2015-19. SAR 24bn to SAR 38bn at a CAGR of 6.8%. Central - Aviation City Zones Figure 36: GDP Growth Rate Figure 38: Total Bank Credit Al Qudra Holding - Ain Residential Ongoing 4.5% Al Fayda - Phase 1 1.4 4.1% 1,150 4.0% 3.8% 3.6% 3.6% Mubadala - Sowwah 1,120 Island - Phase 1 - 3.5% Healthcare 1.3 Ongoing 3.1% 1,090 Cleveland Clinic Abu Dhabi (CCAD) 3.0% 1,060 3.1% Mixed 2.5% 1,030

ALDAR - Central Market 1.1 Ongoing GDP Growth Rate (%)

Development Total Bank Credit (SAR bn) 1,000

2.0% Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Source: Zawya 2014E 2015F 2016F 2017F 2018F 2019F Source: EIU, February 2015 Source: Saudi Arabia Monetary Agency, Q4 2014

However, the growth is likely to fall after the Economic Overview implementation of new consumer credit rules and the start Inflation softens in second half of 2014 of compulsory compliance with SAMA’s Finance Companies Control Law. According to the new consumer According to the CDSI, y-o-y inflation dropped to 2.4% lending rules, banks may charge a cap on fees of ~1% or in December – the lowest since April 2007 – bringing SAR 5,000 – whichever is lower. Apart from this, another annual inflation down to 2.7%. This was mainly due to a rule requires residential home seekers to make a 30% slowdown in both housing and food components. The down payment of the original property value whenever

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GCC Real Estate Newsletter they apply for a mortgage loan to finance their purchase. On a quarterly basis, property loans grew by 6% in Q4 According to Jadwa Investments, these new rules will 2014, compared with SAR 140.4bn in Q3 2014. Similarly, reduce credit to the private sector by 11.7% y-o-y by the individual property loans grew by 7% to add another SAR end of 2015. Jadwa Investments expects the finance sector 5.8bn to the loans of Q3, which reached SAR 88.4bn. to slow to 4% in 2015 from 4.5% in 2014, based on these Corporate loans grew by 5% to hit SAR 54.7bn in Q4 indications. compared with SAR 51.9bn in Q3. Figure 39: Bank Credit Classified by Economic Activity From November 2014, Saudi banks were instructed to 90 40 apply the new mortgage rule, under which the loan 85 35 applicant is required to pay 30% of the required loan as 80 the first instalment. This new system passed by SAMA 75 30 allows loan applicants to finance the remaining portion of

(in SAR bn) 70 25 (in SAR bn) loans from SAMA-approved financing firms or banks. 65 60 20 This mortgage system will help genuine seekers of Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 residential property to get their accommodation, as Bank credit to building & construction (LHS) property flippers and buyers for investment purposes will Consumer loans for real estate (RHS) Source: Saudi Arabia Monetary Agency, Q4 2014 now be restricted due to initial instalment payments. Real Estate Sector First real estate index and auction system for real estate deals to be launched Realty sector to witness sustained growth in 2015 According to industry experts, the realty market of Saudi Arabia is one of the world’s largest, with investments According to the Ministry of Commerce and Industry, estimated at SAR 1.2 trillion. Experts believe that by 2020 Saudi Arabia’s real estate market is likely to witness the country will require ~4.5 million housing units to meet persistent growth as there were more than 17,000 ready- the needs of its growing population. There is also a need for-sale real estate units, valued at ~SAR 20bn, in end- for proper regulation as the sector is plagued with illegal 2014. According to statistics from the ministry’s real estate dealings. The KSA is set to witness the launch of the units sales program, the total number of licensed real country’s first real estate index in Jeddah, which aims to estate units for sale in all regions of the kingdom reached provide detailed data to investors, sellers, and buyers on 17,258, valued at SAR 19.3bn, of which 14,834 were the real estate sector, property prices, construction housing units, 354 office units, eight commercial units and projects, and relevant government decisions. The 2,070 land development units. government also plans to launch a new auction system in Market experts are of the opinion that the realty market Jeddah to ensure that the property under consideration will enjoy further stability in the coming years. In addition, possesses a clear title deed and is free from any legal the mortgage law and the additional loan program, disputes. In addition, only expatriates with valid residence incorporated between late 2013 and early 2014, has led to permits will be allowed to purchase property in the KSA. a sustained increase in demand, resulting in supply The auction system will be implemented in 2015 in Jeddah, shortages, thereby posing strong growth opportunities. and will eventually be applied to the rest of the kingdom. The demand is also backed by the growing young These reforms will not only reduce illegal realty dealings, population, the rapidly diminishing household sizes, and but also help create jobs for the Saudi youth in the sector. the changing lifestyles. According to the CDSI, the KSA Residential Sector will need significant supply of new housing projects to keep pace with the growing population, which is expected Changing demographics boost housing to grow at a CAGR of 4.4% to reach 37.2 million by 2020 demand from 30.0 million in February 2014. According to the population statistics by the CDSI, the Property loans hit SAR 148.9bn Saudi population reached 30 million by end-February 2014, with the majority of the population being under 30, According to SAMA, the total real estate loans provided at an average age of 26. This younger age group, by the banks to individuals and corporates amounted to representing the greater portion of the Saudi population, SAR 148.9bn by the end of 2014, up 31% y-o-y. While the exhibits non-traditional consumption habits in particular majority of the loans were for the individual segment at due to the development of the Internet and technological 63%, the remaining 37% went to the corporate segment. evolution. According to the United Nations (UN) data, The individual property loans amounted to SAR 94.2bn, the population of Saudi Arabia has grown significantly up 34% y-o-y, whereas corporate loans rose 26% to SAR over the past decade and is expected to continue rising in 54.7bn. the future, reaching 37 million in 2020 and 55 million by 2060.

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GCC Real Estate Newsletter GCC Real Estate Newsletter they apply for a mortgage loan to finance their purchase. On a quarterly basis, property loans grew by 6% in Q4 The youth population in the KSA is driving the demand Industry experts believe that the current supply-demand According to Jadwa Investments, these new rules will 2014, compared with SAR 140.4bn in Q3 2014. Similarly, for more affordable housing. Thanks to demographic imbalance will take at least five years to be bridged. As per reduce credit to the private sector by 11.7% y-o-y by the individual property loans grew by 7% to add another SAR trends and pricing pressures, low-cost property JLL, Jeddah has a stock of 769,000 residential units and end of 2015. Jadwa Investments expects the finance sector 5.8bn to the loans of Q3, which reached SAR 88.4bn. development has become a priority for the government. another 77,000 units will enter the market by end-2017. In to slow to 4% in 2015 from 4.5% in 2014, based on these Corporate loans grew by 5% to hit SAR 54.7bn in Q4 An analysis of the current property market by Al Rajhi Riyadh, the current stock stands at 971,000 and 117,000 indications. compared with SAR 51.9bn in Q3. Capital revealed that only individuals earning SAR 25,000 units will be added by end-2017, representing an annual (USD 6,664) and above per month can afford to purchase supply of around 39,000 units. Figure 39: Bank Credit Classified by Economic Activity From November 2014, Saudi banks were instructed to 90 40 high-end housing. Salary levels for the lowest grade job in apply the new mortgage rule, under which the loan Figure 41: Riyadh Residential Supply 85 the Saudi government start at SAR 3,000-5,000 (USD 800- 35 applicant is required to pay 30% of the required loan as 1,200 80 1,333) per month, with the highest grade jobs reaching 38 41 the first instalment. This new system passed by SAMA 1,000 38 75 30 SAR 20,000-30,000 (USD 5,330-8,000). Therefore, there allows loan applicants to finance the remaining portion of 800

(in SAR bn) 70

(in SAR (in SAR bn) is high demand for affordable properties. The government 25 loans from SAMA-approved financing firms or banks. 600 65 has pledged huge investments to meet the rising demand, 1,047 971 971 1,009 936 909

This mortgage system will help genuine seekers of 882 60 20 with over SAR 250bn being injected into the property 400 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 residential property to get their accommodation, as market to build more than 500,000 new housing units. Total ('000 Stock sq m) 200 Bank credit to building & construction (LHS) property flippers and buyers for investment purposes will Consumer loans for real estate (RHS) 0 Source: Saudi Arabia Monetary Agency, Q4 2014 now be restricted due to initial instalment payments. The Committee for International Trade (CIT) believes 2011 2012 2013 2014 2015 E 2016 E 2017 E that the support of the royal decree to the Housing Riyadh Completed Stock Riyadh Future Supply Source: JLL Riyadh Real Estate Overview, Q4 2014 Real Estate Sector First real estate index and auction system for Authority in building these new housing units has resulted real estate deals to be launched Realty sector to witness sustained growth in in increased demand for land plots, as well as increased Further, the government is taking active initiatives to activity in the real estate market. However, according to bridge the demand-supply gap, especially in the low-to- 2015 According to industry experts, the realty market of Saudi Arabia is one of the world’s largest, with investments Salman Ben Saedan, founder of Salman Abdullah Sin medium housing category. The Ministry of Housing has According to the Ministry of Commerce and Industry, estimated at SAR 1.2 trillion. Experts believe that by 2020 Saedan Real Estate and board member of the Tunisian announced six large residential projects across Jeddah that Saudi Arabia’s real estate market is likely to witness the country will require ~4.5 million housing units to meet Saudi Real Estate Company, co-operation between will deliver 29,000 housing units. Of these, three projects persistent growth as there were more than 17,000 ready- the needs of its growing population. There is also a need developers and the government is imperative to the delivering 14,900 residential units are underway, while the for-sale real estate units, valued at ~SAR 20bn, in end- for proper regulation as the sector is plagued with illegal success of the Kingdom’s housing projects. remaining three are at the design and approval stage. 2014. According to statistics from the ministry’s real estate dealings. The KSA is set to witness the launch of the Demand-supply gap widens in realty space In March 2014, the government launched the ESKAN units sales program, the total number of licensed real country’s first real estate index in Jeddah, which aims to program to address the shortage of housing for low- estate units for sale in all regions of the kingdom reached provide detailed data to investors, sellers, and buyers on For real estate developers, Riyadh is the best place in Saudi income Saudi families. ESKAN has been designed to 17,258, valued at SAR 19.3bn, of which 14,834 were the real estate sector, property prices, construction Arabia for the residential segment, as the demand for accelerate progress in housing development and create a housing units, 354 office units, eight commercial units and projects, and relevant government decisions. The homes is certainly outstripping short- to medium-term transparent system for allocating aid. More than 690,000 2,070 land development units. government also plans to launch a new auction system in supply. This is despite the fact that there is a marked families were found to be eligible for the program. increase of 319% over the last decade in building permits Market experts are of the opinion that the realty market Jeddah to ensure that the property under consideration possesses a clear title deed and is free from any legal being issued for projects in Riyadh. To control land speculation and increase the supply of will enjoy further stability in the coming years. In addition, housing, the Saudi government is considering the the mortgage law and the additional loan program, disputes. In addition, only expatriates with valid residence Dar Al-Akran, a Saudi-based realty company, expects the permits will be allowed to purchase property in the KSA. introduction of a tax on white lands. This is likely to boost incorporated between late 2013 and early 2014, has led to demand for housing units to cross four million by 2024. residential supply, as investors are likely to switch their a sustained increase in demand, resulting in supply The auction system will be implemented in 2015 in Jeddah, However, based on the current assessment of planned and will eventually be applied to the rest of the kingdom. portfolios to include more income generating residential shortages, thereby posing strong growth opportunities. projects, the supply may not been able to keep up with the developments as opposed to undeveloped sites. Lastly, The demand is also backed by the growing young These reforms will not only reduce illegal realty dealings, demand. According to the NCB’s Semi-Annual Sector but also help create jobs for the Saudi youth in the sector. real estate experts believe that the royal order related to population, the rapidly diminishing household sizes, and Review, the supply-demand imbalance is mainly because land grants and construction loans will push down the the changing lifestyles. According to the CDSI, the KSA Residential Sector of affordability limitations. Artificially propelled high current exorbitant rents and property prices, as land will will need significant supply of new housing projects to prices of plots, which are increasingly seen as long-term be available to citizens within a year. Some experts have keep pace with the growing population, which is expected Changing demographics boost housing investment options by high net worth Saudis, further limit forecast that the prices of residential units will decline by to grow at a CAGR of 4.4% to reach 37.2 million by 2020 demand the prospects for other citizens. Additionally, home 30−40% in certain areas. from 30.0 million in February 2014. developers are less inclined to develop affordable housing According to the population statistics by the CDSI, the on expensive land as it hampers their return on investment. Rental markets post growth Property loans hit SAR 148.9bn Saudi population reached 30 million by end-February 2014, with the majority of the population being under 30, Figure 40: Jeddah Residential Supply The residential rental market continued to witness an According to SAMA, the total real estate loans provided at an average age of 26. This younger age group, 900 upswing into 2014 from 2013. According to real estate by the banks to individuals and corporates amounted to representing the greater portion of the Saudi population, 850 experts, rents of villas and apartments shot up by 10–15% SAR 148.9bn by the end of 2014, up 31% y-o-y. While the 27 exhibits non-traditional consumption habits in particular 800 19 y-o-y on average. They believe that the rent hikes were due majority of the loans were for the individual segment at 31 due to the development of the Internet and technological to the rising costs of building and renovation, and 63%, the remaining 37% went to the corporate segment. 750 819 evolution. According to the United Nations (UN) data, 800 increasing wages related to the construction and

700 769 769

The individual property loans amounted to SAR 94.2bn, 748 735

719 management of buildings. Despite a housing fund of SAR

the population of Saudi Arabia has grown significantly Total ('000 Stock sq m) up 34% y-o-y, whereas corporate loans rose 26% to SAR over the past decade and is expected to continue rising in 650 250bn by the government, average house rents in Riyadh 54.7bn. 2011 2012 2013 2014 2015 E 2016 E 2017 E the future, reaching 37 million in 2020 and 55 million by Jeddah Completed Stock Jeddah Future Supply and Jeddah increased 4–8% in H2 2014 compared with 2060. Source: JLL Jeddah Real Estate Overview, Q4 2014 that in the first half of the year.

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Table 14: Jeddah Annual Apartment Rents in H2 2014 The Jeddah office market is likely to remain stable in Area Type Rent (SAR) 2015–16. JLL, in its Q4 2014 report, estimated that office South Jeddah 2−BR Apt. 25,000−30,000 stock in Jeddah is expected to rise from ~821,000 sq m to East Jeddah 2−BR Apt. 29,000−32,000 ~1,069,000 sq m by the end of 2017. In Q4 itself, the West Jeddah 2−BR Apt. 48,000−52,000 market saw a supply of almost 100,00 sq m of GLA. Source: Amar Finance Research Although additional supply continues to enter the market, Central Jeddah demands the highest rents. In Q4 2014, further economic growth and the anticipated rise in office- apartment rents increased ~4% q-o-q, while villa rents based employment is expected to absorb much of the new stabilized during the quarter after declining in Q4 2013. supply. This is based on the fact that the last three quarters Villas in residential compounds showed continuous have seen a steady decline in the vacancy rates of 4% y-o- strong performance in terms of rent and occupancy, as y, to be at the lowest level of any major city in the MENA expatriates prefer gated communities. In south-eastern region. According to JLL, the current vacancy rate in Jeddah, apartment rents are expected to drop as it is no Jeddah in the office market space stands at 6%. longer considered desirable due to frequent demolition of Increased demand not enough to tackle buildings on land allocated for low-income housing. oversupply situation in Riyadh Table 15: Riyadh Annual Apartment Rents in H2 2014 The commercial market remained oversupplied in 2014 Area Type Rent (SAR) and the trend is expected to continue in 2015. The office Riyadh East 2−BR Apt. 24,000−26,000 market in Riyadh is oversupplied, and the situation is likely Riyadh South 2−BR Apt. 24,000−26,000 to worsen in the coming quarters. Landlords continue to Riyadh West 2−BR Apt. 28,000−30,000 struggle with occupancy rates, despite offering attractive Riyadh North 2−BR Apt. 32,000−36,000 rent-free periods. According to JLL, vacancy rates Riyadh Central 2−BR Apt. 36,000−40,000 currently stand at 16% across the city and 10% in Central Source: Amar Finance Research Business District (CBD). Vacancy rates have increased by In Riyadh, rents of villas and apartments increased 8% q- ~2% in Q4 2014 compared with the previous quarter, as o-q and 6% q-o-q, respectively, in Q4 2014. Olaya in the tenants continue to relocate to upcoming developments in north, Sulemenia in central Riyadh, Hiteen and Nakheel in the north and north east of the city. This is because these the west, and Shumaisi in the south are witnessing higher new locations are less congested, offer better quality units, villa rents. Districts between the North Ring Road and the and better parking ratios. With high levels of new office Prince Salman Street are also experiencing higher villa units scheduled to be completed over the next three years, rents; this area is expected to attract more interest from vacancies are likely to increase further, particularly in older Saudi families as government offices move toward the and secondary grade buildings. north of Riyadh. Apartment rents are higher in areas such Figure 43: Riyadh Office Stock (2011−2017) as Wazarat and Malaz in the south, Olaya in the center, 4,000 Diplomatic Quarter in the west, and Yarmuk and Qurtaba 3,500 400 in the east. 3,000 500 2,500 500 Commercial Sector 2,000 in '000s) 1,500 3,300

1,000 2,800 2,300 2,300 2,100

Oversupply in office market space in Jeddah 1,900 1,700 Total (sq Stock m GLA 500 likely to balance out in 2015 0 2011 2012 2013 2014 2015 E 2016 E 2017 E The Saudi Arabian commercial office construction market Completed Stock Future Supply is expected to grow in 2015 as the business climate in the Source: JLL, Riyadh Real Estate Overview Q4 2014 kingdom continues to be supported by high liquidity, low interest rates, and a thriving economy. Rental rates remain more or less stable

Figure 42: Jeddah Office Stock (2011−2017) Historically, office stock in Riyadh was located along King 1,200 Fahd Road, which is also home to Riyadh’s prime office 40 complexes – Kingdom Tower and the Faisaliah Tower. 1,000 85 123 However, due to increasing congestion, poor car parking, 800 and impractical floor plans, a number of ‘out of town’ 600 office developments have been completed. Migration to in '000s) 1,029 400 944 821 821

715 the north will increase in the coming years as the initial 622

200 466

Total Stock (sq. m. Stock Total GLA phase of the King Abdullah Financial District and 0 Information Technology Communications Complex 2011 2012 2013 2014 2015 E 2016 E 2017 E projects will release 800,000 sq m of supply to the market. Completed Stock Future Supply Source: JLL, Jeddah Real Estate overview Q4 2014

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Table 14: Jeddah Annual Apartment Rents in H2 2014 The Jeddah office market is likely to remain stable in In Riyadh, average H2 2014 rental prices varied across It is estimated that Makkah is likely to see an influx of Area Type Rent (SAR) 2015–16. JLL, in its Q4 2014 report, estimated that office different districts, from a low of SAR 250 per sq m in the branded economy hotels in the next three years, as sector South Jeddah 2−BR Apt. 25,000−30,000 stock in Jeddah is expected to rise from ~821,000 sq m to southern part to SAR 1,500 per sq m in Grade A and B analysts believe that the number of hotels will increase East Jeddah 2−BR Apt. 29,000−32,000 ~1,069,000 sq m by the end of 2017. In Q4 itself, the offices. Although the vacancy rate is rising and there is from 577 in 2013 to 7,848 in 2018. Similarly Madinah will West Jeddah 2−BR Apt. 48,000−52,000 market saw a supply of almost 100,00 sq m of GLA. downward pressure on rental rates in the office market, see an increase of branded hotel rooms from 80 in 2013 Source: Amar Finance Research Although additional supply continues to enter the market, Grade A offices in CBD (Kingdom Tower and Faisaliah to 986 in 2018. further economic growth and the anticipated rise in office- Tower) enjoyed better occupancy and moderate increase Central Jeddah demands the highest rents. In Q4 2014, Kingdom’s retail sector outlook stays strong apartment rents increased ~4% q-o-q, while villa rents based employment is expected to absorb much of the new in rents (5–10%) in H2 2014. supply. This is based on the fact that the last three quarters stabilized during the quarter after declining in Q4 2013. On the other hand, office rents in Jeddah remained stable Saudi Arabia has excellent growth potential in the retail have seen a steady decline in the vacancy rates of 4% y-o- Villas in residential compounds showed continuous in Grade A buildings during H2 2014 but have increased space due to demographic benefits and huge local demand. y, to be at the lowest level of any major city in the MENA strong performance in terms of rent and occupancy, as slightly in Grade B buildings. The increase in office rents Riyadh is expected to witness continuous growth in the region. According to JLL, the current vacancy rate in expatriates prefer gated communities. In south-eastern for Grade B buildings was a result of an increase in quality retail segment, backed by the fact that it is the commercial Jeddah in the office market space stands at 6%. Jeddah, apartment rents are expected to drop as it is no space for rent in Grade B buildings. hub of Saudi Arabia. It currently lacks leisure activities, longer considered desirable due to frequent demolition of hence retail malls are under pressure to cater to all the Increased demand not enough to tackle Table 16: Annual Office Rentals in Saudi Arabia – H2 2014 buildings on land allocated for low-income housing. entertainment requirements of the residents. oversupply situation in Riyadh Location Rent (SAR per sq m) Table 15: Riyadh Annual Apartment Rents in H2 2014 According to JLL, Riyadh’s retail sector is led by The commercial market remained oversupplied in 2014 King Fahad Road, Riyadh 900-1,200 Area Type Rent (SAR) secondary grade malls, which have over 25,000 sq m to and the trend is expected to continue in 2015. The office Tahlia Road, Riyadh 750-1,000 Riyadh East 2−BR Apt. 24,000−26,000 over 60,000 sq m of GLA. In 2014, Riyadh had 1.4mm sq market in Riyadh is oversupplied, and the situation is likely Olaya Road, Riyadh 750-850 m of GLA and more than 893,000 sq m is likely to enter Riyadh South 2−BR Apt. 24,000−26,000 to worsen in the coming quarters. Landlords continue to Riyadh West 2−BR Apt. 28,000−30,000 Khurais Road, Riyadh 750-850 the market between 2015 and 2017. Al Nakheel Mall and struggle with occupancy rates, despite offering attractive the Olaya Towers retail space have been completed in Riyadh North 2−BR Apt. 32,000−36,000 rent-free periods. According to JLL, vacancy rates King Abdulaziz Road, Riyadh 700-750 Riyadh Central 2−BR Apt. 36,000−40,000 King Abdullah Street, Jeddah 800-1,200 2014. Confidence in the retail market is reflected in the currently stand at 16% across the city and 10% in Central announcement of various new shopping centers in Riyadh. Source: Amar Finance Research Al Madina Street, Jeddah 600-700 Business District (CBD). Vacancy rates have increased by One of the largest malls to be announced is Salboukh Mall, In Riyadh, rents of villas and apartments increased 8% q- ~2% in Q4 2014 compared with the previous quarter, as Al Tahlia Street, Jeddah 950-1,300 which will add around 275,000 sq m to the market upon o-q and 6% q-o-q, respectively, in Q4 2014. Olaya in the tenants continue to relocate to upcoming developments in Sultan Street, Jeddah 750-1,100 completion in 2016. Another major announcement is Al north, Sulemenia in central Riyadh, Hiteen and Nakheel in the north and north east of the city. This is because these Source: Amar Finance Research Dirriyah Festival City, which will add 250,000 sq m, but the west, and Shumaisi in the south are witnessing higher new locations are less congested, offer better quality units, this project is likely to be started by end-2018. villa rents. Districts between the North Ring Road and the and better parking ratios. With high levels of new office Premium hotels dominate hospitality sector Prince Salman Street are also experiencing higher villa units scheduled to be completed over the next three years, with sizeable scope for the budget segment Figure 44: Riyadh Retail Supply 2,500 rents; this area is expected to attract more interest from vacancies are likely to increase further, particularly in older Growth in the tourism sector has been robust in the last 346 Saudi families as government offices move toward the and secondary grade buildings. 2,000 few years. This trend is expected to continue, with the 306 north of Riyadh. Apartment rents are higher in areas such Figure 43: Riyadh Office Stock (2011−2017) number of pilgrims growing at an exponential rate every 1,500 241 as Wazarat and Malaz in the south, Olaya in the center, 4,000 year. According to Aljazira Capital, the hospitality sector Diplomatic Quarter in the west, and Yarmuk and Qurtaba 3,500 400 1,000 500 in Saudi Arabia can be segregated into two segments – the 1,947

3,000 1,641

in the east. 1,400 1,400 1,300

500 high-quality international branded luxury hotel market 500 1,200 2,500 1,100 2,000 and the unbranded and unfurnished hotel market. At the Total ('000 Stock sq m) Commercial Sector 0 in '000s) 1,500 3,300 end of February 2014, there were 107,209 rooms in 2011 2012 2013 2014 2015 E 2016 E 2017 E 1,000 2,800 2,300 2,300 Riyadh Completed Stock Riyadh Future Supply

2,100 Makkah, of which 13% were five-star properties, 11% Oversupply in office market space in Jeddah 1,900 1,700 Total (sq Stock m GLA 500 four-star, 19% three-star, and about 37% remained Source: JLL, Riyadh Real Estate Market Overview Q4 2014 likely to balance out in 2015 0 2011 2012 2013 2014 2015 E 2016 E 2017 E unbranded. In Madinah, the total room supply amounted Jeddah, which is dominated by a younger population, has The Saudi Arabian commercial office construction market Completed Stock Future Supply to 46,536, of which 17% were five-star, 6% four-star, 23% witnessed high growth in retail spaces occupied by is expected to grow in 2015 as the business climate in the Source: JLL, Riyadh Real Estate Overview Q4 2014 three star, and about 45% belonged to one and two-star international brands. La Prestige opened in Q3 2014, kingdom continues to be supported by high liquidity, low categories. The above data indicates huge growth potential adding over 17,000 sq m of luxury retail space to the interest rates, and a thriving economy. Rental rates remain more or less stable for branded economy hotels as they currently have low market. Mandarin Avenue has also opened during this Historically, office stock in Riyadh was located along King Figure 42: Jeddah Office Stock (2011−2017) penetration levels. quarter, adding approximately 15,000 sq m of retail space, Fahd Road, which is also home to Riyadh’s prime office 1,200 while Jamaah Plaza is currently undergoing expansion. As 40 complexes – Kingdom Tower and the Faisaliah Tower. According to Aljazira Capital, Makkah is likely to receive 1,000 85 of 2014, Jeddah’s formal retail supply stood at 923,000 sq 123 However, due to increasing congestion, poor car parking, around 17 million tourists every year by 2025, while 800 m of GLA and is likely to witness an addition of 296,000 and impractical floor plans, a number of ‘out of town’ Madinah expects pilgrim inflow of 10 million per year by sq m by end-2017. This is likely to add downward pressure 600 office developments have been completed. Migration to 2025. In Madinah, about 25 hotels with more than 6,000 in '000s) 1,029 400 944 on rents across all retail space grades, (but especially for 821 821 rooms had been demolished for the redevelopment of the

715 the north will increase in the coming years as the initial 622 lower grade retail space) while increasing city-wide

200 466 Central area, resulting in a huge demand-supply gap. This

Total Stock (sq. m. Stock Total GLA phase of the King Abdullah Financial District and vacancy rates. However, as there are no expected 0 Information Technology Communications Complex had opened an attractive growth opportunity in the 2011 2012 2013 2014 2015 E 2016 E 2017 E completions during 2016, the market will have an projects will release 800,000 sq m of supply to the market. hospitality sector for the areas around Haram. Completed Stock Future Supply opportunity to absorb the excess supply, stabilizing Source: JLL, Jeddah Real Estate overview Q4 2014 vacancy and rental rates.

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Figure 45: Jeddah Retail Supply 1,400 1,200 70 221 1,000 5 800 600 1,149 928 923 923

400 861 780 730 200 TotalStock ('000 sq m) 0 2011 2012 2013 2014 2015 E 2016 E 2017 E Jeddah Completed Stock Jeddah Future Supply Source: JLL, Riyadh Real Estate Market Overview Q4 2014 Major Projects Table 17 lists several major construction projects that are underway in Saudi Arabia.

Table 17: Major Ongoing Projects in the KSA Project Name Type Value (USD bn) Saudi Arabia Ministry of Housing Residential 67.0 − 500,000 Houses Program Sudair Industrial City Industrial Zone 40.0 Free/Economic Jazan Economic City 27.0 Zone Free/Economic King Abdullah Economic City 27.0 Zone Modon − Jazan Industrial City Industrial Zone 17.0 Mixed Riyadh East Sub Center 8.0 Development Madinah Knowledge Economic Free/Economic 7.0 City Zone Industrial Zone Waad El Shammal Mining City 6.9

JODC − Jabal Omar Mixed 5.5 Development Development Healthcare, King Abdullah Medical City 5.3 Residential Injaz Development Company − Community 2.7 Al Marina Development Royal Protocol − Jeddah Commercial 2.0 Convention Center Dar Al Arkan − Shams Al Arous Residential 2.0 Al Shoula − Ajmakan Community 1.6 Development Development Saudi Arabia Ministry of Mixed 1.6 Endowment − Abraj Al Bait Development Emaar Middle East − Jeddah Mixed 1.6 Gate Development Saudi Arabia Ministry of Mixed 1.6 Endowment − Abraj Al Bait Development Community Al Khobar Lakes Development 1.2 Development Healthcare, King Khalid Medical City 1.2 Residential Source: Zawya

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Figure 45: Jeddah Retail Supply notch to Baa2 and provided a negative outlook. Standard 1,400 Kingdom of Bahrain & Poor’s lowered the country’s sovereign credit rating, 1,200 70 Bahrain’s economy continued to gather momentum in citing the recent decline in oil prices. 221 1,000 5 2014, backed by its oil sector. This reflects the The main reason for the downgrade is the sharp decline 800 normalization of output in the Abu Sa’afah offshore 600 in oil prices, coupled with the fact that Bahrain has limited

1,149 oilfield after its protracted unscheduled maintenance in 928 923 923 oil reserves. Fitch estimates that Bahrain’s non-oil revenue

400 861 780

730 2012. 200 will amount to just 14% of its total revenue in 2015. Wages TotalStock ('000 sq m) 0 According to Bahrain Economic Development Board and subsidies together will account for 70% of the total 2011 2012 2013 2014 2015 E 2016 E 2017 E (EDB), Bahrain’s GDP growth reached 5.1% y-o-y in Q3 budget spending. The falling oil prices coupled with wages Jeddah Completed Stock Jeddah Future Supply 2014 as a number of significant infrastructure projects and subsidy spending has resulted in an unfavorable Source: JLL, Riyadh Real Estate Market Overview Q4 2014 were executed. The non-oil sector continued to grow, budget deficit scenario, which is worsening due to the Major Projects especially the construction sector accelerated from a 3.6% declining oil prices. To add to the country’s woes, y-o-y growth in Q2 2014 to 12.3% in Q3 2014, making it government debt continued to rise and is forecast to reach Table 17 lists several major construction projects that are the fastest growing sector in the economy. The hotels and 47.2% of GDP in end-2014 and 52% in 2015. underway in Saudi Arabia. restaurants sector also posted strong y-o-y growth of 7.4% Further, the continuous loggerheads between the in Q3 2014. Meanwhile, the hydrocarbons sector in Table 17: Major Ongoing Projects in the KSA government and the opposition has resulted in Bahrain continued to expand in 2014, with a 4.7% y-o-y Project Name Type Value nullification of two rounds of election in November 2014. growth in Q3 2014. EDP estimates that the overall GDP (USD bn) There are no plans for further talks and the political Saudi Arabia Ministry of Housing growth rate will surpass 4.0% for 2014. Residential 67.0 − 500,000 Houses Program stalemate continues. The EIU estimates that real GDP is likely to expand by Sudair Industrial City Industrial Zone 40.0 Meanwhile, the rating agencies believe that a cut-back in 3.6% in 2014 and is likely to grow by 2.6%, down from Free/Economic capital spending, some moderation in current spending Jazan Economic City 27.0 previous estimate of 3.2%. This fall in projection is a result Zone growth, and incremental measures to raise non-oil of the falling oil prices that has affected government and Free/Economic revenue and reduce subsidies can help the country to King Abdullah Economic City 27.0 private consumption. Real GDP growth in 2015-16 will Zone revive the current financial distress. Modon − Jazan Industrial City Industrial Zone 17.0 be sustained to some extent by investments in GCC Mixed Development Fund-related projects, which, despite delays, Inflation rises in 2014 Riyadh East Sub Center 8.0 Development is expected to commence by early 2015. Inflation dynamics in Bahrain have remained fairly Madinah Knowledge Economic Free/Economic 7.0 City Zone Bahrain has planned to build an oil pipeline from the KSA. constant and in line with broader regional trends in recent The pipeline is expected to start operations in 2018. The Industrial Zone months. In November 2014, inflation stood at 2.3% y-o- Waad El Shammal Mining City 6.9 country has also planned to increase the capacity of the y, averaging 2.9% the year 2014. Housing, water, JODC − Jabal Omar Mixed Sitra refinery by Q3 2016. These factors are likely to push electricity, gas and other fuels continued to be the sectors 5.5 Development Development GDP growth in 2017−18 to 4.2% by 2019. The EIU experiencing the highest growth in prices at 6.1% annually. Healthcare, expects the financial sector to suffer because of the King Abdullah Medical City 5.3 At the other end, the transport sector witnessed the Residential ongoing unrest that has undermined Bahrain's long- smallest inflation increase, growing at an annual rate of Injaz Development Company − Community 2.7 cultivated business-friendly image. 0.9%. In general, price increases across the different sub- Al Marina Development indices have converged in recent months. Royal Protocol − Jeddah Figure 46: Real GDP Growth Rate Commercial 2.0 6.0% Convention Center 5.3% The EIU estimates that average inflation will decline Dar Al Arkan − Shams Al Arous Residential 2.0 5.0% slightly in 2015 to 2.7% from 2.9% in 2014, as global food 4.2% Al Shoula − Ajmakan Community 4.1% 1.6 3.6% 3.6% prices drop. However, inflation will rise if there is any Development Development 4.0% 3.0% revision of Bahrain's extensive subsidy (authorities have Saudi Arabia Ministry of Mixed 2.6% 1.6 3.0% 2.3% indicated they plan to implement gradually). The Endowment − Abraj Al Bait Development recovering property market and gradual reduction in Emaar Middle East − Jeddah Mixed 2.0% 1.6 2012 A 2013 A 2014 E 2015 F 2016 F 2017 F 2018 F 2018 F subsidies will push up inflation to an average 3% a year Gate Development Source: EIU, November 2014 during 2015-19. Saudi Arabia Ministry of Mixed 1.6 Endowment − Abraj Al Bait Development Economic Overview Figure 47: Inflation Community 4.0% Al Khobar Lakes Development 1.2 Development Rating organizations downgrade Bahrain’s 3.4% 3.5% 3.3% 3.2% Healthcare, 3.0% 3.1%3.1% King Khalid Medical City 1.2 credit profile 2.9% Residential 3.0% 2.7% Source: Zawya Major rating agencies across the globe have downgraded the credit profile for Bahrain due to its high reliance on 2.5%

(%) Inflation Average oil, deteriorating government finances, and political 2.0% instability. Fitch Ratings has revised Bahrain’s outlook to 2012 A 2013 A 2014 F 2015 F 2016 F 2017 F 2018 F 2019 F “Negative” from “Stable” and affirmed its rating at Source: EIU Country Report, November 2014 BBB/BBB+. Moody’s also downgraded its rating by one

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Real Estate Sector y-o-y and 11.1% YTD November 2014, reaching BHD 964.0mm. This shows that buyers are more optimistic Real estate deals up 45% in first three about sector recovery and government efforts to boost quarters of 2014 the sector. However, reduced loans to real estate and construction indicate that developers are waiting for a According to the Survey and Land Registration Bureau more stable geo-political environment to invest. (SRLB), the overall volume of real estate trading in Bahrain grew 45% y-o-y in first nine months of 2014, Figure 49: Bank Credit Breakdown – November 2014 General amounting to BHD 1.0bn. Q3 2014 alone witnessed a Government 47% y-o-y increase amounting to BHD 285.5mm. This 4.1% indicates a significant rebound for the property market, 10.9% Other Sectors which was hit by a prolonged period of stagnation Other 3.9% Non-Bank Financial following the global financial crisis and after the 2011 Personal Business 7.2% Manufacturing uprising. According to Arabic daily Akhbar al Khaleej, 24.8% 62.2% 13.2% 80% of the real estate transactions were carried out by Trade Property 20.0% Construction & Real Bahraini investors and 98% of the total investments were Mortgage Estate made by GCC investors. The growth in activity also 13.3% reflects new government policies to spur growth in the Source: Central Bank of Bahrain, November 2014 market, such as the introduction of a new law in December 2014 that reduced the cost of registering a Residential Sector newly purchased property under the buyer's name. New policies, combined with relatively low real-estate prices, Massive investment in realty sector have primarily led to an upturn in the sector. Bahrain’s real estate market showed signs of improvement in 2014, and is set to grow on the back of economic Sustained performance by lending sector recovery and huge investment by the government. strengthens realty growth Bahrain will spend around USD4.4bn, financed by the The improving Bahraini economy, coupled with GCC Development Fund, on infrastructure and housing government infrastructure development plans, has had a until 2017 (as announced in 2011). As announced by the strong positive impact on the country’s realty scenario. Prime Minister’s office, 49% of this fund will be spent on The sector has witnessed renewed activity, as is evident building 2,548 houses in 2015; 1,443 in 2016; and 5,241 in from the increase in personal loans (mortgage loans). 2017. The remaining fund (~USD 2.2bn) will be allocated Bahrain’s credit sector continues to witness strong lending to water and power projects. EDB disclosed that the key activity, supported by falling interest rates in the real estate ventures tendered in 2013 include parts of North Town and construction sector as well as personal mortgage. Real (Al Madina Al Shamaliya) development, the East Hidd estate and construction, and personal mortgages, account housing project, some power projects, the Muharraq ring for 33.3% of the total loans and advances offered. road and a center for disabled.

Figure 48: Loans and Advances (LHS), % of Total Loans to Real The latest research by international real estate consultancy Estate & Construction (LHS) and % of Total Loans to firms indicates an increase in jobs as a result of wide- Mortgages (RHS) ranging infrastructure investment by the government. 7.5 30.0% This has already led to a rise in confidence levels among 7.0 20.0% builders. Growth in the government's housing program is 6.5 10.0% also likely to boost demand for services from local and

(BHD bn) international construction companies. With such huge 6.0 0.0% investments in place, the Bahraini realty sector is all set to Total Loans Total & Advances Jul-12 Jul-13 Jul-14 Jan-12 Jan-13 Jan-14

Sep-12 Sep-13 Sep-14 enter a growth trajectory. Mar-12 Mar-13 Mar-14 May-12 May-13 May-14 Nov-12 Nov-13 Nov-14 Total Loans & Advances % of Total to Const. & Real Estate (RHS) % of Total to Property Mortgage (RHS) Market driven by tenants Source: Central Bank of Bahrain, November 2014 Relatively expensive mortgage finance has made it difficult Total loans and advances in Bahrain increased 0.4% y-o- for Bahrainis who are the lower end of the income y, reaching BHD7.2bn at the end of November 2014. spectrum to opt for owned accommodation. In absence Surprisingly, there was an almost 6.9% y-o-y fall in loans of a permanent housing solution, the rental market for offered to the construction and real estate sector, while relatively small, inexpensive apartments remains strong. there was an 11.9% y-o-y increase in mortgage loans. However, the performance of the residential market was Personal loans secured through mortgage continued to fragmented, as growth trends were location specific and rise gradually, accounting for 32.7% of total personal dependent on the nuances of each micro-market. For lending by commercial banks and 13.3% of total loans and example, the 15% growth achieved in Juffair since advances by banks. Property mortgage loans grew 11.9% Q32013 to date has been driven principally by the

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Real Estate Sector y-o-y and 11.1% YTD November 2014, reaching BHD completion of new and higher quality developments, with rents due to the improved economic outlook, which was 964.0mm. This shows that buyers are more optimistic each offering ever more comprehensive facilities, such as somewhat offset by a slowdown in the number of new Real estate deals up 45% in first three about sector recovery and government efforts to boost Fontana Towers. Many of these new completed properties occupiers in the market. Demand came from existing quarters of 2014 the sector. However, reduced loans to real estate and have thus been able to attract tenants from ageing towers. businesses looking at expansion, rather than from new construction indicate that developers are waiting for a Improvements in local amenities and infrastructure have entrants. Additionally, landlords remained under pressure According to the Survey and Land Registration Bureau more stable geo-political environment to invest. also added to the appeal of areas such as Amwaj Islands, to be flexible on the length of rent-free and fit-out periods, (SRLB), the overall volume of real estate trading in Riffa Views, Reef Island and Sar, with the trend towards given the oversupply in the office market. Bahrain grew 45% y-o-y in first nine months of 2014, Figure 49: Bank Credit Breakdown – November 2014 community retail developments offering convenience to amounting to BHD 1.0bn. Q3 2014 alone witnessed a General Vacancy rates witnessed huge gaps across the market. Government residents in these locations. 47% y-o-y increase amounting to BHD 285.5mm. This 4.1% Areas offering better parking facilities and easy access indicates a significant rebound for the property market, Table 18: Monthly Apartment Rents in Bahrain – H2 2014 remained the top choices. As a result, the Diplomatic Area 10.9% Other Sectors which was hit by a prolonged period of stagnation Location Type Rent (BHD) performed poorly, compared with the Seef Area. A new Other 3.9% Non-Bank Financial following the global financial crisis and after the 2011 Personal Business 7.2% Seef 2 BR FF 600-700 trend of tenants preferring international property 24.8% 62.2% Manufacturing uprising. According to Arabic daily Akhbar al Khaleej, 13.2% Amwaj Island 2 BR FF 600-700 management also emerged in 2014. We expect the rental 80% of the real estate transactions were carried out by Trade gap to widen further because of this preference. Property Juffair 2 BR FF 600-750 20.0% Construction & Real Bahraini investors and 98% of the total investments were Mortgage Estate Table 20: Office Space Rental in Bahrain in H2 2014 13.3% Adliya 2 BR FF 350-600 made by GCC investors. The growth in activity also Rent (BHD per sq Source: Amar Finance Research Location reflects new government policies to spur growth in the Source: Central Bank of Bahrain, November 2014 m/Month) market, such as the introduction of a new law in Rentals have declined in areas (Amwaj Islands, Saar, and Bahrain Financial Harbour 8–9.5 December 2014 that reduced the cost of registering a Residential Sector Janabiya) popular among expatriates as tenants prefer Seef Area 5.5–7.5 newly purchased property under the buyer's name. New Massive investment in realty sector purchasing property in a lower price bracket. The already Diplomatic Area 3.5–4.5 policies, combined with relatively low real-estate prices, oversupplied residential market is likely to bear the brunt Source: Amar Finance Research have primarily led to an upturn in the sector. Bahrain’s real estate market showed signs of improvement of further drop in rates – large residential units are in 2014, and is set to grow on the back of economic scheduled to become available in the coming years. Business tourism boosts hospitality market Sustained performance by lending sector recovery and huge investment by the government. However, the rental value of villas in Adliya and Amwaj is strengthens realty growth Business tourism or the MICE is an important sector in Bahrain will spend around USD4.4bn, financed by the strengthening, as the real estate market in Bahrain has Bahrain. The Bahrain Exhibition and Convention The improving Bahraini economy, coupled with GCC Development Fund, on infrastructure and housing already crossed the bottom and is now moving up. Authority (BECA) hosts a number of industry events and government infrastructure development plans, has had a until 2017 (as announced in 2011). As announced by the Table 19: Monthly Villa Rental Rates in Bahrain – H2 2014 exhibitions, the major among which are the annual strong positive impact on the country’s realty scenario. Prime Minister’s office, 49% of this fund will be spent on Location Type Rent (BHD) Bahrain Boat Show and the bi-annual Bahrain Air Show. The sector has witnessed renewed activity, as is evident building 2,548 houses in 2015; 1,443 in 2016; and 5,241 in In recent years, Bahrain has become an important location Saar 4 BR Villa 1,000-1,200 from the increase in personal loans (mortgage loans). 2017. The remaining fund (~USD 2.2bn) will be allocated for exhibitions and conferences. Therefore, the BECA Bahrain’s credit sector continues to witness strong lending to water and power projects. EDB disclosed that the key Adliya 4 BR Villa 1,100-1,250 plans to expand its exhibition and conference space by activity, supported by falling interest rates in the real estate ventures tendered in 2013 include parts of North Town Amwaj 4 BR Villa 1,100-1,400 constructing the Bahrain Expo City in Manama City. This and construction sector as well as personal mortgage. Real (Al Madina Al Shamaliya) development, the East Hidd Janabiya 4 BR Villa (Unfurnished) 800-1,200 project will increase the net available exhibition space to housing project, some power projects, the Muharraq ring estate and construction, and personal mortgages, account Source: Amar Finance Research 145,000 sq m from the current 16,000 sq m; it is scheduled for 33.3% of the total loans and advances offered. road and a center for disabled. to be completed by 2015. The market has also seen the emergence of a new micro Figure 48: Loans and Advances (LHS), % of Total Loans to Real The latest research by international real estate consultancy market due to the continued influx of expatriates from With the growing importance of business tourism, the Estate & Construction (LHS) and % of Total Loans to firms indicates an increase in jobs as a result of wide- Saudi Arabia. Employees of many companies that have demand for hospitality space is also bound to increase. Mortgages (RHS) ranging infrastructure investment by the government. 7.5 30.0% relocated to the Eastern Province choose to live in There has been an increased supply of 3- and 4-star hotels, This has already led to a rise in confidence levels among Bahrain. This has created an increased interest in the as seen in Figure 50, to meet the requirements of business 7.0 20.0% builders. Growth in the government's housing program is Hamala and Jasra areas, which provide easy access to the travelers. Also, with the change in the Saudi working week, 6.5 10.0% also likely to boost demand for services from local and King Fahad Causeway. Rents in these areas increased in there has been a surge in the development of luxury hotels

(BHD bn) international construction companies. With such huge 6.0 0.0% H2 2013. Several self-contained developments have or are because of an increase in weekend tourism. investments in place, the Bahraini realty sector is all set to being developed to meet this new demand, with many Total Loans Total & Advances

Jul-12 Jul-13 Jul-14 Five new luxury hotels opened in Bahrain in end-2014, Jan-12 Jan-13 Jan-14

Sep-12 Sep-13 Sep-14 enter a growth trajectory. Mar-12 Mar-13 Mar-14 May-12 May-13 May-14 Nov-12 Nov-13 Nov-14 providing supermarkets, salons, and community areas. Total Loans & Advances % of Total to Const. & Real Estate (RHS) adding to the 14 already operating in the Kingdom. The % of Total to Property Mortgage (RHS) Market driven by tenants The rental market is likely to remain extremely price new hotels include The Four Seasons Hotel and Resort, Source: Central Bank of Bahrain, November 2014 Relatively expensive mortgage finance has made it difficult sensitive, with demand centered on good value and high Bahrain Bay, the Ramee Grand Hotel and Spa in Seef, the Total loans and advances in Bahrain increased 0.4% y-o- for Bahrainis who are the lower end of the income quality accommodation with additional facilities in prime Renaissance on Amwaj Islands, the Rotana at Bab Al y, reaching BHD7.2bn at the end of November 2014. spectrum to opt for owned accommodation. In absence locations. Bahrain and the Swiss-Belhotel International also in Seef. Surprisingly, there was an almost 6.9% y-o-y fall in loans of a permanent housing solution, the rental market for offered to the construction and real estate sector, while relatively small, inexpensive apartments remains strong. Commercial Sector there was an 11.9% y-o-y increase in mortgage loans. However, the performance of the residential market was Modest outlook for commercial real estate Personal loans secured through mortgage continued to fragmented, as growth trends were location specific and rise gradually, accounting for 32.7% of total personal dependent on the nuances of each micro-market. For Although Bahrain’s real estate market showed signs of lending by commercial banks and 13.3% of total loans and example, the 15% growth achieved in Juffair since improvement in 2014, the office segment continued to advances by banks. Property mortgage loans grew 11.9% Q32013 to date has been driven principally by the remain oversupplied. There was a minimal increase in

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Figure 50: Hotels by Tier – 2013 1 Star 5 Star 2 Star 1% 13% 15%

4 Star 3 Star 38% 33%

Source: Central Informatics Organization The emergence of boutique hotels is expected to create more interest in hospitality spaces. For example, Domain Hotels have launched a 131-room boutique hotel project, which will include a club for members and nine restaurants and lounges. All these developments indicate strong growth prospects for the hospitality space.

Major Projects Table 21 provides a list of the major ongoing construction projects in Bahrain. Table 21: Major Real Estate Projects Value Project Name Type (USD Status bn) Albilad - Water Garden Mixed 9.8 Ongoing City Development

Bahrain Ministry of Works Community 4.5 - North Bahrain Town Development Ongoing

Diyar Al Muharraq Community 3.2 Company - Diyar Al Development Ongoing Muharraq

GBCORP Bahrain - Marsa Mixed 2.5 Al Seef Development Ongoing

Mixed 2.5 Bahrain Bay Development Development Ongoing

Manara Development - Residential 1.3 Janayin Al Hamala Ongoing

Durrat Al Bahrain - Durrat Mixed 1.3 Marina Development Ongoing

Source: Zawya

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annual GDP. Around 70% of the expenditure in 2015 is Oman allocated to current spending, totalling OMR 9.6bn. Figure 50: Hotels by Tier – 2013 1 Star 5 Star Oman, which had been heavily dependent on oil resources, Investment expenditure is expected to be OMR 3.2bn, 2 Star 1% 13% 15% is now focused on diversification, industrialization, and nearly one fourth of the total spending. privatization. The country aims to reduce its reliance on According to the Ministry of Finance, spending for 2015 the oil sector, which accounted for 46.6% (OMR 11.4bn) is budgeted at about OMR 14bn, 5% higher than that of the country’s GDP in the first nine months of 2014. budgeted for 2014. The following are a few of the projects According to the National Centre for Statistics and to be executed in 2015: Information (NCSI), Oman’s GDP grew 5.2% y-o-y in the first nine months of 2014. NCSI’s report showed that  First phase of national railway project from Sohar to 4 Star 3 Star 38% oil and gas activities grew by 1.4% and contributed OMR Buraimi 33% 11.4bn to the GDP in end-Q3 2014. The contribution of  First two phases of the Adam–Thumrait dual the non-hydrocarbon sector to the GDP increased by 8% carriageway Source: Central Informatics Organization y-o-y. It emerged as the major driving force of the  An industrial fisheries complex and infrastructure The emergence of boutique hotels is expected to create country’s GDP, with a contribution of OMR 13.6bn. The for government and commercial quays at Duqm more interest in hospitality spaces. For example, Domain sector outperformed the oil and gas sectors in terms of  A new town at Liwa Hotels have launched a 131-room boutique hotel project, both volume and growth rate. Oman is expected to  Completion of the wastewater network in Muscat which will include a club for members and nine witness similar growth levels in 2015 as that in 2014. The and construction of water treatment plants in other restaurants and lounges. growth is expected to be driven by an increase in oil regions production as well as the government’s fiscal policies.  Completion of the Muscat Convention Centre All these developments indicate strong growth prospects  Building of three hotels in Muscat for the hospitality space. Meanwhile, Standard & Poor’s (S&P) maintained its ‘stable’ outlook for Oman for 2015 but lowered its long- Revenue for 2015 is forecast at OMR 11.6bn, down 1% and short-term sovereign credit ratings from A/A-1 to A- compared with forecast revenue for 2014. Oil revenue is /A-2. The EIU has also lowered its economic growth expected to contribute ~OMR 9.2bn, or 79%, to the total Major Projects forecast for 2015 to 3.4% from 3.6% due to weakening oil revenue in 2015, but this is likely to be an overestimate Table 21 provides a list of the major ongoing construction prices, indicating that the economy is likely to be given the falling oil prices. As total revenue is likely to slow projects in Bahrain. vulnerable to any downturn in domestic oil production in 2015 (owing to declining oil prices), the government and fluctuations in oil and gas export prices. Therefore, may be forced to lower its spending target. Table 21: Major Real Estate Projects economic diversification is extremely important, as the Value Subsidies hold back inflation Project Name Type (USD Status development of manufacturing and tourism, accompanied bn) by infrastructure improvements, will boost non-oil According to the Central Bank of Oman (CBO), average Albilad - Water Garden Mixed exports. The EIU forecasts that real GDP growth will inflation in the Sultanate increased by 0.8% y-o-y in 9.8 Ongoing City Development average about 3.7% a year in 2015-19. December 2014. According to Dr. Fabio Scacciavillani, Chief Economist with Oman Investment Fund, inflation Bahrain Ministry of Works Community Figure 51: Real GDP Growth Forecast 4.5 - North Bahrain Town Development Ongoing 6% 5.8% is likely to weigh down on the back of a strengthening USD and stabilizing/declining global commodity prices. Diyar Al Muharraq Community 5% 3.2 According to the EIU, y-o-y inflation for the first 10 Company - Diyar Al Development Ongoing 4.2% 3.9% months of 2014 averaged 1%. Domestic demand growth, Muharraq 3.9% 3.8% GDP Growth GDP Growth Rate 4% 3.6% 3.6% rising wages and higher electricity and gas prices for 3.4% GBCORP Bahrain - Marsa Mixed businesses (which will be introduced in 2015) are likely to 2.5 Al Seef Development Ongoing 3% exert upward pressure on inflation in the medium term. 2012 A 2013 A 2014 E 2015 F 2016 F 2017 F 2018 F 2019 F The EIU estimates average inflation in 2015-16 to rise to Mixed 2.5 Source: EIU Country Report, January 2015 Bahrain Bay Development Development Ongoing 3.1% and average 3.6% a year in 2017–19, given strong growth in domestic demand, upward pressure on wages, Manara Development - Economic Overview Residential 1.3 and higher electricity and gas prices for businesses. Janayin Al Hamala Ongoing Govt. spending to rise in 2015 despite falling Figure 52: Consumer Price Inflation Durrat Al Bahrain - Durrat Mixed 5.0% 1.3 Ongoing oil prices Marina Development 4.0% 3.8% 4.0% 3.5% 3.6% 3.5% Source: Zawya According to the latest budget data revealed by official 2.9% sources in January 2015, a deficit of OMR 2.5bn is 3.0% 2.6% estimated under Oman's 2015 state general budget. With 2.1% relatively modest oil and gas reserves, there is a strong 2.0% (%) Rate Inflation 1.1% requirement for economic diversification in Oman and, 1.0% hence, a rise in government investment spending. Official data shows that the forecast deficit of 2014 represents just 0.0% 2011 A 2012 A 2013 A 2014 F 2015 F 2016 F 2017 F 2018 F 2019 F over 20% of the expected revenue in 2015 and 8% of Source: EIU, January 2015

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Real Estate Sector The realty market of Oman is on the recovery path, and this can be attributed to improved salaries, population Realty sector sees bright recovery prospects growth, increased government spending, and new business opportunities. The realty market recovered in 2014, supported by strong transaction numbers and is likely to stay on the recovery Government measures to revive sector path in 2015 due to Oman’s favourable macroeconomic and demographic profile as well as support from the The Omani government continued to introduce initiatives government and financial institutions. in the sector for better professional practices and greater transparency. After the creation of Oman Real Estate Expatriates are the biggest contributors to demand for the Association in 2012, the government emphasized the need residential sector in Oman. The total population of Oman for a real estate price index. The Ministry of Housing is stood at 4.1 million in 2014, of which 56.3% are Omanis set to establish a Directorate General, which will help and the remaining are expatriates. Omanis and expats looking to buy properties in integrated Figure 53: Population Breakdown tourism complexes. The Omani government has 4.5 standardized pay structures and grades across the public 4.0 sector, thereby improving the salary structure of 3.5 3.0 1.74 1.79 employees. The Housing Ministry of Oman has awarded 1.28 1.53 projects worth OMR 491,265 to construct new housing 2.5 0.82 in millions in 2.0 units in various parts of the country. The government has 1.5 1.96 2.01 2.09 2.21 2.30 been making every possible effort to improve the tourism 1.0 and hospitality sector to transform Muscat as the 2010 2011 2012 2013 2014 Omani Non-Omani preferred global tourist attraction. The focus on tourism, Source: Central Bank of Oman, February 2015 as evident in the Oman policy and investment program According to NCSI, total traded value of the property in for the decade up to 2030, will lead to growth in the Oman grew 29.3% in 2014 to OMR 2.9bn, reaching residential and infrastructure sectors. almost the 3-billion mark for the first time since 2008. Of the total traded value of the property, mortgage contracts Residential Sector amounted to OMR 1.7bn from 10,033 contracts, up Strong demographics back demand for 15.3% from 2013. The growth in mortgage transactions quality residential accommodation reflects the confidence of the banking sector, which in turn is a result of improved borrowing capacity of people. The population of Oman is growing at a steady pace, and is likely to increase by 2.4 million in the period 2015-2040, Figure 54: Credit Breakdown by Banks (in OMR mm) 18,000 7,000 as forecast by NCSI’s report 'Population Projection in 6,500 16,000 Sultanate of Oman 2015-2040'. Population growth will 6,000 14,000 5,500 increase the housing demand in the Sultanate. In 2014, 12,000 5,000 apartment supply increased across Muscat, matching a 4,500 10,000 steady demand in established locations. Despite the Ttoal CreditTtoal Bank 4,000 8,000 3,500 growth in supply, rental value of good quality apartments 4Q 1Q 2Q Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Personal / Housing Loans 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 in prime locations have been retained or increased due to Total Bank Credit Personal/ Housing Loans stronger demand and limited opportunities for further Source: Central Bank of Oman, September 2014 development in restricted areas. This has created a two- A total of 354,565 transactions were recorded in the real tier market within the residential sector. On one hand, estate sector in 2014. The breakdown of the number of well-designed properties suited to tenant needs have transactions is illustrated below. relatively stable rentals and high occupancy rates. On the other, rentals and vacancy rates of poorly designed Figure 55: Breakdown of RE transactions properties are declining. 2.5% 6.5% 3.2% 22.6% The residential leasing market in Muscat is extremely 6.9% active as the number of expatriates in the Sultanate 7.1% continues to increase. However, the demand is constrained by lack of quality residences suited to tenant 8.3% 16.3% requirements and budgets.

12.2% 14.3% In the secondary market, integrated tourism complexes Muscat North Al Batinah South Al Batinah Al Dakhiliyah such as The Wave witnessed increased interest from North Al Sharqiyah Dhofar South Al Sharqiyah Al Dhahirah purchasers in 2014. However, only a few transactions Al Buraimi Others Source: NCSI, January 2015 were closed as the majority of properties were priced above purchaser expectations.

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Real Estate Sector The realty market of Oman is on the recovery path, and Rental rates shoot up in prime areas core office spaces is relatively slow even in high-quality this can be attributed to improved salaries, population buildings. Realty sector sees bright recovery prospects growth, increased government spending, and new The demand for quality residential accommodation in A major share of the demand is generated by the public business opportunities. Oman continued to increase owing to increased The realty market recovered in 2014, supported by strong disposable incomes of the Omanis and a steady rise in the sector, as the government is building a “ministries district” transaction numbers and is likely to stay on the recovery Government measures to revive sector number of expatriates. The trend was supported by the in the south of Muscat International Airport. In fact, path in 2015 due to Oman’s favourable macroeconomic country’s conducive economic environment and several ministries are waiting to be relocated to these The Omani government continued to introduce initiatives and demographic profile as well as support from the improved access to financing options. The increasing emerging areas. The decision to create the district in this in the sector for better professional practices and greater government and financial institutions. demand for better quality properties has resulted in higher area may be driven in part by the region’s proximity to transparency. After the creation of Oman Real Estate rents for these properties and lower rents for old and low- residential submarkets preferred by the public sector Expatriates are the biggest contributors to demand for the Association in 2012, the government emphasized the need quality buildings. According to real estate agents, the most workforce and a choice of better infrastructure and residential sector in Oman. The total population of Oman for a real estate price index. The Ministry of Housing is popular residential areas in Muscat are Qurum, Bausher, superior parking spaces. stood at 4.1 million in 2014, of which 56.3% are Omanis set to establish a Directorate General, which will help Ghala, Azaiba, Ghubra, and Madinat Qaboos. These and the remaining are expatriates. Omanis and expats looking to buy properties in integrated Meanwhile, the demand for poorly constructed office regions attract the executive expatriate community. tourism complexes. The Omani government has space continues to decline. Thus, in the medium term, the Figure 53: Population Breakdown According to the Times of Oman, land prices in the 4.5 standardized pay structures and grades across the public commercial sector will continue to face the challenge of capital jumped 60% in some areas due to activities of 4.0 sector, thereby improving the salary structure of meeting the demand for well-designed office spaces. unlicensed brokers. This, too, has contributed to the 3.5 employees. The Housing Ministry of Oman has awarded 3.0 1.74 1.79 increase in rent. Rentals for Grade A offices remain steady; 1.28 1.53 projects worth OMR 491,265 to construct new housing 2.5 0.82 in millions in 2.0 units in various parts of the country. The government has Table 22: Monthly Residential Rentals of Apartments – H2 2014 Grade B suffers oversupply 2.21 2.30 1.5 1.96 2.01 2.09 been making every possible effort to improve the tourism Area Type (in OMR) Rents remained steady throughout H2 2014, despite 1.0 and hospitality sector to transform Muscat as the 2010 2011 2012 2013 2014 Muscat Hills 2 BR FF Apt 700-800 sustained demand in most of the popular areas, except Omani Non-Omani preferred global tourist attraction. The focus on tourism, Ghubarah and Shatti Al Qurum, where rents are down 6- The Wave 2 BR FF Apt 800-900 Source: Central Bank of Oman, February 2015 as evident in the Oman policy and investment program 7% and 8-10%, respectively. According to NCSI, total traded value of the property in for the decade up to 2030, will lead to growth in the Shatti Al Qurum 2 BR FF Apt 800-900 residential and infrastructure sectors. High-quality Grade A office properties are in high Oman grew 29.3% in 2014 to OMR 2.9bn, reaching Azaiba 2 BR FF Apt 400-500 demand as against its supply, putting an upward pressure almost the 3-billion mark for the first time since 2008. Of Al Khuwair 2 BR FF Apt 400-450 on the rentals (OMR 10–12 per sq m per month). These the total traded value of the property, mortgage contracts Residential Sector Source: Amar Finance Research properties offer additional amenities, including basement amounted to OMR 1.7bn from 10,033 contracts, up Strong demographics back demand for parking, restaurants, and ATMs, as well as world-class A similar trend was reported in villas offering top quality 15.3% from 2013. The growth in mortgage transactions quality residential accommodation construction and fittings. However, demand is shifting to construction and amenities. In central and western areas reflects the confidence of the banking sector, which in the west of the city, where there is less traffic congestion. turn is a result of improved borrowing capacity of people. The population of Oman is growing at a steady pace, and of Muscat, there is a shortage of modern apartments with is likely to increase by 2.4 million in the period 2015-2040, facilities and good quality villas in the OMR 1,000–1,800 Conversely, Grade B office properties are not preferred Figure 54: Credit Breakdown by Banks (in OMR mm) 18,000 7,000 as forecast by NCSI’s report 'Population Projection in per month range. This trend is likely to continue in the by international companies, resulting in higher vacancy 6,500 16,000 Sultanate of Oman 2015-2040'. Population growth will near term, putting an upward pressure on the rentals and levels. Rent for these properties is in the range of OMR 6,000 14,000 5,500 increase the housing demand in the Sultanate. In 2014, making the market more competitive. 7–9 per sq m per month. 12,000 5,000 apartment supply increased across Muscat, matching a 4,500 Table 23: Monthly Rentals of Villas in Oman – H2 2014 Table 24: Monthly Office Space Rentals in Oman – H2 2014 10,000 steady demand in established locations. Despite the Ttoal CreditTtoal Bank 4,000 Area Type (in OMR) Area (OMR per sq m) 8,000 3,500 growth in supply, rental value of good quality apartments 4Q 1Q 2Q Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Personal / Housing Loans Muscat Hills 4 BR FF 1,600-1,650 Shatti Al Qurm 8-9 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 in prime locations have been retained or increased due to 7-9 Total Bank Credit Personal/ Housing Loans stronger demand and limited opportunities for further Shatti Al Qurm 4 BR FF 1,900-2,500 Ghala Source: Central Bank of Oman, September 2014 development in restricted areas. This has created a two- 6-7 The Wave 4 BR FF 1,500-1,650 Al Khuwair tier market within the residential sector. On one hand, A total of 354,565 transactions were recorded in the real 6.5-7.5 Madinat Qaboos 4 BR FF 1,400-1,500 Al Ghubra estate sector in 2014. The breakdown of the number of well-designed properties suited to tenant needs have 7-8 transactions is illustrated below. relatively stable rentals and high occupancy rates. On the Azaiba 4 BR FF 800-1,000 Al Azaiba other, rentals and vacancy rates of poorly designed Source: Amar Finance Research Source: Amar Finance Research Figure 55: Breakdown of RE transactions properties are declining. Commercial Sector The outlook for the office sector in Muscat is negative, 2.5% 6.5% 3.2% 22.6% The residential leasing market in Muscat is extremely particularly in light of the increasing supply of lower grade 6.9% active as the number of expatriates in the Sultanate Commercial space demand looks up buildings. We expect the demand and rentals for good 7.1% continues to increase. However, the demand is The office segment is also gaining from the recovery in quality buildings in prime locations to be relatively stable, constrained by lack of quality residences suited to tenant but that of low-grade buildings to continue declining. For 8.3% 16.3% requirements and budgets. realty demand, which is a result of huge infrastructure investments by the government and subsequent increase Grade B properties, landlords are considering options 12.2% such as rent-free periods, step rents, and office fittings to 14.3% In the secondary market, integrated tourism complexes in job opportunities. The trend will continue as general attract tenants. Muscat North Al Batinah South Al Batinah Al Dakhiliyah such as The Wave witnessed increased interest from business and industrial sectors in Muscat are expected to North Al Sharqiyah Dhofar South Al Sharqiyah Al Dhahirah purchasers in 2014. However, only a few transactions see steady growth over the next decade. Smaller (50–250 Al Buraimi Others Source: NCSI, January 2015 were closed as the majority of properties were priced sq m), fully finished office spaces in prime locations have above purchaser expectations. the highest demand, while the uptake of larger, shell and

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Tourism industry set for a massive uplift LLC, 25% by the office of Royal Court Affairs of the backed by government initiatives Sultanate, and the remaining 15% to be collectively owned by two subsidiaries of Consolidated Contractors Oman is trending strongly towards a substantial boom in International Co (CCIC). The Omagine Project will the hospitality industry with a host of measures. One of integrate cultural, entertainment and residential the key policy changes include development of a 30-year components, including hotels, commercial buildings, retail tourism strategy to align the sector’s role with plans for establishments and more than 2,000 residences to be the nation’s economy. This strategy focuses on four points developed for sale. The project will be developed on 1mm - tourism competitiveness, marketing and product sq m of beachfront land in Seeb. development, governance, education and socio-economic development. Major Projects Tourism in Oman has been on a consistent growth path Table 25 lists several major construction projects and is poised to witness spectacular development in the planned or ongoing in Oman. coming years to be one of the largest contributors to the Table 25: Major Projects economy. According to WTTC, the travel and tourism Project Name Type Value Status industry in Oman supported 37,000 jobs directly in 2013 (USD bn) and is forecast to grow by 11.4% in 2014 to 41,000. By Oman Ministry of Community 2024, travel and tourism will account for 60,000 direct Finance - Duqm New 20.0 Ongoing Development jobs, an increase of 3.9% per annum over the next 10 years. Downtown This is the fastest growth in the Middle East region and DSME/Omran - Community 20.0 Ongoing among the strongest worldwide. Frontier Town Development The Wave Muscat - Mixed 4.0 Ongoing According to WTTC, total contribution of travel and Infrastructure Development tourism to Oman's GDP was OMR 2.08bn, or 6.4%, in Sohar Free Zone Economic / Company - Free Zone 2.0 Ongoing 2013 and is expected to increase to 9.4% to OMR 2.27bn Free Zones in 2014. The total contribution to GDP is forecast to rise Sohar Community by 5.5% per annum to OMR 3.88bn (8.2% of GDP) by Omagine LLC-Omagine 1.9 Ongoing 2024. Development OTDC - Oman Mixed Convention and 1.8 Ongoing The government of Oman continues to take various steps Development Exhibition Center

to further develop the sector. Omran, a company set up by the government of Oman to deliver major projects and Source: Zawya manage assets and investments in the tourism sector, is undertaking the following steps for the development of the sector:  12 new projects, including water parks, development of Omani castles and forts and eco-tourism resorts, are under study  The ministry, along with Omran, is working with Paradores Consultancy, an arm of Spain's prominent luxury hotel chain Paradores de Turismo de España, to transform select forts and castles into luxury heritage hotel properties  Signed a pact to develop 1.85mm sq m for the eco- themed Ras al Hadd tourism project in South Sharqiyah, which includes an eco-themed resort; hotel and residential villas; a souk; a dedicated center for wildlife preservation; observation park; and a new market area, at a cost of OMR 250mm  Development of at least 18 hotels (over 4,200 rooms) in the next four years with its joint venture partner Muriya Another much awaited mega project, Omagine Project, a project undertaken by the Omani government and the US based Omagine Inc., was kick-started in October 2014. The USD 2.5bn mixed-use tourism and real-estate project will be 60% owned by Omagine Inc's subsidiary Omagine

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Tourism industry set for a massive uplift LLC, 25% by the office of Royal Court Affairs of the Qatar Economic Overview backed by government initiatives Sultanate, and the remaining 15% to be collectively owned by two subsidiaries of Consolidated Contractors According to the Ministry of Development Planning and Moderate lending witnessed in 2014 Oman is trending strongly towards a substantial boom in International Co (CCIC). The Omagine Project will Statistics (MDPS), Qatar’s GDP grew 6.0% y-o-y in Q3 Annual data released by the Qatar Central Bank (QCB) the hospitality industry with a host of measures. One of integrate cultural, entertainment and residential 2014 from 5.7% in the previous quarter. The non- reveals that domestic credit growth declined to 10.0% in the key policy changes include development of a 30-year components, including hotels, commercial buildings, retail hydrocarbon sector accounted for more than half (50.7%) 2014 from 11.8% in 2013. The slowdown was primarily tourism strategy to align the sector’s role with plans for establishments and more than 2,000 residences to be of the GDP, growing 12.0% y-o-y in Q3 2014. Growth of attributed to sluggish lending activities in the public sector, the nation’s economy. This strategy focuses on four points developed for sale. The project will be developed on 1mm the non-hydrocarbon sector was backed by major from 45% growth in 2013 to 40% in 2014, as public sector - tourism competitiveness, marketing and product sq m of beachfront land in Seeb. infrastructure projects such as the new metro in Doha, entities resorted either to the central government development, governance, education and socio-economic new roads, highways, expansion of the new Hamad resources or the developing domestic capital market for development. Major Projects International Airport, and real estate projects such as financing. Nevertheless, bank credit will continue to Musheireb in central old Doha and Lusail in the north. Tourism in Oman has been on a consistent growth path Table 25 lists several major construction projects remain important in 2015 due to the upcoming 2022 The construction sector recorded the maximum growth in and is poised to witness spectacular development in the planned or ongoing in Oman. World Cup. Lending to the real estate industry has already 2014 at 18.5% y-o-y, followed by the transport and coming years to be one of the largest contributors to the started rising. It grew 11% y-o-y in 2014 as against the Table 25: Major Projects communication sector that grew 10.5% y-o-y. Financial, economy. According to WTTC, the travel and tourism Project Name Type Value Status stagnant level in 2013. industry in Oman supported 37,000 jobs directly in 2013 (USD bn) real estate, and business services reported significant growth (13.7% y-o-y in Q3 2014), as banking activities Figure 58: Credit Distribution in Economy, December 2014 and is forecast to grow by 11.4% in 2014 to 41,000. By Oman Ministry of Public Sector Community Outside 2024, travel and tourism will account for 60,000 direct Finance - Duqm New 20.0 Ongoing accelerated and real estate services grew due to housing 36% Development Qatar jobs, an increase of 3.9% per annum over the next 10 years. Downtown demands of the growing population. Further, trade, hotels 10% This is the fastest growth in the Middle East region and DSME/Omran - Community and restaurants grew on the back of the Ramadan effect Industy & 20.0 Ongoing Frontier Town Development as well as increased tourist activity. others among the strongest worldwide. 3% The Wave Muscat - Mixed Contractors 4.0 Ongoing On the other hand, the hydrocarbon sector, which According to WTTC, total contribution of travel and Infrastructure Development 5% includes crude oil and raw gas production, declined 2.8% General Consumptio tourism to Oman's GDP was OMR 2.08bn, or 6.4%, in Sohar Free Zone Economic / Trade n Company - Free Zone 2.0 Ongoing y-o-y in 2014 because of lower crude oil production and 2013 and is expected to increase to 9.4% to OMR 2.27bn Free Zones 7% 15% in 2014. The total contribution to GDP is forecast to rise Sohar temporary gas production shutdowns for maintenance. Services Community Qatar National Bank (QNB) expects overall growth to 9% by 5.5% per annum to OMR 3.88bn (8.2% of GDP) by Omagine LLC-Omagine 1.9 Ongoing Real Estate 2024. Development accelerate further in 2015, as large infrastructure projects 15% OTDC - Oman Source: QCB, Quarterly Statistical Bulletin, December 2014 Mixed and a large influx of expatriate population ahead of the Convention and 1.8 Ongoing The government of Oman continues to take various steps Development FIFA World Cup 2022. Exhibition Center Inflation remained moderate in 2014 to further develop the sector. Omran, a company set up Source: Zawya Figure 56: Contribution to Real GDP Growth by the government of Oman to deliver major projects and 30.0% According to the MDPS, inflation remained stable at 3% manage assets and investments in the tourism sector, is 25.0% in 2014 compared with 3.1% in 2013, due to lower global undertaking the following steps for the development of 20.0% 16.7% 13.0% food prices that had offset the high rental inflation. the sector: 15.0% 10.0% 6.0% 6.3% 6.0% Rent inflation rose to an average of 7% in 2014 because  12 new projects, including water parks, development 5.0% of land prices, which increased 92.7% y-o-y in December of Omani castles and forts and eco-tourism resorts, 0.0% 2014, and the growing population (up 10.1% in 2014) and -5.0% 2010 2011 2012 2013 Q3-14 are under study higher GDP per capita. Hydrocarbon Non-Hydrocarbon Real GDP  The ministry, along with Omran, is working with Source: MDPS, December 2014 Paradores Consultancy, an arm of Spain's prominent Inflation is expected to rise to 3.7% in 2015 and 4.2% in luxury hotel chain Paradores de Turismo de España, Meanwhile, the EIU estimates a 6.2% real GDP growth 2016, largely due to a tightening property market, to transform select forts and castles into luxury rate for 2014, and expects this to ease down to 5.4% in according to the EIU’s January 2015 report. The EIU heritage hotel properties 2015 due to a fall in oil and gas prices. It also predicts the predicts that inflation will increase further to an annual  Signed a pact to develop 1.85mm sq m for the eco- growth to average at 5.7% p.a. in 2016−19 as increased average of 4.7% in 2015−19, as high liquidity persists, themed Ras al Hadd tourism project in South capital spending will offset the adverse effect of lower oil population growth continues, major construction projects Sharqiyah, which includes an eco-themed resort; prices. pick-up pace, and supply in the housing market tightens. hotel and residential villas; a souk; a dedicated center Rising global non-oil commodity prices in 2017−18 will Figure 57: Economic Growth Forecast for wildlife preservation; observation park; and a 6.4% 6.3% also add to inflationary pressures. 6.2% new market area, at a cost of OMR 250mm 6.2% 6.1%  Figure 59: Consumer Price Inflation Development of at least 18 hotels (over 4,200 6.0% 6.0% 5.7% 5.4% rooms) in the next four years with its joint venture 5.8% 5.7% 5.5% 5.2% partner Muriya 5.6% 5.5% 4.9% 5.4% 5.0% 5.4% 4.5% 4.2% Another much awaited mega project, Omagine Project, a 3.7% GDP Growth Rate (%) 5.2% 4.0% project undertaken by the Omani government and the US 5.0% 3.5% 3.0% based Omagine Inc., was kick-started in October 2014. 2013 A 2014 E 2015 F 2016 F 2017 F 2018 F 2019 F Rate Inflation (%) 3.0% The USD 2.5bn mixed-use tourism and real-estate project Source: EIU Country Report, January 2015 2.5% 2014 A 2015 F 2016 F 2017 F 2018 F 2019 F will be 60% owned by Omagine Inc's subsidiary Omagine Source: EIU, January 2015

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Real Estate Sector Sector may be overstocked after FIFA 2022 Realty deals rise 24% in 2014 Qatar is investing heavily in infrastructure to prepare itself for one of the world’s grandest sporting events. The The latest numbers by Al Sharq reveal that real estate strong growth in public spending is expected to help transactions in Qatar rose 24% y-o-y in 2014, totaling create new jobs and diversify the economy. It will also QAR 55.4bn. On a monthly basis, December witnessed a push up realty sector growth, especially in Doha, as massive jump in the total transaction value to QAR 7.8bn increase in tourist inflows will help improve the demand compared with QAR 3bn during the same month in 2013. for hospitality space and retail space. The ongoing activity The following chart depicts transactions in 2014 by month. has already created demand for residential and office Figure 60: Real Estate Transactions in 2014 space. However, some sections of the industry are 9 200.0% questioning the long-term viability of these investments. 7.8 8 6.8 7 150.0% The real estate market in Doha is rising rapidly, with big 6 5.2 4.8 4.8 100.0% projects to be delivered over the next eight years. As per 5 4.2 4.5 4.0 3.8 4 CBRE, in the next five years, Doha’s residential stock (QAR bn)

2.9 50.0% % Y Change 2.6 -

3 o levels will rise by 25%, total office inventory by 50%, and 1.9 - Transaction Value Transaction 2 0.0% Y hotel and hotel apartment supply by 100%. From a 1 0 -50.0% current stock of one million sq m of GLA, Doha’s retail Jul Jan Jun

Sep space will double by 2017. However, this development is Feb Oct Apr Mar Dec Aug May Nov Source: Colliers International focused only on one upcoming big sport event rather than long-term goals and requirements. The feasibility of some Realty lending maintains pace in 2014 projects is already under question due to construction The Qatari banking sector, initially hesitant about funding delays (due to material shortage and rising construction the realty segment, gradually improved its exposure in cost) and anticipated oversupply state. There are concerns view of the government’s capital expenditure plans aimed that after the event, Qatar may face a sharp fall in demand at improving infrastructure for the 2022 FIFA World Cup. for these properties due to a significant oversupply As per QCB, total lending to the sector picked up in 2010, situation. These concerns underscore an urgent need to after Qatar won the World Cup bid. Since then, lending look at alternate ways to increase demand after the event. levels have increased at a CAGR of 15.9% during 2010– Residential Sector 14, with total banking exposure to the sector reaching QAR 125.5bn in 2014. Real estate credit (REC) to total Qatar residential property half way through domestic credit (TDC) increased to 21.4% in 2014 from the boom cycle 20.4% in 2013. This was due to increased construction activities and restart of some of the stalled projects. Qatar’s residential real estate market, especially in Doha, is experiencing an acute housing shortage. This is mainly Figure 61: Credit Facilities by Qatar Banks 800 27% due to the increasing expatriate population. According to 24.5% 25% the MDPS, in 2014, population grew by 10.1% to reach 600 23.6% 21.4% 23% 2.2 million, reflecting a large influx of expatriate workers 21.2% 21.4% 20.4% 400 21% filling the 120,000 new jobs being created in Qatar each 19% year. In turn, this larger population is feeding into higher (in QAR bn) 200 17% economic growth by boosting aggregate demand and 0 15% investment in housing and services. This unplanned 2009 2010 2011 2012 2013 2014 REC (LHS) Non REC (LHS) REC to TDC (RHS) population growth is expected to continue in the coming years, as more and more foreign workers arrive in the Source: Central Bank of Qatar, December 2014 country to engage in development projects being launched According to the latest data from MEED projects, Qatar's for the 2022 FIFA World Cup. This in turn will result in infrastructure projects pipeline is likely to witness project pressure on the housing sector and push up rentals. deals worth more than USD 30bn in 2015. Some of these Figure 62: Cumulative Residential Supply Estimates in Doha major projects include the Public Works Authority’s 1,60,000 (Ashghal) expressway, local roads and drainage programs, 1,40,000 as well as significant investment in real estate and 1,20,000 transport projects such as Lusail and the New Port Project. 1,00,000 80,000 In 2015, the sector will be boosted by project awards 60,000 worth more than USD 5bn on the Al Karaana No. of Units 40,000 petrochemical complex, the rolling stock and systems 20,000 - contract on the Doha Metro exceeding USD 2bn, and five 2010 2011 2012 2013 2014E 2015E 2016E 2017E multi-billion dollar packages on the mega water reservoirs. Source: Colliers International

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GCC Real Estate Newsletter GCC Real Estate Newsletter

Real Estate Sector Sector may be overstocked after FIFA 2022 According to the 2010 census, Doha’s residential market Al Gharrafa 10,000−14,000 comprised of 23,185 villas and 74,370 apartments. Al Khraytiyat 8,500−11,000 Qatar is investing heavily in infrastructure to prepare itself Realty deals rise 24% in 2014 According to government projections, 60,000 new units Source: Amar Finance Research for one of the world’s grandest sporting events. The will be completed by 2020. The increase in population is The latest numbers by Al Sharq reveal that real estate strong growth in public spending is expected to help likely to be followed by a similar growth in the demand Commercial Sector transactions in Qatar rose 24% y-o-y in 2014, totaling create new jobs and diversify the economy. It will also for accommodation facilities. As Doha is the business QAR 55.4bn. On a monthly basis, December witnessed a Commercial real estate witnesses boom push up realty sector growth, especially in Doha, as capital of the country, its population is likely to grow at a massive jump in the total transaction value to QAR 7.8bn increase in tourist inflows will help improve the demand higher rate. Collier estimates that the demand for The commercial real estate sector witnessed a significant compared with QAR 3bn during the same month in 2013. for hospitality space and retail space. The ongoing activity residential units will be stronger than their supply in the revival in 2014. Vacancy rates dropped to 10% in the The following chart depicts transactions in 2014 by month. has already created demand for residential and office coming years. It estimates that residential demand in Diplomatic district, signifying a demand for prime office Figure 60: Real Estate Transactions in 2014 space. However, some sections of the industry are Qatar as a whole will reach 242,000 units by 2017, against accommodation. In the last decade, the office sector 9 200.0% questioning the long-term viability of these investments. 7.8 a supply of 1,38,235 units by 2017 (Fig 62). witnessed spectacular changes, backed by the growing 8 6.8 7 150.0% The real estate market in Doha is rising rapidly, with big importance of West Bay after the government moved 6 5.2 Population rise push up rent and sale price public departments into this area. 4.8 4.8 100.0% projects to be delivered over the next eight years. As per 5 4.2 4.5 4.0 3.8 4 CBRE, in the next five years, Doha’s residential stock In H2 2014, sales prices remained relatively stable, with a (QAR bn) Apart from the public sector, financial and professional 2.9 50.0% % Y Change 2.6 -

3 o levels will rise by 25%, total office inventory by 50%, and few localities recording an appreciation of 3−5%. As per 1.9 - Transaction Value Transaction services companies are also seeking new office spaces. 2 0.0% Y hotel and hotel apartment supply by 100%. From a Al Asmakh, the Pearl continues to be a preferred location 1 The recent decision by the government to relocate 0 -50.0% current stock of one million sq m of GLA, Doha’s retail for global investors. It states that areas, such as Al Sadd, commercial units from residential localities has resulted in Jul Jan Jun

Sep space will double by 2017. However, this development is Bin Mahmoud, and Al Nasr, may witness an equal demand Feb Oct Apr Mar Dec Aug May Nov increased demand for office spaces. As stated by Colliers, Source: Colliers International focused only on one upcoming big sport event rather than for residential properties due to easy accessibility and a Doha’s Grade A office space reached 2.2mm sq m net long-term goals and requirements. The feasibility of some legal benefit that allows individuals a right on property leasable area in 2012, and is expected to grow at a CAGR Realty lending maintains pace in 2014 projects is already under question due to construction owned by another, for a limited time or until death. of 9% and reach 2.6mm sq m by 2017 (Fig 63). The Qatari banking sector, initially hesitant about funding delays (due to material shortage and rising construction cost) and anticipated oversupply state. There are concerns Table 26: Monthly Residential Rents in Qatar – H2 2014 Figure 63: Cumulative Grade A Office Supply Estimates the realty segment, gradually improved its exposure in Area 1 BR FF Apt 2 BR FF Apt 3 BR FF Apt 40,00,000 that after the event, Qatar may face a sharp fall in demand 35,00,000 view of the government’s capital expenditure plans aimed Al Muntazah 3,500−4,600 4,500−6,500 6,500−8,000 at improving infrastructure for the 2022 FIFA World Cup. for these properties due to a significant oversupply 30,00,000 situation. These concerns underscore an urgent need to Najma 3,500−4,500 5,000−6,000 6,200−7,500 25,00,000 As per QCB, total lending to the sector picked up in 2010, 20,00,000 Bin Mahmoud 4,000−5,000 5,500−7,500 7,000−9,000 after Qatar won the World Cup bid. Since then, lending look at alternate ways to increase demand after the event. 15,00,000 Al Maamoura 5,000−5,500 5,000−6,500 6,750−8,000 10,00,000 levels have increased at a CAGR of 15.9% during 2010– 5,00,000 Residential Sector Bin Omran 4,750−5,500 5,000−6,500 6,500−7,500 sqm / Net Leasable Area 14, with total banking exposure to the sector reaching - QAR 125.5bn in 2014. Real estate credit (REC) to total Al Sadd 4,550−6,500 5,600−8,000 6,500−9,000 2010 2011 2012 2013E 2014E 2015E 2016E 2017E Qatar residential property half way through Source: Colliers International domestic credit (TDC) increased to 21.4% in 2014 from the boom cycle Old Airport 5,000−6,000 6,000−6,500 6,500−7,500 West Bay / During the first nine months of 2014, the demand for 20.4% in 2013. This was due to increased construction 7,000−9,000 9,000−12,000 12,000−16,000 activities and restart of some of the stalled projects. Qatar’s residential real estate market, especially in Doha, Dafna prime office space grew 2.5 times the five-year average is experiencing an acute housing shortage. This is mainly Pearl Qatar 9,500−12,500 14,000−16,500 15,000−19,000 (2009–13). The demand for 200−500 sq m office space Figure 61: Credit Facilities by Qatar Banks 800 27% due to the increasing expatriate population. According to Source: Amar Finance Research continues to remain strong due to limited supply; rent for 24.5% 25% the MDPS, in 2014, population grew by 10.1% to reach such properties witnessed an upward movement. Prime 600 23.6% In H2 2014, rental prices of both apartments and villas 23% 2.2 million, reflecting a large influx of expatriate workers and Grade A space in smaller sizes remain scarce, pushing 21.4% 21.4% surged across Doha and in secondary areas. Many 21.2% 20.4% filling the 120,000 new jobs being created in Qatar each 400 21% companies are relocating their employees in the outskirts up rents in the prime area of the West Bay up to 19% year. In turn, this larger population is feeding into higher

(in QAR bn) QAR210−260/sq m per month. On the contrary, 200 (Al Wakra, Al Aziziyah, and Umm Salal) because of 17% economic growth by boosting aggregate demand and increasing rentals in Doha. Additionally, these locations secondary/low-quality space continues to face pressure, as 0 15% investment in housing and services. This unplanned are favorable because of better connectivity to city center vacancy rates remain high. Demand for the office sector 2009 2010 2011 2012 2013 2014 population growth is expected to continue in the coming REC (LHS) Non REC (LHS) REC to TDC (RHS) areas and growth of local shopping complexes. The will primarily originate from the private sector, as most years, as more and more foreign workers arrive in the Source: Central Bank of Qatar, December 2014 overall outlook for the residential market within the Doha government departments have shifted to new offices in country to engage in development projects being launched city looks stable. The expected rise in population may the West Bay. According to the latest data from MEED projects, Qatar's for the 2022 FIFA World Cup. This in turn will result in result in additional upward pressure on sales and rentals. infrastructure projects pipeline is likely to witness project pressure on the housing sector and push up rentals. Table 28: Average Monthly Rents for Office Space – H2 2014 deals worth more than USD 30bn in 2015. Some of these Area QAR per sq m per month Figure 62: Cumulative Residential Supply Estimates in Doha Table 27: Monthly Rents of Villas in Qatar – H2 2014 major projects include the Public Works Authority’s Area 3 BR FF Apt West Bay 210−260 (Ashghal) expressway, local roads and drainage programs, 1,60,000 1,40,000 Al Dafna 15,000−21,500 A Ring Road 125−140 as well as significant investment in real estate and 1,20,000 Al Waab 13,500−19,000 C Ring Road 140−145 transport projects such as Lusail and the New Port Project. 1,00,000 80,000 Al Hilal 11,000−14,000 D Ring Road 130−145 In 2015, the sector will be boosted by project awards 60,000 Old Doha 125−150 No. of Units Abu Hamour 12,500−15,500 worth more than USD 5bn on the Al Karaana 40,000 Airport Road 150−155 petrochemical complex, the rolling stock and systems 20,000 Ain Khaled 12,000−16,000 - Salwa Road 90−115

West Bay 23,000−25,500 contract on the Doha Metro exceeding USD 2bn, and five 2010 2011 2012 2013 2014E 2015E 2016E 2017E Source: Amar Finance Research multi-billion dollar packages on the mega water reservoirs. Source: Colliers International West Bay Lagoon 21,500−35,000

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GCC Real Estate Newsletter

Strong prospects for organized retail sector As per Colliers’ Q3 Hotel Market report, the country is expected to receive 3.5 million international tourists for Qatar has the highest per capita income in the world. This the FIFA World Cup in 2022. Huge infrastructure translates into a high disposable per capita income, which development is required to accommodate the needs of leads to greater inclination towards shopping and eating these travelers. For example, an additional 60,000 rooms out. As a result, the retail space in the country continues must be operational by 2022 to meet the needs of the to grow. Retail development is the second largest travelers during the FIFA cup. However, such a large construction activity, after residential development in inventory is likely to create downward pressure on Qatar. utilization, both before and after the 2022 event. According to industry experts, Qatar has more than a Doha is likely to face the risk of oversupply as the market dozen operational malls with another dozen in the gears up for the FIFA World Cup. According to the latest pipeline. By the end of 2015, the anticipated net leasable numbers, in 2014, average occupancy in Qatar stood at area (NLA) will be nearly 954,500 sq m. Upon completion 73%, compared with about 65% in 2013. Of equal of all the under-construction malls, the total number of concern is the belief that the city still has some way to go malls would be 27 with an expected NLA of 1.8mm sq m. in developing an urban space that combines this new There is high demand for retail space from the garment infrastructure and the city’s core identity. segment and luxury brand stores. Within Qatar, the retail market can be segmented into four basic zones: malls, Major Projects souks, hypermarkets, and unorganized shops Table 29 lists the major ongoing construction projects in (unorganized retail secures 70% of total retail space). Qatar. Currently, Qatar has 13 malls that offer nearly 569,000 sq m of the total leasable area. Villaggio and City Center Table 29: Major Projects cover 43% or around 245,000 sq m leasable area. Value Project Name Type (USD Status Hypermarkets comprise around 158,000 sq m or 5% of bn) total retail supply. Approximately 550,000 sq m net Community 5.5 Ongoing leasable area is expected to be delivered on and near Al LREDC − Lusail City Development Shamal Road. Upon completion of all the proposed mall Msheireb Properties – Community 5.5 Ongoing projects, the total net leasable area within the upcoming Msheireb Development Qatar CAA − Space City malls will reach 1.6mm sq m. 3.3 Ongoing Establishment Education International sports and business events to Leisure & 3.1 Ongoing boost tourism QFA − 2022 Stadiums Entertainment ADIH − Qatar Entertainment Community 3.0 Ongoing The various upcoming international sports and business City Development events are likely to lead to a leap in the number of tourists GFH − Energy City Qatar − Commercial 2.6 Ongoing entering the country. According to Qatar Tourism Phase 1 Qatar Foundation − Sidra Authority (QTA), Qatar attracted about 2.8mm visitors 2.3 Ongoing from across the globe in 2014, representing growth of Medical and Research Center Healthcare Barwa Real Estate Company − 8.2% y-o-y. According to the report, 40% percent of Mixed Ain Khalid Commercial 1.7 Ongoing Development visitors came from GCC countries, 28% from various Avenue parts of Asia and Oceania, while 15% came from Bawabat Al Shamal − Doha Retail, Leisure & 1.7 Ongoing European countries. The increase in tourist inflow is Festival City Entertainment attributable to hosting of large-scale events, conferences Msheireb Properties − Mixed 1.6 Ongoing and exhibitions, such as the Doha Jewelry and Watches Msheireb − Phase 1 Development Bawabat Al Shamal − Doha Retail, Leisure & Exhibition 2014, the fourth Qatar International Motor 1.6 Ongoing Show, and the “Tourism in Tomorrow’s World” Festival City − Phase 2 Entertainment ADIH − Qatar Entertainment Mixed conference. 1.5 Ongoing City − Downtown Development Regional tourists were attracted by seasonal festivals such Barwa Real Estate Company − Residential 1.4 Ongoing as Qatar International Food Festival, Souq Waqif Spring Barwa City Barwa Real Estate Company − Festival, International Festival for Falcon and Hunting, Commercial 1.4 Ongoing and increasing live family entertainment such as Cirque Barwa Financial District Barwa Real Estate Company − Eloize and Disney Live, Eid festival in Qatar in addition Residential 1.1 Ongoing Barwa Al Baraha to the Summer Festival. Also, 2014 saw the launch of the Qatar National Tourism Sector Strategy 2030, which is Source: Zawya designed to serve as a road map for developing the tourism industry over the next decades.

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GCC Real Estate Newsletter

Strong prospects for organized retail sector As per Colliers’ Q3 Hotel Market report, the country is expected to receive 3.5 million international tourists for Qatar has the highest per capita income in the world. This the FIFA World Cup in 2022. Huge infrastructure translates into a high disposable per capita income, which development is required to accommodate the needs of leads to greater inclination towards shopping and eating these travelers. For example, an additional 60,000 rooms out. As a result, the retail space in the country continues must be operational by 2022 to meet the needs of the to grow. Retail development is the second largest travelers during the FIFA cup. However, such a large construction activity, after residential development in inventory is likely to create downward pressure on Qatar. utilization, both before and after the 2022 event. According to industry experts, Qatar has more than a Doha is likely to face the risk of oversupply as the market dozen operational malls with another dozen in the gears up for the FIFA World Cup. According to the latest pipeline. By the end of 2015, the anticipated net leasable numbers, in 2014, average occupancy in Qatar stood at area (NLA) will be nearly 954,500 sq m. Upon completion 73%, compared with about 65% in 2013. Of equal of all the under-construction malls, the total number of concern is the belief that the city still has some way to go malls would be 27 with an expected NLA of 1.8mm sq m. in developing an urban space that combines this new There is high demand for retail space from the garment infrastructure and the city’s core identity. segment and luxury brand stores. Within Qatar, the retail market can be segmented into four basic zones: malls, Major Projects souks, hypermarkets, and unorganized shops Table 29 lists the major ongoing construction projects in (unorganized retail secures 70% of total retail space). Qatar. Currently, Qatar has 13 malls that offer nearly 569,000 sq m of the total leasable area. Villaggio and City Center Table 29: Major Projects cover 43% or around 245,000 sq m leasable area. Value Project Name Type (USD Status Hypermarkets comprise around 158,000 sq m or 5% of bn) total retail supply. Approximately 550,000 sq m net Community 5.5 Ongoing leasable area is expected to be delivered on and near Al LREDC − Lusail City Development Shamal Road. Upon completion of all the proposed mall Msheireb Properties – Community 5.5 Ongoing projects, the total net leasable area within the upcoming Msheireb Development Qatar CAA − Space City malls will reach 1.6mm sq m. 3.3 Ongoing Establishment Education International sports and business events to Leisure & 3.1 Ongoing boost tourism QFA − 2022 Stadiums Entertainment ADIH − Qatar Entertainment Community 3.0 Ongoing The various upcoming international sports and business City Development events are likely to lead to a leap in the number of tourists GFH − Energy City Qatar − Commercial 2.6 Ongoing entering the country. According to Qatar Tourism Phase 1 Qatar Foundation − Sidra Authority (QTA), Qatar attracted about 2.8mm visitors 2.3 Ongoing from across the globe in 2014, representing growth of Medical and Research Center Healthcare Barwa Real Estate Company − 8.2% y-o-y. According to the report, 40% percent of Mixed Ain Khalid Commercial 1.7 Ongoing Development visitors came from GCC countries, 28% from various Avenue parts of Asia and Oceania, while 15% came from Bawabat Al Shamal − Doha Retail, Leisure & 1.7 Ongoing European countries. The increase in tourist inflow is Festival City Entertainment attributable to hosting of large-scale events, conferences Msheireb Properties − Mixed 1.6 Ongoing and exhibitions, such as the Doha Jewelry and Watches Msheireb − Phase 1 Development Bawabat Al Shamal − Doha Retail, Leisure & Exhibition 2014, the fourth Qatar International Motor 1.6 Ongoing Show, and the “Tourism in Tomorrow’s World” Festival City − Phase 2 Entertainment ADIH − Qatar Entertainment Mixed conference. 1.5 Ongoing City − Downtown Development Regional tourists were attracted by seasonal festivals such Barwa Real Estate Company − Residential 1.4 Ongoing as Qatar International Food Festival, Souq Waqif Spring Barwa City Barwa Real Estate Company − Festival, International Festival for Falcon and Hunting, Commercial 1.4 Ongoing and increasing live family entertainment such as Cirque Barwa Financial District Barwa Real Estate Company − Eloize and Disney Live, Eid festival in Qatar in addition Residential 1.1 Ongoing Barwa Al Baraha to the Summer Festival. Also, 2014 saw the launch of the Qatar National Tourism Sector Strategy 2030, which is Source: Zawya designed to serve as a road map for developing the tourism industry over the next decades.

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