THE MARKET

Real Estate 2008

ABU DHABI DUBAI N. EMIRATES BAHRAIN

KUWAIT OMAN QATAR SAUDI ARABIA
JORDAN LEBANON SYRIA TURKEY
YEMEN ALGERIA EGYPT LIBYA MO-
ROCCO TUNISIA NIGERIA INDIA
SRI LANKA PAKISTAN INDONESIA MALAYSIA
THE PHILIPPINES SINGAPORE THAILAND
 CONTENTS THE MARKET 2008

GOING FROM STRENGTH TO STRENGTH
2 New developments and opportunities have
abounded in 2008. OBG’s geographical cover-
age has risen to encompass 24 countries,
including Indonesia, a new arrival this year. Fur-
thermore, a number of new partnerships with
such prestigious real estate services and con-
sultancy firms as CB Richard Ellis and Pak RE
allow us to look forward to expanding our oper-
ations even further in the future.
GLOBAL CAPITAL FLOWS
3 While property markets across Europe and the
US continue to slow with the current economic
downturn, the Middle East in general and the
Gulf region in particular have managed to buck
21 Dubai hospitality: Catering to a wide range of
interests – from business to sport
22 Northern Emirates: Making the most of their
location and space
GULF COOPERATION COUNCIL
26 Bahrain: Development takes off as the country
opens up to foreign investors
29 Kuwait: Domestic demand fuels real estate and
construction growth
32 Oman: The country bounces back after a massive
hurricane
35 Qatar: Increasing population spurs growth in all
sectors
38 Saudi Arabia: Looking beyond oil, the economy
offers more stable investments
ISBN 978-1-902339-06-1
Editorial Director: Peter Grimsditch
Senior Consultants: Andrew Jeffreys,
Kate Godfrey, Safeena Rangooni
Rakesh Kunhiraman, Siddhart Goel
Senior Statistician: Wennie Wagan
Consultant: Haridasan Nair
Senior Research Analysts: Aditi Poddar,
Saguna Wadhwa, Jadalla Khazaal
Research Analysts: Alexandria Holland,
Amjad Khan
Editorial Assistant: Jill Luxenberg
Operations Manager: Louise Muratha
Operations Assistant: Pia Jiao
Accounting Specialist: Sharon Magno
Photography: Jeremy Johns, Deniz
Ozgun
Creative Director: Percy M Borg
Art Director: Yonca Ergin
Graphic Assistant: Ahmet Sa€›r

the trend. The UAE has been especially success-
ful, sending large amounts of capital abroad and
enjoying the protection offered by oil revenues,
which reached record levels in 2008.
REAL ESTATE RANKINGS 2008
4 Focusing on some of the world’s most promising
emerging markets, OBG has ranked the residen-
tial, commercial, retail and hospitality markets in
order of their appeal to potential developers,
taking into account supply and demand, poten-
tial returns and the current investment climate.
In 2008 India continues to lead the field, fol-
lowed by Malaysia and Indonesia.
METHODOLOGY
8 The OBG emerging market rankings combine
income statistics, economic data, political, eco-
nomic and sovereign risk, supply and demand,
market development and capacity, and a series
of specific indicators showing market potential in
each sector. Here we explain our methodology
for gathering accurate, sector-specific informa-
tion in countries for which data is often scarce.
Chairman: Michael Benson-Colpi
MIDDLE EAST Director of Field Operations: Elizabeth
Boissevain
42 Jordan: Great potential for further development
remains in certain areas For all editorial and advertising
enquiries, or to order a copy of this
45 Lebanon: The real estate sector is making up for publication, please call +44 207 403
lost time 7213 or contact us at :
mail@oxfordbusinessgroup.com
48 Syria: Gradual and steady growth
51 Turkey: A growing economy and population offer All rights reserved. No part of this
publication maybe reproduced, stored
great opportunities in a retrieval system or transmitted in
54 Yemen: Immense potential waiting to be tapped any form by any means, without the
prior written permission of Oxford
Business Group.
AFRICA
Whilst every effort has been made to
58 Algeria: Employment rates are rising along with ensure the accuracy of the informa-
tourism investments tion contained in this book, the
authors and publisher accept no
61 Egypt: Construction and real estate scramble to responsibility for any errors it may
keep up with demand contain, or for any loss, financial or
otherwise, sustained by any person
64 Libya: Real estate tops the list of lucrative using this publication.
investment opportunities
33 St. James's Square
67 Morocco: Seeking more stable growth sources London SW1Y 4JS United Kingdom
through diversification T +44 207 403 7213
F +44 1730260274
70 Tunisia: High demand and an expanding
economy drive growth 1403 Al Thuraya 2
Dubai Media City
73 Nigeria: A diversifying economy spells a bright
future mail@oxfordbusinessgroup.com
www.oxfordbusinessgroup.com

UNITED ARAB EMIRATES ASIA & FAR EAST

10 UAE introduction: Price stabilisation seen but
forecasts differ on timing
12 Life on the islands: Expanding coastlines
present both opportunities and challenges
13 Abu Dhabi residential market: Strategies are
implemented to avoid a housing crisis
14 Abu Dhabi office space: Moving from high-rise
to high standard in provision
15 Abu Dhabi retail: The emirate boasts an
impressive amount of mall space
16 Abu Dhabi hospitality: Visitor numbers grow as
Abu Dhabi's tourism strategy pays off
17 Dubai master plan: Paving the way for expansion
and diversification
18 Dubai residential: New developments help ease
demand for housing
19 Dubai office space: Premium commercial
property entices businesses to the emirate
20 Dubai retail: Developers differentiate new
products with clever add-ons
76 India: A very large market continues to expand
79 Sri Lanka: Despite considerable challenges, real
estate continues to grow steadily
82 Pakistan: Momentum returns to the market
85 Indonesia: Strong fundamentals override worries
88 Malaysia: Steadily growing and rapidly
diversifying
91 The Philippines: Remittances and IT services are
key
94 Singapore: A healthy economy, but still room for
development
97 Thailand: The country bounces back from a
series of challenges
INVESTMENT LAWS
100 Laws governing investment in construction, retail
or hospitality developments vary from region to
region, but in most countries the process of eco-
nomic liberalisation continues to ease the move-
ment of foreign capital into national markets.
2 INTRODUCTION
Going from strength to strength
Andrew Jeffreys, Senior Consultant, Oxford Business Group (OBG)
OBG is pleased to introduce the 2008 edition of The
Market, OBG Consulting’s comprehensive annual round
up and ranking of real estate markets in the Gulf,
North Africa, Asia and the Levant.
After a 2007 launch at Cityscape Dubai, the first print
run of The Market lasted less than a week. Following
Cityscape Dubai, requests for copies of the book kept
our support staff busy for weeks. We didn’t expect to
be fielding requests for copies of The Market from
Moscow or the Americas or to be responding to queries
from law firms, banks, investment firms, retailers and
developers. Findings from the 2007 edition of The Mar-
ket were published in more than 20 countries.
With our office based in the UAE, we knew that
reliable information on the Gulf Cooperation Coun-
cil (GCC) markets is always at a premium. The amount
of interest that OBG received on emerging markets
in North Africa and the Levant did, however, come
as something of a surprise.
Throughout 2008 our consulting offices have been
invited to new market after new market, exploring
areas beyond our usual territory and taking on proj-
ects in Asia and West Africa. Consulting staff have car-
ried out projects in 22 countries this year, working on
feasibility studies for mixed-use projects, retail devel-
opments, resorts, free zones and funds.
However, expansion can mean more than coverage
of new geographical markets and we have worked hard
in 2008 not just to build our regional database but
also to increase the range of services and the tech-
nical services offered to clients.
In order to do this, OBG Consulting has formalised
a number of historic partnerships.
Firstly, Cityscape Intelligence (CI) is an invaluable
online information resource intended for use by
investors, developers and real estate professionals
working in emerging markets. OBG is proud to have
partnered with CI in 2008 to provide real estate infor-
mation on the countries covered on the site. CI allows
its clients to view information concerning supply and
Oxford Business Group
demand, prices and yields from 18 countries through-
out the Middle East, North Africa and Asia.
With Asia increasingly important for Gulf develop-
ers, OBG has also cemented our relationship with Pak
Real Estate, the largest consulting and brokerage firm
in Pakistan. Pak Real Estate staff have expertise not
just in their home markets but throughout Iran and
Central Asia. The partnership allows our clients to
access Pak Real Estate’s unparalleled database, par-
ticularly important as Pakistan remains one of the
most popular markets with Gulf developers.
Finally, in 2008 OBG has also entered into an alliance
that we anticipate will have a significant impact not
just for our clients but also for the standard of research
across the Gulf and beyond.
CB Richard Ellis (CBRE) is the world’s leading com-
mercial real estate services company with more than
300 offices in 55 different countries. In 2007 CBRE
staff worked on more than 50,000 projects across
the world. In the Middle East CBRE offers valuation,
consultancy, leasing and market research.
CBRE and OBG have worked together on some of
the region’s biggest projects. From mid-2008 this
alliance will be formalised, with OBG acting as CBRE’s
research partner throughout the Middle East and
North Africa. OBG will provide market research sup-
port for CBRE valuations and feasibility studies, while
CBRE will in turn benefit from OBG’s network of
offices across the region.
CBRE’s expert technical staff will work in partner-
ship with OBG researchers and consultants to create
a joint research brand with unmatched geographical
coverage and regional knowledge.
We intend to share some of this knowledge in a
series of publications planned for 2008 and 2009, and
for that matter, through OBG Consulting’s new ded-
icated real estate website. If our experience last year
provides any guide, the 2008 edition of The Market
will leave OBG staff answering questions for months.
We look forward to it.

Global capital flows
Nicholas Maclean, Managing Director, CB Richard Ellis
With international property markets experiencing dif-
ficulties, the Middle East has emerged as a cash-rich
and confident exception. Global capital flows are expect-
ed to decline in 2008. International real estate flows
increased by just under 10% in 2007 and are expect-
ed to decline by more than 30% in 2008. CB Richard
Ellis (CBRE) research shows that the value of real estate
transactions has declined significantly during the year
leading up to mid-2008. Investment activity in the US
stood at $148bn in the first quarter of 2007, $125bn
in the fourth quarter and $29bn in the first quarter of
2008. Results from the first half of 2007 were boost-
ed by government sales of assets, but early results from
2008 are indicative.
Europe is experiencing a similar decline, with a fall
in investment activity noticeable across most markets.
Sellers are reluctant to add in the depressed market
and are choosing to wait out the darkest hour. With
high occupancies and generous rents achieved since
2006, building owners are holding on and bunkering
down, and there has been no significant decline in
commercial prices. Indeed, CBRE economists believe that
this downturn will be relatively mild compared to pre-
vious cycles in 2001 and the beginning of the 1990s.
As with most macroeconomic data, the picture also
changes on the regional level. Established markets con-
tinue to attract the greatest share of funds, with the
leading five markets of the US, Germany, the UK, Japan
and France together attracting more than 80% of inter-
regional purchases. Difficulties have also been con-
centrated in these markets, with the US and Northern
European markets slowing considerably.
In 2008 oil export revenues from the UAE are expect-
ed to exceed $100bn for the first time, rendering any
concerns about the local impacts of the credit crunch
academic. Gulf investors have once again been active
and high profile investors, acquiring the Chrysler Build-
ing and Barneys in New York and ExCeL in London.
It is estimated that sovereign funds and Gulf banks
will acquire $400bn of foreign assets in 2008. Local
INTRODUCTION 3
investment and sovereign funds are looking at under-
valued real estate assets globally. In 2008 funds from
Dubai and Abu Dhabi have been invested in real estate
in Australia, New Zealand, London and the US.
Markets in North Africa and Asia also continue to per-
form strongly. The Institute of International Finance
found that foreign direct investment to emerging mar-
kets rose from $119bn to $256bn in 2007. Despite the
global dearth of credit this is expected to further
increase to $286bn in 2008. The IMF has calculated that
China is largely responsible for driving or inhibiting
global growth, while large credit surpluses maintained
by emerging markets rich in natural resources provide
the best protection against international recession.
Turning to the more localised domain of property,
CBRE suggests that 40% of retailers interviewed in
2007 expect that emerging markets will be their pri-
mary source of growth in the next five years. Hoteliers
agree. The 2007 UNWTO World Tourism Barometer
found that tourism continues to climb internationally,
but that the Middle East witnessed the strongest region-
al performance with an increase of 13% year-on-year.
Asia Pacific ranked next with a 10% increase, while
Africa stood third with an 8% increase.
Equally, global housing and commercial demand is
now concentrated in Asia and Africa, with Russia, Cen-
tral Asia, South-east Asia, and North and East Africa all
standing out as highly attractive markets for the future.
The Gulf region is perhaps the most visible excep-
tion to the idea that difficulties in property markets are
a global rather than regional phenomenon. There is more
intra-regional interest than ever in real estate in the
UAE and across the Middle East and North Africa; inter-
est, though not a great deal of knowledge.
With this in mind, CBRE is pleased to announce our
partnership with OBG in the Middle East and North Africa
region. An appetite for detailed research exists which
no one company can meet alone in a region of 1.5bn
people. Jointly, we look forward to highlighting the con-
tinuing strength and growth of real estate in the region.
THE MARKET Real Estate 2008
4 RANKINGS
Real estate rankings 2008
Kate Godfrey, Senior Consultant, Oxford Business Group (OBG)
As part of the inaugural launch of The Market series in
2007 and in order to celebrate OBG’s links with emerg-
ing markets, OBG developed a series of real estate and
investment rankings highlighting the attractions of the
residential, commercial, retail and hospitality sectors in
a number of emerging economies. A total compound
score has also been produced, in which India has once
again ranked first, followed by Malaysia and Indonesia.
The rankings are restricted to emerging markets in
line with OBG’s long-standing tradition of working with
developers and investors in parts of the world that
many other research organisations sometimes hesi-
tate to enter. Working in countries such as Algeria,
Libya, Indonesia, the Philippines and the Gulf, it is impos-
sible to miss the rate at which changes to the econom-
ic and investment environment are taking place. This
is highlighted in greater detail in the country sections
later in this book, which cover all the countries taken
into consideration in the rankings and a few more of
OBG’s most closely monitored markets in the Gulf.
In Dubai, the amount of available office space could
increase by 800% in the near future. In Abu Dhabi 80,000
luxury units are due to be added in the coming 10
years. The 40,000 sq metres of retail space now avail-
able in climate-controlled centres in Damascus could
be 440,000 by 2012, while in Morocco no sooner had
the first sizeable international standard mall been
announced than another four were under active devel-
opment. In 2007 alone tourism revenues in India
increased by more than 30%. It is estimated that as many
as 100,000 hotel rooms could be completed by 2010.
In 2008 we have added a further five countries to
our emerging markets rankings. These include Lebanon,
where the political situation is stabilising and the real
estate markets are finally recovering, and Nigeria, a
market attracting increased interest from private equi-
ty firms from across Europe. New Asian countries, such
as Malaysia, Singapore and Thailand, have also been
added as a result of the increasing interest in Asian
emerging markets shown by Gulf developers in 2008.
Oxford Business Group
The intention is to add other Asian countries as OBG
opens more offices throughout the region. For the
meantime, we will include only countries where OBG
has a full-time research presence, allowing us to cre-
ate a ranking methodology based on regular and reli-
able research updates from the ground.
Where other rankings may stress macroeconomic
growth or policy, OBG also includes detailed income
breakdowns, affordability, and supply and demand indi-
cators. Our statistics are produced by researchers who
have actually seen the buildings, the shopping centres
and the hotels and have checked or made their own
determination of the quality standard or the amount
of space available.
Setting aside the addition of new markets to the
rankings, countries that were covered in the 2007 rank-
ings have shown a remarkable degree of consistency.
The three highest-ranked emerging markets in 2007
were India, the Philippines and Turkey. When new mar-
kets are subtracted, these three countries remain in the
same order in this year’s rankings.
In 2007 India ranked first in the overall score, first
for the retail, hospitality and commercial sectors, and
second only to the Philippines in the residential index.
Although continuing to rank most consistently highly
of all countries studied, India has lost some ground in
the 2008 rankings as the balance of supply changes in
the key cities monitored by OBG.
The sheer scale of the Indian market remains its prin-
cipal source of strength. In 2007 OBG cautioned that
the development context in India would become more
competitive. This prediction has since been justified. Con-
cerns about oversupply for grade A residential and
commercial space have affected a growing list of cities,
while investment funds are becoming more generally
conservative. Nevertheless, rents and sales prices con-
tinue to climb across CBDs, and retail and hospitality
developers remain exceptionally positive.
Macroeconomic factors were also expected to be a
source of concern in the Philippines, which fell from

second to fourth place in the rankings. Growth rates
remain in excess of 5% year-on-year, and remittances
have held up strongly. Together with political stability
and sustained demand, this has helped the Philippines
to again perform strongly. Expatriate remittances of
close to $15bn from millions of Filipinos overseas con-
tinue to drive investments in the Philippine luxury prop-
erty market. The fall to fourth place can be explained
by an increasing supply at the high end of the market.
Meanwhile, Malaysia has acquired the second place
in our rankings, a spot previously occupied by the Philip-
pines. Of all of the countries covered, Malaysia is clear-
ly the most prominent investment market, with Kuala
Lumpur almost as dominated by the construction of
office and residential space as Dubai.
The real estate market in Malaysia is almost complete-
ly open to foreign investment, probably more so than
any other market under consideration, and the
Malaysian government actively encourages investment
through the “Malaysia My Second Home” programme.
Real estate values have climbed consistently and prices
for condominium developments commonly increase
by 50% to 70% within a year of release.
Malaysia has also been showing more consistent
appeal across the property sectors than any other mar-
ket. Commercial yields are around 7%, while faltering
commercial delivery since the end of the Asian prop-
erty crisis in the late 1990s is being rectified through
the creation of a new office district at Damansara. The
hospitality sector is another strength: tourism arrivals
climbed by some 9.6% between 2006 and 2007, while
occupancy rates in the capital rose by 7% and five-star
room rates by an impressive 27%.
A recent addition to our list of publications, Indone-
sia, ranked third in the overall score and is another
example of a large market showing a strong perform-
ance. Already the most populous Muslim country in
the world, over 15m people will be added to Indone-
sia’s population of 227.8m over the coming five years.
However, there is more to Indonesia than a just size-
RANKINGS 5
able population. With a wealth of natural resources,
including oil, natural gas, copper, tin and gold, GDP
growth has been above 6% for the first half of 2008
and the real estate market has been growing steadily.
The emergence of secondary markets outside the
capital has helped, with poor infrastructure in Jakarta
having previously impeded development. Indonesia’s
performance was, however, hampered by often con-
fusing laws governing foreign ownership and by com-
paratively flat real estate prices. Nonetheless, some
room for improvement remains.
Thailand is placed fifth in this year’s rankings.
Despite the country’s unpredictable political situa-
tion, GDP growth remains strong. Take-up rates have
slowed down in Thailand, although rents and sale
prices continue to rise. The retail and hospitality sec-
tors have performed strongly as well.
Turkey is ranked sixth this year, down slightly from
third place in 2007, not because of any significant new
weakness in the market, but due to the introduction
of new Asian markets. Having said that, some linger-
ing concerns remain: real estate values have declined
in 2008 as contagion from Europe has taken hold.
In addition, the government continues to debate
the rules under which foreigners may own property.
Investment ranking: final score
India
Malaysia
Indonesia
Philippines
Thailand
Turkey
Morocco
Algeria
Egypt
Syria
Nigeria
Pakistan
SOURCE: OBG research
THE MARKET Real Estate 2008
6 RANKINGS

Emerging markets index of residential opportunity

Indonesia
India
Nigeria
Pakistan
Egypt
Syria
Malaysia
Philippines
Turkey
Algeria
Thailand
Libya

SOURCE: OBG research

Emerging markets index of hospitality opportunity

Malaysia
Thailand
India
Turkey
Philippines
Morocco
Indonesia
Singapore
Syria
Algeria
Jordan
Egypt

SOURCE: OBG research

Emerging markets index of retail opportunity

Turkey
Malaysia
Philippines
India
Indonesia
Pakistan
Nigeria
Egypt
Sri Lanka
Morocco
Syria
Thailand

SOURCE: OBG research

Emerging markets index of commercial opportunity

India
Egypt
Algeria
Indonesia
Thailand
Pakistan
Philippines
Nigeria
Morocco
Malaysia
Turkey
Sri Lanka

SOURCE: OBG research

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8 METHODOLOGY

Methodology
OBG’s techniques and approach explained
The OBG method for calculating the compound mod- Dubai 4- & 5-star rooms
el began with listing major demand drivers for each of
40,000
four sectors. For the residential and retail property sec-
35,000
tor, key factors include population growth, household
size, age composition, economic expansion and the 30,000

growth of the expatriate population, income and con- 25,000

sumption expenditure, as well as a detailed analysis of 20,000

supply and demand. Additionally, rental prices and aver- 15,000

age takings of retail property have also been consid- 10,000
ered in determining demand for retail space. 5000
Factors determining the fate of the office sector 0
include foreign investment laws, the nature of the 2003 2004 2005 2006 2007 2008

labour force, unemployment, the proportion of the SOURCE: OBG research

labour force needing offices and the number of new

Abuja grade A office space (sq m)
companies registering or set to register in the near
future. Demand drivers for the hospitality sector include 60,000

tourism investment, visitor arrivals, average occupan- 50,000

cy rates, average length of stay and a compound score
40,000
based on strength of the meetings, incentives, confer-
ences and exhibitions (MICE) market, retail provisions, 30,000
market attractions, ease of access, market liberalisa-
20,000
tion and proximity to key source markets.
Accurate data is then collected from a number of 10,000
sources, including field research, interviews with prop-
0
erty developers and ministry officials, government sta- 2002 2003 2004 2005 2006 2007
tistics and other secondary sources. Historical data has SOURCE: OBG research
been checked and revised so that we are able to pres-
ent the most comprehensive and up-to-date regional Beirut retail GLA (sq m)
property market rankings available today. 350,000
Data for countries such as Libya, Syria, Nigeria and
300,000
Yemen has difficult to collate and, admittedly, contains
a margin of error. However, data for these countries 250,000

falls squarely within the confidence levels prescribed. 200,000

Field research plays a crucial role in providing details 150,000
as specific as the number of housing units in Yemen or
100,000
Nigeria and the average rental price of a luxury villa in
the suburbs of Lahore, for example. This in-depth infor- 50,000

mation is sourced by our research team, combining lin- 0

2002 2003 2004 2005 2006 2007
guistic ability and regional expertise to ensure that
SOURCE: OBG research
data surveys are indicative of current market conditions.

Oxford Business Group

 9

United Arab Emirates

Abu Dhabi
Dubai
Northern Emirates
10 UAE
UAE introduction
Price stabilisation expected but forecasts differ on timing
The property markets in the UAE have seen anoth-
er year of growth in 2008. However, so have rents
and property prices in Dubai and Abu Dhabi. Both
emirates, famous for luxurious man-made islands,
large-scale construction projects and malls that
boast indoor ski resorts, never seem to rest when it
comes to building impressive structures.
Yet living accommodations for the low- to mid-
dle-income expatriate diasporas are difficult to come
by, exacerbated by the fact that the country’s pop-
ulation is ever-growing. Furthermore, what housing
is available is priced outside of most residents’ means
due to material shortages and inflation.
DUBAI: Supply and demand ratios remain a core
concern for the property market in Dubai, with
increasing debate about when, and even if, rents
and sales prices will stabilise. Forecasts of potential
price declines have become a feature of the Dubai
market as the release of new units escalates. A num-
ber of research reports have now concluded that the
market will experience a 10-15% decline in rents
and sales prices by the end of 2009.
In 2006 EFG-Hermes forecast that property val-
ues would decline by 25-30% by 2010. In August
2008 a Reuters survey of senior analysts conclud-
ed that prices would fall 15% from the end of 2009.
Morgan Stanley suggests that property values will
fall by 10% between 2008 and 2010.
Banks and financial institutions seem to have
reached a consensus that the market will see sta-
bilisation in 2009 and a potential decline in values
in 2010. However, these timelines are open to debate.
While the sale of off-plan property had been steady,
the construction and delivery of these developments
have been delayed by constraints in the construc-
tion sector, which is facing a shortage of skilled
workers, raw materials and rapid price inflation.
The lack of completed property has in turn fuelled
an inflation of property values. Investors, however,
are currently adopting a wait-and-watch approach
Oxford Business Group
to the property sector in Dubai, as many of the devel-
opments that were announced in the intervening
years from 2002 are due for completion between
2008 and 2012.
The rental market is also currently showing signs
of stabilisation, increasingly on the back of rent caps
imposed by the Real Estate Regulatory Authority,
with many industry professionals forecasting grad-
ual slowing of overall price increases. Project
announcements suggest that a minimum of 180,000
residential units will be ready in Dubai by 2013. Sim-
ilarly, office space, currently estimated to be 1.8m
sq metres, is expected to increase to approximate-
ly 16m sq metres by the end of 2012.
Historically, developers have found it difficult to
deliver projects on schedule. According to reports
published in 2006, it was expected that around 2.2m-
2.3m sq metres of space could be available by the
end of 2008. However, based on current estimates,
only about 1.3m sq metres is now expected to be
ready by the end of the year; a shortfall of 44%.
There are other sources of risk. Construction costs
have been escalating across the UAE, with a further
dramatic rise since the beginning of 2008. The
increases in construction costs are the result of a
number of factors, most of which look equally insol-
uble to beleaguered developers. The increased costs
combine regional factors with stronger markets for
construction materials in India and China, making
these countries increasingly protective in practice
if not in theory, and increased local competition.
With demand at insatiable levels, China, which
supplies around 33% of all timber and steel materi-
als to the UAE, has slashed subsidies to producers
of construction materials. Even exchange rates seem
determined to conspire against Gulf-based develop-
ers, with a marked exchange-rate-related increase
in the cost of imports from Europe.
Construction costs for residential space have been
climbing consistently since 2005, with a further

upward increase in 2008. These rises in construc-
tion costs have resulted in a congruent rise in ten-
sion throughout the market, with some developers
in the UAE buying back units, as construction costs
make it nearly impossible to deliver at the prices
originally quoted.
Tension also exists between contractors and devel-
opers, as margins for both types of firms are falling.
The climbing cost of land and construction makes
it difficult for developers to justify construction of
anything but expensive luxury property. In turn, this
leads to another source of risk in the market, as the
lack of affordable property impacts living costs and
ultimately labour supply.
Part of the lack of affordable property is the con-
vergence of prices seen across Dubai. Rents are mov-
ing ever closer to equilibrium for units in New Dubai
and the areas closer to Dubai Creek. Units are often
larger in the masterplanned developments of New
Dubai, and the standard of amenity provision is high-
er, but patterns of demand are complex. Dubai has
a number of diverse expatriate groups, many of
whom prefer to live in proximity to traditional com-
munity areas near Dubai Creek.
International City is one of the developments most
affected by the lack of affordable units. Over the third
quarter of 2008 alone, rents for studio apartments
in International City have increased from Dh40,000
($11,000) to Dh55,000 ($15,000) per annum.
Other developments designed to appeal to the
affordable and middle-income demographic have
become increasingly expensive. One-bedroom apart-
ments in the 26,000-unit Discovery Gardens are now
advertised at Dh110,000 ($30,000) per annum, put-
ting them beyond the reach of a substantial major-
ity of the population, including professional work-
ers with above-average salaries.
The cost of housing stretches the pockets of many
residents, while construction costs make it difficult
for developers to justify building anything but prime
space. Some 50% of the units scheduled for release
in 2008 and 2009 are defined as luxury or high end.
Supply and demand relationships are not the only
factors supporting high prices. The Dubai market is
supported by a high rate of foreign ownership. The
understanding that property ownership would con-
vey the right to residency has provided motivation
for many overseas buyers to purchase property, but
has yet to be confirmed by the government. Approx-
imately 40% of the units in the Greens and the Springs
are owner occupied, while as much as 80% of units
are rented in other developments.
Government policy will also help to keep prices
high, with the beginnings of a programme of dem-
olition and replacement being introduced in Satwa,
Jumeirah and Al Wasl. At the beginning of 2008 res-
idents were asked to vacate buildings in order to make
way for the Jumeirah Garden City development.
Initial estimates suggest that redevelopment of
Satwa could affect 100,000 of Dubai’s 1.5m resi-
dents. Such activity chiefly affects residents in the
UAE 11
low- and middle-income segments, while relocation
will place yet more pressure on the limited supply of
affordable housing in the emirate.
ABU DHABI: Affordability issues are, if anything,
more severe in Abu Dhabi, prompting an increasing
proportion of workers to commute from other emi-
rates. Values in the Abu Dhabi residential property
market continue to escalate, with prices believed to
have increased by just below 20% in 2006 and 2007,
following a 30% rise in 2005. A further 20% increase
is expected for 2008.
The shortage in supply in 2008 is now calculated
at around 50,000 units, with estimates showing only
20% coverage of the shortfall by new projects in
2008. The market for prime residential supply con-
stitutes close to one-quarter of the entire residen-
tial market in Abu Dhabi, and has seen a substantial
upswing in prices and rents. The current prices for
luxury units in developments such as Reem Island’s
Ocean Terrace and Sky Gardens start at Dh14,500
($4000) per sq metre and climb to Dh20,000 ($5400)
per sq metre.
The luxury segment has also caught the attention
of most developers, who are avoiding building for
the middle and lower segments of the market, where
the demand is highest. The high cost of construc-
tion and acquiring land is shrinking their margins.
Even though the demand-to-supply dynamics of the
market allow developers to pass on this cost to the
buyers, the middle- and low-income segments can
bear such costs only to a limit.
The completion of the Al Raha Beach, Saadiyat
Islands and Al Reem Island, along with numerous
other projects on Corniche Road and in Zayed Sports
City, will add more than 80,000 luxury units to the
market by 2018.
It is likely that medium- and low-income earners,
on the other hand, who constitute 85% of the total
demand, will still be struggling to pay high rents with
the supply unable to relieve pressure on this group.
THE MARKET Real Estate 2008
12 ABU DHABI
Life on the islands
Expanding coastlines present both opportunities and challenges
Oil is not the only natural resource with which Abu
Dhabi has been blessed. The emirate has an abundance
of prime real estate. While Dubai has gone to great
lengths to build the Palm Jumeirah, thus doubling the
length of its coastline, Abu Dhabi has an almost over-
abundance of riches when it comes to islands. Beyond
the man-made Lulu Island, Abu Dhabi is set to devel-
op the Al Sowwah, Al Reem, Saadiyat and Yas islands
as an integral part of its masterplan.
However, while this presents opportunities, it also
creates challenges. The government realises that the
development of these islands cannot stand alone as
ad-hoc attractions, but rather must be integrated into
the larger infrastructure of the emirate. Indeed, as part
of its development strategy, the government is look-
ing to silence any doubters with an overarching mas-
terplan laying out how the infrastructural challenges
of developing these islands will be overcome.
The government has declared that $200bn will be
spent on infrastructure and real estate through 2013,
with the private sector expected to shoulder 60% of
the financial burden. Consequently, the need for cohe-
sive thinking between the public and private sectors
is paramount. Many private sector developers suggest
that the publication of the masterplan has eased anx-
iety over the nature of development.
Developers must ensure that all construction is
sympathetic to the needs of service providers so that
an undue burden is not placed on the system. Indeed,
the overarching vision for the city has provided the
parameters for other governmental agencies to work
with the private sector and plan for future develop-
ment. Yet significant challenges remain.
The Al Sowwah, Al Reem, Saadiyat and Yas islands
will have a combined population of 450,000 people,
placing a significant burden on all services, including
electricity generation and distribution, water, and
transport corridors and networks. When the devel-
opment of Saadiyat Island was first announced in
2006, it was estimated that it alone would require 1500
Oxford Business Group
MW of power, which constitutes 31% of existing
demand in the emirate. Abu Dhabi Water and Elec-
tricity Company predicted in March 2008 that there
will be a shortfall of 774 MW between capacity and
consumption by 2012 and 2000 MW by 2013 for the
whole of Abu Dhabi. The UAE has one of the highest
global water consumption rates per capita at 3.2bn
cu metres per year. With demand set to increase by
a minimum of 10% per year, the UAE is primed to have
the biggest water usage increase in the region. There-
fore, the infrastructural challenges are significant.
Plan Abu Dhabi 2030 has now set the blueprint for
development, making explicit the expected infrastruc-
tural demands in terms of population increases.
Although the government will retain control of gen-
eration, transmission and distribution for the power
grid, the burden of creating the infrastructure will fall
upon the private sector. This should not only enable
a coherent infrastructure plan in line with develop-
ment, but also ensure delays are avoided with no lag
between private- and public-sector construction.
The government is also seeking to address trans-
portation issues in the city, setting out a plan to over-
haul the road network, including the construction of
several bridges connecting the islands. The plan caters
for a light-rail metro network connecting different dis-
tricts of the city as well as a high-speed rail line that
will eventually connect with Dubai. It is hoped that the
variety of transport options will diffuse passengers
throughout different transit systems, avoiding over-
burdening any one network. Al Sowwah Island, which
will straddle the new central business district, will
have a minimum of 10 bridges connecting to the Al
Mina area of the main Abu Dhabi Island, as well as to
Al Reem Island. The authorities have decreased con-
gestion in central areas with the upgrade of the arte-
rial expressway linking the Corniche to Mina Zayed,
ensuring that heavy vehicles are kept out of the cen-
tral areas of the city. A third bridge linking Abu Dhabi
Island to the mainland is also close to completion.
 ABU DHABI 13

Abu Dhabi residential market

Strategies are implemented to avoid a housing crisis
Average apartment sale rates stood at $3150 per sq
metre in 2007. The population is expected to dou-
ble in the next decade, with demand for new hous-
ing ranging between 225,000 and 250,000 units. In
2005 the Abu Dhabi Executive Council put a cap on
rent increases by specifying that no rent hikes should
be made within the first two years of a new contract,
after which any rises should not exceed 20%.
The Khalifa Committee, which is responsible for pro-
viding housing to nationals and has constructed a
large portion of the city of Abu Dhabi, is now tack-
ling the lack of supply in the market. The new Khal-
ifa Cities A and B, consisting mainly of residential vil-
las and low-rise properties, are aimed at boosting
accommodation, with the Al Reem (100,000 resi-
dents) and Al Raha (120,000 residents) develop-
ments slated to contribute as well.
Mohammed bin Zayed City, a $3.8bn development
with 265 residential and commercial buildings, will
provide 50,000 units upon completion. The Marina
Breakwater development will add 300 villas. Apart
from these, a number of tower developments will add
a substantial number of apartments.
Reports estimate the shortage in supply in 2008
to be as high as 50,000 units. Developments con-
form to Plan Abu Dhabi 2030, which lays down the
urban structure framework required to accommo-
date an estimated population of more than 3m by
2030. However, experts still fear a housing crisis in
2009, with some estimates showing only 20% cov-
erage of the shortfall by new projects in 2008. One
reason for this is the preference shown by develop-
ers to invest in the luxury segment.
The market for prime residential supply consti-
tutes one-quarter of the entire residential market
and has seen a surge in prices and rents. The cur-
rent prices for luxury units start from Dh14,500
($4000) per sq metre and climb to Dh20,000 ($5400).
The high-end luxury segment stretches develop-
ers’ profit margins to almost 30%, while the mid seg-
ment allows only narrow margins of 15%. The 20%
to 25% of yields generated by the mega developments
are preferred to the 10% to 15% of leasing revenues
from lower-income segments.
The completion of the Al Raha Beach, Saadiyat
Islands and Al Reem Island, along with numerous
other projects on Corniche Road and Zayed Sports
City, will provide more than 80,000 units by 2018.
In the meantime, the Department of Planning sug-
gests measures to avert a housing crisis. Short-term
schemes include rent ceilings and freezes for a cer-
tain period of time. Other suggestions include pro-
viding plots on the outskirts of the city for a nomi-
nal price or free for those developers who provide
units for 50% of current prices for lower-income
segments, while the government may ultimately sub-
sidise the cost of extending utilities and infrastruc-
ture in order to ensure the supply of affordable units.

Abu Dhabi: economic and demographic indicators, 2006-11

Population Population GDP GDP per capita Average Labour force Unemployment
growth (%) ($m at current prices) ($ at PPP) household size rate (%)
2006 1,494,321 6.78 97,743 35,882 4.90 587,258 1.4
2007 1,595,896 6.80 109,190 37,293 4.86 651,857 1.4
2008 1,704,711 6.82 123,705 38,108 4.82 717,042 1.4
2009 1,821,308 6.84 140,151 39,262 4.78 810,258 1.4
2010 1,946,270 6.86 158,782 40,337 4.74 891,284 1.4
2011 2,080,228 6.88 179,890 41,719 4.71 903,762 1.4
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

14 ABU DHABI
Abu Dhabi office space
Moving from high-rise to high standard of provision
As in the residential sector, the demand for commer-
cial units has outstripped supply. The size of the
market ranges between 1.3m and 1.6m sq metres
and has been growing at an annual rate of 25%, while
the number of new companies being established in
Abu Dhabi is climbing at an annual rate of 5%. Eco-
nomic diversification and growth of the industrial
sector is expected to increase demand for offices.
Vacancy rates in office space are under 1% and
monthly office rents in the central business district
(CBD) have gone up to $50 per sq metre, with serv-
ice charges at 15% of rent. As yet, Abu Dhabi has
few available office buildings of an international
standard, although significant demand for high-qual-
ity office buildings exists within the emirate.
Demand has prompted developers to move towards
building of commercial space. Historically, office
space has been owned and built by major tenants.
Providing space for third-party occupiers has been
a profitable addition to company balance sheets, in
some cases for 20 years.
Outside of these high-profile buildings, and with
some exceptions, the standard of office space in
Abu Dhabi has been below expected standards.
Both of these problems are set to disappear, with
new office supply in Abu Dhabi resulting in a dra-
matic inversion of the current situation. Where sup-
ply is now sparse, OBG forecasts that the relation-
ship of supply and demand could stabilise from 2010.
A number of large flagship developments are under
construction in central areas, of which two stand out.
Approximately 100,000 sq metres of office space
will be concentrated in Abu Dhabi National Exhibi-
tions Company’s (ADNEC’s) mixed-use Capital Cen-
tre development. ADNEC is a semi-governmental
authority, originally established to manage confer-
ences and exhibitions in the emirate.
Another 57,000 sq metres of leasable area is to
be provided in a single development in close prox-
imity to ADNEC on the airport road. The remainder
Oxford Business Group
will be concentrated in smaller developments, with
an average size of 30,000 sq metres.
This trend for office space on a large scale has been
set by Aldar, with the developer’s Al Mamoura office
complex remaining Abu Dhabi’s flagship develop-
ment. This primacy will be confirmed at least until
2009 and the completion of ADNEC’s space.
Formerly known as the MDC-ERWDA building, the
development has been renamed Al Mamoura. It is
Aldar’s first completed office development and will
be the first in Abu Dhabi to be designed and finished
to international grade A standards.
Al Mamoura comprises ground, mezzanine and 10
upper floors on 60,000 sq metres (gross built area).
The building will have a library along with display
areas, male and female prayer rooms, a high-tech
business and conference centre, a 150-seat audito-
rium, a restaurant, a day care centre and a gymna-
sium. The development is already pre-let to blue-chip
companies such as the Mubadala Development Com-
pany, UAE Offsets Group, Environment Agency Abu
Dhabi and other premier tenants.
ADNEC’s Capital Centre is a $2.2bn development.
With a total of 23 buildings on site, the mixed-use
development will have six branded hotels, four ded-
icated office buildings, eight residential and serviced
apartment towers, and five mixed-use buildings.
Together, these two developments are expected
to contribute to the shift in commercial orientation
away from the traditional areas in Al Markhaziyah.
The decision to locate the Capital Centre on Khaleej
Al Arabi Road, outside the traditional CBD, has encour-
aged other developers to consider the airport road
and embassy district for new commercial develop-
ments. As well as contributing to a lessening of the
chronic traffic surrounding the corniche, the tran-
sition away from the central areas should also result
in a higher quality and variety of commercial space,
with a move from office towers to office parks
and from high-rises to a high standard of provision.
 ABU DHABI 15

Abu Dhabi retail

The emirate boasts an impressive amount of retail space
The value of the retail sector in UAE is projected to of leasable area in 2010. Line Investments is coming
exceed $500bn by 2010. Excluding the UAE, the Gulf up with the Mazyad Mall in the Mohammed bin Zayed
Cooperation Council is home to approximately 5m sq City by 2009, a 167,225-sq-metre mall above the cen-
metres of shopping mall gross leasable area (GLA), with tral fish market by the mid of 2010 and a 157,935-sq-
another 5m metres under development. Inside the metre extension to the Al Wahda Mall by 2011.
UAE, there is just under 3m sq metres of existing mall Line Investments, an offshoot of EMKE group, is the
space, with future supply more than doubling this total. major player in the Abu Dhabi retail sector in terms of
Sales in Abu Dhabi’s shopping centres have risen managed space. Line Investments was launched with
from $871m in 2000 to $1.1bn in 2005, with climate- the induction of Khalidiyah Mall and Al Wahda Mall and
controlled centres now accounting for 54% of all retail went ahead with Al Raha Mall. It also acquired a 10-
activity. Per capita GLA in Abu Dhabi is now 0.38 sq year contract for the management of Madinat Zayed
metres, compared to 1.1 sq metres in Dubai. This dis- Shopping Centre and Gold Centre, which is now known
parity can be accounted for in two ways. First, the retail as Madinat Zayed Mall. By 2009 they are coming up
sector in Dubai has enjoyed a level of government sup- with 42,000 sq metres Mazyad Mall as a part of
port, so far unmatched in Abu Dhabi. Second, the Dubai Mohammed bin Zayed City and 30,000-sq-metre bou-
Shopping Festival and Dubai Summer Surprises com- tique mall, which will be similar to a traditional Arab souk.
bined to 5.4m visitors and $3.5bn in sales. One of the most anticipated retail developments is
One undeniably attractive aspect of the market is that Aldar’s $1.1bn Central Market, due for completion in
retail rents remain considerably lower in the capital, with 2011. The development is in the heart of the city and
the average annual cost ranging from Dh3400 ($926) is located at the site of the city’s traditional souk – at
to Dh5500 ($1500) per sq metre for line units at prime the intersection of Airport Road and Khalifa and Ham-
shopping centres. This compares to the rents in Dubai, dan streets. The development will be anchored by an
which range from Dh4400 ($1200) to Dh6600 ($1800). traditional Arab souk and three towers, which consist
Available GLA in Abu Dhabi in 2001 was 278,200 sq of grade A office space, a five-star hotel, and a com-
metres as against 526,898 sq metres in Dubai. Though plex of serviced and residential apartments.
there was a continuous growth in shopping areas in In total, the available leasable area in Abu Dhabi
Dubai, there were no significant shopping centres or should increase from under 650,000 sq metres at
malls released in Abu Dhabi until 2006. This is despite the beginning of 2008 to over 1.3m sq metres by
a per capita income of $38,108 – one of the highest 2012, bringing GLA per capita up to 0.56 sq metres.
in the world. Thus significant potential for retail growth
remains in the emirate. Abu Dhabi: retail indicators, 2006-11
In 2006, phase II of the Marina Mall contributed an Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
additional 40,000 sq metres of GLA to the city’s avail-
2006 1,494,321 25,030 25.8 9.27
able retail mall stock. The opening of Al Raha Mall and
2007 1,595,896 29,682 18.6 11.03
Al Wahda Mall increased the existing supply by a total
2008 1,704,711 35,090 18.2 9.04
of 169,000 sq metres. An additional 46,000 sq metres
2009 1,821,308 42,005 19.7 5.33
was added in 2007 with the completion of the Al Kha-
2010 1,946,270 50,482 20.2 4.66
lidiyah Mall. Sorouh Real Estate is set to open the Al
2011 2,080,228 60,835 20.5 4.09
Reem Mall with 130,000 sq metres of GLA, while the
SOURCE: World Bank, IMF, International Macroeconomic Data Set
Al Yas development will add a further 300,000 sq metres

THE MARKET Real Estate 2008

16 ABU DHABI

Abu Dhabi hospitality

Visitor numbers grow as Abu Dhabi’s tourism strategy pays off
The tourism sector is growing in Abu Dhabi, account- the Louvre Abu Dhabi, to the emirate. Indeed, the $27bn
ing for 6.8% of non-hydrocarbons GDP in 2006, up from Saadiyat Island development, which will be the home
6.4% in 2005. Indeed, the emirates tourism GDP grew to Abu Dhabi’s cultural district, is a key component of
62% in the five years before 2005. However, Abu Dhabi the strategy to create a unique tourism offering.
remains less reliant on tourism than the rest of the The lion’s share of development will be carried out
UAE, with the sector representing 17% of the country’s by the Abu Dhabi Tourism Authority’s development
non-oil GDP. The hospitality industry represented only arm, the Tourism and Development Investment Com-
18.9% of all the UAE’s hotel room stock in 2006. pany, with other government-owned companies, such
Abu Dhabi’s stated strategy is somewhat different as the National Corporation for Tourism and Hotels. Aldar,
than that of its sister emirate. Where Dubai has gone the semi-government-owned developer responsible
for mass tourism and ever-increasing visitor traffic, for building the Yas Island and Al Raha Beach develop-
Abu Dhabi has a more discerning approach, targeting ments, also has a portfolio of mixed-use projects with
the top 2% of the world’s business and leisure visitors. significant hospitality components.
The emirate saw a total of 1.45m hotel guests in The majority of private-sector developers may steer
2007, 5% above its stated target. This trend is likely to clear of hotel development, as construction costs and,
continue with a Dh30bn ($8.17bn) airport expansion to a lesser extent, land prices are making such devel-
set for completion by 2010 and a target of 1.2m leisure opment more challenging than commercial and luxu-
tourists and 1.55m business visitors by 2015. The gov- ry residential real estate.
ernment expects tourism revenues to hit Dh4bn ($1.1bn) This is ironic, given that Abu Dhabi faces an under-
in 2015. Beyond this, under the Plan Abu Dhabi 2030, supply of hotels. Occupancy rates in 2006 stood at
the emirate envisages 74,500 hotel rooms catering to 83.8% for five-star hotels. However, for much of the year,
a total of 7.9m annual visitors. occupancy rates are well over 90%. Occupancy rates in
Abu Dhabi has aggressively marketed its tourism April 2008 were averaging approximately 95%. Rev-
offering over the past two years and has allotted an enue per available room is also relatively high in Abu
annual marketing budget of $20m-$25m. While Dubai’s Dhabi, averaging Dh687.94 ($187.04) in the five-star cat-
strategy has been the development of man-made islands egory in 2006. This is supplemented by strong average
such as the Palm Jumeirah and the World, Abu Dhabi banqueting and food and beverage revenues, which hit
has sought to attract cultural tourists by bringing high- Dh576.4m ($156.8m) for all five-star hotels in 2006.
end museums, such as the Guggenheim Abu Dhabi and Even with new supply expected to hit the market by
2010, existing hotels on Abu Dhabi Island are in a strong
Abu Dhabi: tourism and hospitality indicators, 2006-11 position. Many of the new hotels will be resorts that
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights are being developed around the emirate. The existing
(4- & 5-star guests) (%) (days)
hotels in the central districts are therefore likely to con-
2006 959,979 3.3 2.6 2,495,945
centrate on business guests and exhibition tourists.
2007 1,009,410 5.1 2.6 2,624,465
Most of the five-star hotels in the centre of Abu Dhabi
2008 993,394 -1.6 2.8 2,781,504
will benefit, as the emirate is looking to attract more
2009 1,053,153 6.0 2.8 2,948,829
business visitors by in the coming years. Although tar-
2010 1,081,990 2.7 2.9 3,137,772
geting the luxury segment, it is the three- and four-
2011 1,130,285 4.5 2.9 3,331,367
star segment that has been performing best in the
SOURCE: Local statistical authorities, OBG Research
emirate by attracting a variety of business clientele.

Oxford Business Group


Dubai master plan
Paving the way for expansion and diversification
The success of Dubai’s economic diversification towards
a non-oil-dependent economy and status as a global
city has attracted regional competition from Abu Dhabi,
Jordan, Oman, Saudi Arabia and Egypt. However, the city
has displayed a strong desire not to rest on its past lau-
rels. It unveiled the Dubai Strategic Plan 2015, which
seeks to sustain real economic growth at a rate of 11%
per annum, to reach a GDP of $108bn in 2015 (from
$53.8bn in 2007) and to increase real GDP per capita
to $44,000 (from $31,000 in 2005).
The population of Dubai increased to 1.3m at a com-
pound annual growth rate (CAGR) of 6.7%, one of the
highest in the region, between 1995 and 2005. The gov-
ernment anticipates that the population will climb to
1.9m by 2010, a CAGR of 7.6% in line with historic
growth. This increasing population has resulted in rap-
id urbanisation in the form of increasing construction
activities in all segments of the real estate sector.
Watershed legislation in 2002 allowing foreigners to
purchase and own freehold property in New Dubai has
increased investor activities, providing immense momen-
tum to the construction and real estate sectors.
It is estimated that the real estate sector contributed
$5.5bn to GDP in 2007, while the construction sector
outweighed this with a contribution of $6.4bn in 2007.
The IMF reports that construction contributes to a sta-
bilised 8% of GDP.
The growth of the economy and the population has
placed significant pressure on Dubai’s infrastructure.
The road network is strained by the increasing number
of cars and resulting traffic snarls. Demand for water
and electricity has been increasing by an estimated
12-14% each year. The Dubai Strategic Plan 2015 cov-
ers five areas: economic development; infrastructure,
land and environment; security, justice and safety; social
development; and public service excellence. To ensure
sustainable development of infrastructure, land and
environment, the plan proposes to:
• Optimise land use and ensure sustainable devel-
opment while preserving natural resources;
DUBAI 17
• Provide an adequate supply of housing for low- and
medium-income families;
• Meet and secure energy, electricity and water needs
• Provide an integrated road and transportation sys-
tem addressing current congestion problems, and
accommodate future needs by increasing the share
of public transportation, decreasing transport by pri-
vate vehicles and increasing the capacity of road net-
works and transportation systems;
• Upgrade and align environmental regulations with
international standards; and
• Develop the required enforcement mechanisms.
The government, through various agencies, has taken
a number of steps to implement the plan. The Real
Estate Regulatory Authority has introduced a number
of rules to control and regulate the real estate mar-
kets. Through master plan developments, Dubai’s urban
landscape is being planned, developed and controlled
to ensure sustainability.
The Regional Transport Authority is implementing a
number of measures to reduce car use, traffic conges-
tion, pollution and greenhouse gas emissions. The
Mobility Management Plan (MMP) targets these fac-
tors as ones that will lead to improved public health
and safety. Chief among the suggestions in the MMP
are the construction of the metro, increasing the num-
ber of buses and upgrading the road network. Current
electrical generating capacity is 5000 MW, while medi-
um-term demand is assessed at 11,000 MW.
The Dubai Electricity and Water Authority estimates
that it will require $37bn and three years to increase
supply to this level. In addition, the government is exam-
ining the possibility of importing electricity; in April
2007 Dubai and Iran signed a memorandum of under-
standing that could see Iran supply Dubai with elec-
tricity via a 180-km underwater cable. Dubai has not
seen any major private sector participation in the infra-
structure initiatives other than the allotment of a few
various contracts for construction. The private sector
has been called upon to play a larger role in the plan.
THE MARKET Real Estate 2008
18 DUBAI

Dubai residential
New developments help ease demand for housing
The rental market in Dubai has been witnessing sup-
ply shortages since 2002, which is highlighted by the
steady increase in rents for commercial and residen-
tial accommodation. Rentals have consistently climbed
across all property categories, prompting developers
to create new projects to meet the demand in the
market. The advent of the freehold market in 2002 led
to the release of a number of master-planned devel-
opments, which witnessed strong investor interest as
highlighted by the 100% off-plan sale of developments
announced within the 2002-06 period. So much so that
the appreciation in capital values and construction
costs has prompted a number of developers to buy back
previously launched projects from the initial investors.
While the sale of off-plan property has been steady,
the construction and delivery of these developments
have lagged due to the constraints in the construc-
tion sector, which is facing a shortage of skilled work-
ers, raw materials and rapid price inflation.
In 2007 a number of projects were delivered and
ready for occupation, which has eased supply con-
straints to a certain extent. Additionally, a number of
new projects were announced in developments, such
as the City of Arabia, Jumeirah Village South, Down-
town Jebel Ali and Dubai Sports City.
With large-scale mixed-use developments, such as
the Jumeirah Lake Towers and Downtown Burj Dubai,
fast approaching their final phase of construction, a
significant new supply of residential units is expected
to be made available in late 2008 and early 2009. The
influx of new supply has led to some stabilisation of
rents in the past six months, and this may continue.
Projects delays extending over one year are com-
monplace in the market today. As a result, many resi-
dents rent, leading to a constant high demand for
quality rental accommodations in Dubai. Subsequent-
ly, rental rates have been more consistently high over
the past few years than ever before – an issue further
exacerbated by the lack of supply.
By the end of 2008 Dubai should have an addition-
al 44,000 residential units, while in 2009 developers
are planning to release another 80,000 units.
Currently, rentals within developments, such as Palm
Jumeirah and Old Town at Burj Dubai, command the
highest annual rents in the city, with annual rents for
a studio and one-bedroom apartment being quoted
at Dh100,000 ($27,230) and Dh140,000 ($38,122),
respectively. The relative ease of mortgage financing
from local and international banks, the current level
of rentals and the rising confidence among end-users
owing to the delivery of new projects have provided
encouragement for the growing owner-occupier mar-
ket in Dubai. Investors remain the majority buyers of
any newly launched development and they continue
to earn handsome profits. Since 2005, rental and cap-
ital values for both residential and commercial prop-
erty in Dubai have witnessed steady, continuous growth,
climbing almost 25-60% and 25-30%, respectively.

Dubai: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 1,392,139 5.35 45,889 35,882 4.90 529,035 2.4
2007 1,471,206 5.68 53,834 37,293 4.86 558,608 2.4
2008 1,549,418 5.32 62,285 38,108 4.82 589,834 2.4
2009 1,626,135 4.95 74,182 39,262 4.78 622,806 2.4
2010 1,702,064 4.67 86,291 40,337 4.74 657,621 2.4
2011 1,780,626 4.62 99,782 41,719 4.71 673,403 2.4
SOURCE: IMF, World Bank

Oxford Business Group


Dubai office space
Premium commercial property entices businesses to the emirate
The increased demand in Dubai’s office market is a
direct result of economic growth. Strong economic
fundamentals, political stability, compound annual
GDP growth of 20% from 2001 to 2007, and a busi-
ness-friendly environment have ensured that many
international companies prefer to set up their offices
in the emirate and use it as a base to enter regional
markets. The Dubai Statistics Centre calculates that
the number of companies in Dubai grew from less
than 50,000 in 1998 to 105,224 in 2007, while free
zones have seen the number of businesses regis-
tered with them increase by an astonishing year-on-
year increase of 72% in 2007. It is estimated that in
2005, about 20% of the population was working as
professionals, technicians and associate profession-
als, clerks and other white-collar, private sector
employees in offices.
This increased demand has resulted in an acute
shortage of space. Rising costs of land, raw materi-
als and labour, coupled with construction delays,
have further added to the increased prices for office
space. Demand for space has boosted rent levels by
around 30-40% in the past 12 months, as the space
is nearly fully occupied in all the office districts and
vacancy rates remain between 1-3%. The current sup-
ply of office space in Dubai is estimated to be 1.81m
sq metres. Prior to 2004 development activity was
negligible, resulting in a build up of demand.
From 2004 onwards development activities for
office space have increased exponentially. Around
9.2m sq metres of office space is expected to be
made available in the next three to four years. This
amounts to a growth rate of more than 400%, creat-
ing a situation of severe oversupply.
Major projects aimed at contributing to the office
supply are under development chiefly along Sheikh
Zayed Road and close to Business Bay, Dubai
Internet and Media City, Jumeirah Lake Towers, and
Dubai Silicon Oasis. Additional office space is plan-
ned and/or under development in the free zones.
DUBAI 19
Within the free zones, plots have been allotted or
sold to private developers, and space has also been
made available in the many private master-planned
developments in New Dubai. Included in these mixed-
use developments with a commercial component are
Dubai Marina, Dubai World Central, Dubai Silicon
Oasis, Studio City, Motor City, Dubailand, Jumeirah
Village, City of Arabia and Falcon City of Wonders,
which are emerging as the suburban business districts
of Dubai. Finished buildings in the master-planned
areas will be released from the market from 2008
onwards until around 2012. Some developers are
also continuing to build in Old Dubai as well, specif-
ically targeting Garhoud, Port Saeed and Festival City.
As in the case of the residential sector, excessive
planned supply is expected to create the potential
for oversupply. Average rentals are highest in the
Dubai International Financial Centre (DIFC) at around
Dh5300 ($1443) per sq metre, while the lowest rates
of Dh3250 ($884) per sq metre are recorded in the
Tecom-administered areas of Dubai Media & Inter-
net City. Bur Dubai reflects slightly higher or compa-
rable rentals to Tecom mainly because it forms part
of the old central business district with inherent
demand and little scope for further addition of space.
Current rentals show an increase of approximately
15-18% over previous years’ rentals, reflecting high
demand. Current average rents in privately-owned
buildings between the one and two interchanges
along Sheikh Zayed road are around Dh4360 ($1187)
per sq metre, a year-on-year increase of 16%.
New plots under development within the DIFC and
Dubai Media and Internet City exhibit current sale
prices around Dh39,300 ($10,700) and Dh18,900
($5146) per sq metre, respectively. The average prices
in 2007 were Dh29,600 ($8060) and Dh16,340
($4449) per sq metre, respectively, representing an
increase of 33% and 14%. As a free zone for finan-
cial and professional companies, space in the DIFC
continues to command a premium over other areas.
THE MARKET Real Estate 2008
20 DUBAI

Dubai retail
Developers differentiate new products with clever add-ons
From a total gross leasable area (GLA) of under 70,000 should be able to support the new space. According
sq metres in the early 1990s, Dubai now has a total GLA to AC Nielsen’s shopping mall survey, which was con-
of approximately 1.6m sq metres, including neighbour- ducted in the region in early 2007, shopping centres
hood shopping malls, which represent per capita GLA in Dubai derive 55% of revenue from tourists.
of 1.08 sq metres currently. If projects are completed Tourism spending sustains space per capita in Dubai,
as scheduled, shopping mall GLA will increase by a fur- and themed malls have played an important role in
ther 450,000 sq metres, and the projected per capita connecting retail with hospitality. Mercato, the first
GLA will increase to 1.31 sq metres by the end of 2008. themed mall in the Middle East, was based on a Ren-
Based on developments that are currently planned, aissance theme with Italian, French and Spanish flavours,
for completion by 2012, Dubai is set to have approxi- and was followed by themed developments at Wafi
mately 4.5m sq metres of shopping mall GLA, repre- City, Souk Madinat Jumeirah, Ibn Battuta and Dragon
senting a per capita GLA of 2.44 sq metres. Mart, which has become the largest trading centre for
This represents a doubling of the current available products from China outside the mainland.
space within two years. The constant demand for retail Current market rates for retail space average just
space in the market has ensured that Dubai’s malls are under Dh4000 ($1089) per sq metre per annum, rep-
currently operating at 95% occupancy. However, this resenting the highest rates in the UAE. Large anchor
trend may change over the coming years as more shop- stores would be expected to pay less than Dh500 ($136)
ping malls are introduced into the market. per sq metre per year, while small outlets, kiosks and
Anecdotal information from managers of upcoming food outlets can expect to pay in excess of Dh7500
shopping malls indicate that nearly 75% of the new retail ($2042) per sq metre per annum.
GLA has been pre-booked by local, regional and inter- New malls such as Dubai Mall and Mall of Arabia, are
national retail brands. The remaining areas within these quoting Dh3000-3500 ($816-953) per sq metre for line
new malls have not been pre-leased in anticipation of units, well below rates quoted by established malls in
additional brands and retailers in the market. the emirate. Given the amount of shopping mall GLA
Dubai currently has one of the highest shopping mall under construction across the different sectors of
GLAs in the region and it is expected to overtake Sau- Dubai, it is unsurprising that newer malls are providing
di Arabia in the 2012-15 period. It is anticipated that incentives such as lower rents and rent-free periods
tourism levels in excess of 15m (government estimates) during fit-outs to attract tenants.
As the market becomes more competitive, develop-
ers have worked hard to differentiate their projects.
Dubai: retail indicators, 2006-11
When it opens in October 2008, Dubai Mall will boast
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
the world’s largest aquarium, the largest gold souk in
2006 1,392,139 27,983 24.2 9.27
the region, an indoor-outdoor streetscape with a ful-
2007 1,471,206 32,288 15.4 11.03
ly retractable roof, an Olympic-sized ice rink and a 20-
2008 1,549,418 36,996 14.6 9.04
metre long hydraulic walkway and stage area. The Dubai
2009 1,626,135 43,130 16.6 5.33
Mall will feature 1200 stores, with a number of new
2010 1,702,064 50,770 17.7 4.66
market entrants including the Galeries Lafayette,
2011 1,780,626 59,041 16.3 4.09
Bloomingdale’s, Macy’s, Hamley’s of London, 12 Star-
bucks cafes, a Spinneys, a 22-screen multiplex, a 36-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
lane bowling centre and other entertainment centres.

Oxford Business Group

 DUBAI 21

Dubai hospitality
Catering to a wide range of interests – from business to sport
Saleh Mohammed Al Geziry, the overseas promotions double its tourism numbers in eight years. However, the
director at the Department of Tourism and Commerce DTCM has projected the number of hotel visitors to Dubai
Marketing (DTCM), estimates that over $272bn of hos- to rise to 10m by 2010, at a CAGR of around 20%.
pitality projects in Dubai are expected to be complet- In 2007 the total number of hotels and hotel apart-
ed by 2016. This estimate takes into account only 55 ments was 452, of which 325 were in the budget cat-
projects that are in various stages of planning and/or egory, nearly 72% of the total number of hotels in Dubai.
construction today and does not take into considera- The number of hotels and hotel apartments is expect-
tion a further 71 projects that have been proposed to ed to increase to 488 by 2010 and Dubai’s room strength
be completed by 2016. will also rise to 64,179, a dramatic increase from 51,168
One of the main drivers of expansion in the hospi- room units in 2007.
tality sector is the Al Bawadi tourism and leisure devel- Each visitor to Dubai generated hospitality revenues
opment with an estimated value of $100bn, which is of $238 in 2000, and in 2007 revenue per tourist was
expected to be completed in staggered phases start- $520, representing a CAGR of 12%. With occupancy lev-
ing in 2011 and ending in 2016. With the expansion of els reaching 85% currently, the demand for hotel rooms
Dubai International Airport, the construction of Al Mak- in Dubai exceeds supply. With the DTCM targeting 15m
toum International Airport, the development of the visitors by 2010, it is expected that Dubai will need
Dubai Cruise Terminal and the expansion of Emirates approximately 45,000 additional rooms over the next
Airlines, the emirate has multiple points of entry and five years, according to industry experts. Leisure visi-
specifically caters to business tourism, leisure stopover, tors account for approximately 68% of the market,
shopping, sports and long-term stays. The strong per- according to a recent survey by the DTCM.
formance of Dubai’s hospitality sector, both in terms Total revenues from the hospitality sector increased
of supply and demand, can be attributed to a variety by 22%, from around Dh8bn ($2.2bn) in 2005 to over
of factors, including the following: Dh9.5bn ($2.6bn) in 2006. This growth has continued
• Movement of Arab funds from Europe and the US to into 2007, with the hospitality sector generating
the Middle East; Dh13.2bn ($3.6bn) in revenues, of which the budget
• Increased liquidity in the UAE on the back of record hotels and apartments contributed Dh1.58bn ($430m).
oil prices; The average rate per room in budget hotels increased
• A strong economy and the government’s commitment from Dh241 ($65) in 2006 to Dh287 ($78) in 2007.
to increasing private investment in the sector;
• The development of major tourism-related infrastruc-
ture;
Dubai: tourism and hospitality indicators, 2006-11
• The government’s promotion of the tourism sector Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
over the decade through initiatives such as DTCM,
2006 2,763,260 15.0 2.6 7,184,475
shopping festivals, and Emirates Airlines; and
2007 3,163,932 14.5 2.6 8,226,224
• Increased travel regionally within the Middle East and
2008 3,629,030 14.7 2.8 10,161,285
the GCC states and the growth of budget airlines.
2009 4,158,869 14.6 2.8 11,644,832
The number of tourists to Dubai increased by a com-
2010 4,657,933 12.0 2.9 13,508,005
pound annual growth rate (CAGR) of over 11% per year
2011 5,266,265 13.1 2.9 15,272,167
from 1999 to 2007, from 3m visitors in 1999 to almost
SOURCE: Local statistical authorities, OBG Research
7m visitors in 2007. Dubai has managed to more than

THE MARKET Real Estate 2008

22 NORTHERN EMIRATES

Northern Emirates
Making the most of their location and space
Together, the Northern Emirates accounted for
around 18% of the UAE’s total GDP in 2007 and 34%
of its population. The population is distributed with
Sharjah having 28%; Ajman, 7%; Ras Al Khaimah (RAK),
7%; Fujairah, 4%; and Umm Al Quwain (UAQ), 1%.
Although these five smallest emirates of the UAE have
a lot of catching up to do with their two larger,
wealthier and more high-profile counterparts, they
have each been making a mark in their unique way.
NEW FOCUS: The cultural centre of the UAE, and yet
not endowed with its neighbours’ abundant
resources, Sharjah’s strategy has been to focus on
industrial development. As such, it already accounts
for 48% of the UAE’s entire industrial output. Cen-
tral to this effort was the decision in the 1990s to
establish 11 industrial zones that are spread over 26
sq km. These are located between the UAE’s main
transport arteries of the north-south Emirates Road,
and the east-west highway to Khorfakkan and
Fujairah. The success of these zones has led to sub-
stantial GDP growth since 2006.
Sharjah is also developing its hydrocarbons sec-
tor, courting more industrial companies and devel-
oping industrial and commercial clusters, such as
the Hamriyah Free Zone and the Sharjah Airport
International Free Zone. The petrochemicals indus-
try is well developed, as are the textiles and leather,
basic non-metals, foodstuffs and wood industries.
In addition to industry, Sharjah also serves as a major
regional transport centre, with Sharjah Internation-
al Airport being the region’s largest airfreight car-
go handler. The emirate’s other major advantage is
its operating costs, which are significantly lower
than those in Dubai and Abu Dhabi.
Further infrastructure improvements are planned,
with $45m due to be spent as part of an integrated
infrastructure plan for Sharjah, including construc-
tion of 32 km of roads in Khozamiyah and Tala, storm
water systems and sewage systems.
TOURISM: RAK is leveraging its diverse natural fea-
tures – an abundance of greenery, picturesque moun-
tains, deserts and beaches – to attract tourists. It
has successfully witnessed a 40% rise in tourist
arrivals in the last two years. The emirate is also
opening up the industrial sector for local, as well as
international, investors through the RAK Free Trade
Zone and the RAK Investment Authority Free Zone,
which is expecting inward investment worth $15bn.
The RAK economy is expected to grow by more than
15% in 2008, with the emirate attracting $2.4bn
investment in the industrial sector and more than
$9.5bn in the real estate sector. It boasts of being
the world’s largest tile producer, being a US Food and
Drug Administration-approved pharmaceuticals pro-
ducer, and housing Hollywood’s biggest post-produc-
tion studio. Additional infrastructure development

Northern Emirates: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 1,464,612 5.71 26,194 35,882 4.90 758,023 3.2
2007 1,547,509 5.66 35,381 37,293 4.86 807,457 3.2
2008 1,634,328 5.61 32,753 38,108 4.82 865,812 3.2
2009 1,725,229 5.56 36,039 39,262 4.78 906,262 3.2
2010 1,820,374 5.51 39,283 40,337 4.74 969,838 3.2
2011 1,919,936 5.47 42,663 41,719 4.71 1,000,873 3.2
SOURCE: IMF, World Bank

Oxford Business Group

 NORTHERN EMIRATES 23

is being carried out throughout the emirate, with RAK

International Airport and Mina Saqr Port undergo-
ing expansion and upgrades.
Sharjah has a strategic advantage over several of
its neighbours, in that the port of Khorfakkan can
shave several days off a passage through the Strait
of Hormuz, saving valuable fuel and time. This fact
has resulted in an economic boom for Khorfakkan,
now ranked among the world’s top-100 container
ports. It has a handling capacity of 3m 20-foot-
equivalent-units (TEUs), and has benefitted from
several infrastructure upgrades in recent years,
including a new $156m berth and a stacking room
with a total capacity of 43,000 TEUs.
The Dubai Ports Authority has taken over the man-
agement of the container terminal at Fujairah Port,
which will consolidate Fujairah’s role as a transport
centre. Fujairah already has the world’s third-largest
bunkering port and with additional investment being
pumped into the sector, the emirate hopes to become
a centre for regional trade.
UAQ and Ajman have both witnessed growth in the Rent caps have been introduced in all of the emi-
real estate and industrial sectors. In the past couple rates in an effort to control rental costs. In Sharjah
of years, the property boom in the UAE has spilled and Ajman rents cannot be increased for the first
over to the Northern Emirates as a result of econom- three years of a tenancy contract, after which a 15%
ic fundamentals and the revamping of real estate reg- increase is permitted in Sharjah, and a 20% increase
ulations to allow foreign ownership. In Sharjah the is permitted in Ajman. Like Dubai, RAK has an annu-
$5bn Nujoom Islands, as well as more than 20 tall, al 7% cap on rent increases.
mixed-use towers, are currently under construction A number of residential developments are under
and many more are planned. construction in the Northern Emirates, of which a
Projects worth more than $8bn are expected to large percentage are offering freehold ownership.
be built in RAK, including Mangrove Islands, Port However, Sharjah does not permit freehold owner-
Arabia, Marjan Islands, Al Hamra Village, Cove Beach ship for nationals who are not from Gulf Coopera-
Resort, Julfar Towers, Saraya Islands, Mina Al Arab tion Council (GCC) member countries, although they
and Yasmin Rural Village. can obtain 99-year leasehold properties.
UAQ has the $3.3bn UAQ Marina and the $8bn Al In spite of the number of projects currently under
Salam City, which is planned as a residential and construction, the infrastructure in these cities has
commercial development. Meanwhile, Ajman is plan- not moved at the same speed as the fast pace of
ning the high-tech, $700m Goldcrest Smart City, real estate development, which has resulted in traf-
which will have 3500 luxury homes equipped with fic congestion, inadequate parking and delayed deliv-
modern digital home network solutions, the 12m- eries, mostly due to a queue for utility connections.
sq-metre Al Zorah City and Amber Islands. COMMERCIAL: Rising office demand is associated
RESIDENTIAL: The UAE’s population has been rising at closely with industrial growth in the Northern Emi-
an annual growth rate of around 7% since 2000. Though rates, particularly with the development of indus-
the Northern Emirates have only 34% of the UAE’s pop- trial clusters, free zones and ports. These emirates
ulation, they have 39% of the country’s housing units. have numerous cost advantages over Abu Dhabi and
Sharjah and Ajman have benefitted from the rise in Dubai. Sharjah is reported to be the least expensive
demand in Dubai by providing reasonably priced over- emirate to invest in the UAE, with costs running
flow accommodation for Dubai’s workforce. However, about 35% less than in the other emirates, as the
the increasing demand has consequently driven up
rents and property prices in Sharjah and Ajman as well.
Northern Emirates: tourism and hospitality indicators, 2006-11
Residential rents in Sharjah were reported to have
risen by an average of 20% in 2007-08, slowing down Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
considerably from the 40% rise that was seen in
2006 592,273 0.0 2.6 1,539,911
2005-06. Rents, however, still remain as much as 50%
2007 588,686 -0.6 2.6 1,530,584
cheaper than the rents for comparable properties
2008 580,648 -1.4 2.8 1,625,814
in Dubai. Low-income tenants have not been able to
2009 566,024 -2.5 2.8 1,584,867
afford the increase and have moved further north
2010 541,644 -4.3 2.9 1,570,767
to Ajman and UAQ. In Sharjah, rental yields have
2011 573,106 5.8 2.9 1,662,007
risen from 8% to between 10% and 18%, with yields
SOURCE: Local statistical authorities, OBG Research
on labour accommodation reaching as much as 20%.

THE MARKET Real Estate 2008

24 NORTHERN EMIRATES

RAK is planning a large theme park and has ambi-

tious plans to venture into space tourism, with the
$1.9bn Emirates Flag project to develop a commer-
cial spaceport from which suborbital flights may one
day be operated.
In RAK the number of hotel guests was a modest
157,000 in 2005, which is expected to grow to 2.5m
by 2012. Occupancy rates in the emirate increased
from 77% in 2005 to 85% in 2008. The introduction
of Air Arabia and RAK Airlines has provided a boost
to the sector, with the former providing some 40%
of all air traffic to Sharjah’s airport.
Development of the tourism sector has been held
back, due largely to a need for more quality hotel
facilities. Ajman has only four hotels, with around 600
rooms, while RAK has eight quality hotels. Sharjah’s
hospitality sector is showing the fastest growth, with
37 hotels and 65 furnished apartment buildings pro-
viding 7486 rooms, a considerable increase from
the 5000 rooms available in 2005. Around 10 hotels,
providing 3000 rooms, are under construction. The
government subsidises 70% of the cost of water and mixed-use development of Nujoom Islands will have
electricity. As a result, a number of Dubai-based a significant hotel component. A new five-star beach
companies have relocated their back office and resort, Al Hamra Palace Hotel, in RAK is expected to
administrative operations to Sharjah. start operations in late 2008, while 25 top-end hotels
Additional roads and bridges are under construc- are expected to open in Ajman by 2015.
tion to ease traffic flows, and other infrastructural Upcoming projects include the Jebel Jais Resort and
improvements, such as a hovercraft service between Mina Al Arab in RAK, Switzerland-based Movenpick
Dubai and RAK, are being planned. Due to these fac- Hotel in Ajman, Germany-based Kempinski’s Fujairah
tors, foreign investments coming into the emirates Resort, Robinson Club, Fujairah Dana (Pearl) devel-
have climbed. The Sharjah Chamber of Commerce opment and Fujairah Paradise in Fujairah. Ajman is
and Industry now has more than 40,000 members, developing the $4.1bn Emirates City and UAQ is
with 5400 registering in 2007 alone. These num- developing the marina waterfront community.
bers are expected to grow further as the free zone RETAIL: Malls were introduced in Sharjah later than
makes efforts to attract Fortune 500 companies. A in Dubai. Three malls opened in 2001 – Sharjah Mega
number of office complexes are under development Mall, Sharjah City Centre and Sahara Centre – fol-
in Sharjah, Ajman and RAK that are expected to cater lowed by Al Taawun Mall, Ansar Mall and Safeer Mall.
to the demand for office space. Upcoming industri- Retail space in Sharjah is significantly less costly
al projects – such as Rakeen’s RAK Financial City and than in Dubai or Abu Dhabi. Sharjah’s malls and shop-
Hanoo Holding’s $2bn Emirates Industrial City – are ping centres now account for little more than 8% of
expected to help the office market reach maturity. total UAE gross leasable area, with 280,956 sq m.
Grade A office space will be added with projects like Shopping centres in Ajman include Ajman City
Sahara City and Sharjah Investment Centre. Centre and Safeer Mall, as well as large hypermar-
HOSPITALITY: Sharjah’s ambitious tourism sector kets like Lulu. RAK has Manar Mall, Al Waha Centre
is hoping for growth of 8%-10%, with a focus on and Lulu Centre. The $109m Dana Mall, an upmar-
cultural and educational tourism, as well as eco- ket 150,000-sq-ft shopping complex being built in
tourism. The number of hotel guests grew 11%, from Ajman, will open by the end of 2008. It will have 200
1.31m in 2006 to 1.45m in 2007, and occupan- retail outlets with international brands, restaurants
cy rates reached 80%, up more than 5% from 2006. and a 1500-vehicle car park.
New retail supply will be concentrated in large,
mixed-use developments such as the Nujoom Islands
Northern Emirates: retail indicators, 2006-11
and Al Hamra Village. Apart from these, the Sharjah-
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
based Al Safeer Group plans to open new malls in
2006 1,464,612 19,869 24.7 9.27
RAK and Fujairah. Sharjah City Centre, which has the
2007 1,547,509 23,857 20.1 11.03
highest footfall in the Northern Emirates (10m vis-
2008 1,634,328 28,538 19.6 9.04
itors in 2007 and 5m in the first half of 2008, a 15%
2009 1,725,229 34,164 19.7 5.33
increase over the same period in 2007), is undergo-
2010 1,820,374 40,594 18.8 4.66
ing an expansion, renovation and redevelopment
2011 1,919,936 49,586 22.2 4.09
programme that is set for completion in December
2008. This will take the mall’s total retail area offer-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
ing to over 37,553 sq metres, with over 114 shops.

Oxford Business Group

 25

Gulf Cooperation Council

Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
26 BAHRAIN

Bahrain
Development takes off as the country opens up to foreign investors
Bahrain has historically acted as the financial capi-
tal of the Gulf Cooperation Council (GCC). Financial
services continue to thrive, despite greater regional
competition. The economy had a compound annual
growth rate (CAGR) of 6.8% between 2003 and 2008,
with the same expected in 2008. According to the
2008 Index of Economic Freedom, Bahrain’s econo-
my is 72.2% free and ranks 19th in the list of the
world’s most free economies. The kingdom is also
expected to be the first GCC member to run out of
oil, which has resulted in the diversification process
starting in Bahrain long before its neighbours. The
real estate and building boom that has been part of
this diversification has given Bahrain one of the most
developed property markets in the GCC.
Land prices appreciated by around 300% between
2001 and 2005 and by three to four times more
recently. Land prices in high-end districts such as
Saar and Budaiya have increased at the most rapid
rates, with Juffair and Busaytin having performed the
most strongly of all districts. The real estate and con-
struction market continues to be extremely active,
with a large number of high-profile projects current-
ly under construction in the kingdom.
The total value of traded land permits rose by a
CAGR of 35% between the years 2001 and 2006,
while the number of land permits rose by 13% in
2006 alone. Commercial bank lending to the sector
rose by more than 50% in 2007. In August 2008 sta-
tistics from the central bank showed that the mort-
gage market stood at a healthy $1.19bn. However,
contractors are presently facing challenges with
regard to fulfilling their commitments due to supply
constraints and skills shortages. The crackdown on
illegal immigrants has ultimately led to a shortage of
workers, while the export restrictions imposed by
Saudi Arabia and the lack of domestic production of
cement have resulted in huge increases in the con-
struction cost index.
Since 2001 several decrees have been passed in
the region to permit all foreigners, in addition to GCC
nationals, to buy and invest in real estate. Both for-
eign buyers and investors can enjoy 100% ownership
of land in predetermined areas. Foreign investors in
Bahrain may either lease government land through
the Ministry of Finance and National Economy or
purchase land in the five districts of Manama: Ahmed
Al Fateh, Hoora, Bu Ghazal, the Diplomatic Area and
Seef. They can also buy into three projects – the
Amwaj Islands, Durrat Al Bahrain and Dannat Hawar.
International investors are also attracted to the
country’s infrastructure and urban development.
Major upgrades to the road network, building of fly-
overs and tunnels and additions to existing roads are
projects that are currently in progress. Bahrain has
the 2030 National Strategic Masterplan in place that
has already approved land-use plans for residential,
commercial, industrial and agricultural uses, result-

Bahrain: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 749,000 2.04 15,823 29,873 5.36 380,000 15.0
2007 764,000 2.00 19,660 32,064 5.33 352,000 15.0
2008 779,000 1.96 24,395 34,043 5.30 369,600 15.0
2009 795,000 2.05 25,442 36,206 5.27 388,080 15.0
2010 811,000 2.01 26,405 38,437 5.24 407,484 15.0
2011 827,000 1.97 27,226 40,757 5.22 468,607 15.0
SOURCE: IMF, World Bank

Oxford Business Group

 BAHRAIN 27

ing in greater investor confidence. Large-scale, multi-

billion-dollar projects currently under construction
include Durrat Al Bahrain, Bahrain Bay, Reef Island,
Al Areen, Riffa Views, Diyar Al Muharraq and the Seef
District Development. High-rise tower developments
include Bahrain World Trade Centre, Abraj Al Lulu,
Infinity Tower and Era Tower.
RESIDENTIAL: Of all the construction permits issued
in Bahrain, 30% are for new construction, primarily
for villas and houses, of which there is a severe short-
age at the lower end of the market.
Bahrain’s population has been growing at an aver-
age of 2% per annum over the past four years, with
the population expected to reach around 779,000 in
2008. The market for mid- to high-income housing
has been boosted further by the government’s deci-
sion to allow expatriates to buy property, but estimates
suggest that 40,000 social-housing units are need-
ed, and with half of the population under the age of
15, the pressure to build more units within this seg-
ment is likely to continue.
Residential property prices have been rising at an Rents are low by Gulf standards, and they remain in
average of 10% to 15% per annum over the past three the bottom quartile internationally. Rental yields have
years, with reports of a 20% increase in some proj- fallen from 8% in 2005 to 6.5% in 2008. The market
ects in the nine months from third quarter 2007 to has the potential to move towards oversupply given
second quarter 2008. In Durrat Al Bahrain, the price the number of ambitious commercial projects that
of a 500-sq-metre villa doubled from around are currently under way.
BD150,000 ($400,500) in early 2007 to BD300,000 The kingdom’s fight against the regional compe-
($801,000) in early 2008. Costs in new projects in tition in financial services, on the other hand, has been
Manama now range from $1000 per sq metre comparatively successful, with total banking assets
upwards, with prime developments selling from $1200 growing by an impressive 34% in 2006. The total num-
per sq metre on lower floors, and $1500 per sq metre ber of banks and financial institutions at the end of
onwards for upper floors. November 2007 was 404, with this being made up
Rents in residential areas are also rising sharply. of 153 banking institutions, 165 insurance firms, 34
Though rents for existing tenants have been capped investment banking firms, 13 capital market brokers
at 10%, new leases in 2007 have been showing 30% and 39 specialised licensee firms.
to 40% increases. Annual rent per sq metre ranges The Bahrain Financial Harbour (BFH) is a $1.3bn
from $300 in Jufair to $400 in Seef. It is worth not- project intended to act as a physical flagship for
ing that the new villas and apartment developments Bahrain’s traditionally strong financial services sec-
command rents that are more than 40% higher than tor, with space for international firms, banks and
that of similar older properties. insurance companies, and the Bahrain Stock
The government housing bank lends up to BD40,000 Exchange. The gross building area is reported to be
($106,800), around half of the cost of most family approximately 570,000 sq metres. BFH is now part-
homes. Also, though the mortgage sector in Bahrain ly operational with monthly rents at around BD12
is strong with banks offering up to 30-year loans with ($32) per sq metre and an additional 15% service
down payments as low as 10%, affordability is still an charge. It is a higher price compared to other office
issue. Developers have therefore largely ignored the spaces, which range between BD7 ($19) and BD9
low- and middle-income housing sector, and the gov- ($24) per month per sq metre.
ernment has therefore initiated affordable projects The 50-storey Bahrain World Trade Centre (BWTC),
such as the 15,000-unit North Town project. another major office development, has already
In spite of this, speculators and investors have
ensured that there is little expectation of a down- Bahrain: tourism and hospitality indicators, 2006-11
ward turn in prices. But uptake in residential projects Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
is slowing. With supply so firmly targeted at the upper
2006 398,157 12.8 2.0 796,313
end of the market, concerns over the potential for
2007 448,589 12.7 2.0 897,179
oversupply are inevitable.
2008 507,716 13.2 2.0 1,015,432
OFFICE: The office market in Bahrain has suffered
2009 574,597 13.2 2.0 1,149,195
as a result of the increase in competition from Dubai
2010 649,825 13.1 2.0 1,299,650
and other emerging financial centres. In spite of this,
2011 735,524 13.% 2.0 1,471,048
office developments in the first year of opening
recorded occupancy rates of between 35% and 55%. SOURCE: Local statistical authorities, OBG Research

THE MARKET Real Estate 2008

28 BAHRAIN

favourite, opening its doors in 1997 and later expand-

ing its gross leasable area (GLA) to 135,000 sq metres.
The higher end of the market is satisfied by Al Aali
Mall, along with Dana Mall and Bahrain Mall, with
smaller properties targeted at the lower end of the
market found elsewhere in the kingdom, such as Sitra
Mall and the already mentioned Isa.
Given the success of Seef, it is not surprising that
a raft of further development is planned for Bahrain.
Retail GLA in 2007 was around 400,000 sq metres,
with stock expected to triple by 2010. Seef itself has
recently undergone an expansion; Moda Mall at the
BWTC will have double the space originally planned,
while space is being released in the Bahrain Finan-
cial Harbour, Sitra and Lagoon Malls.
MAF’s Bahrain City Centre is a $400m, 150,000-sq-
metre facility, which had its soft opening in Septem-
ber 2008. Retail space for rent in the development
is at a premium, and is on the market at BD40 ($107)
per sq metre per month, while other older malls are
become an iconic landmark in the Manama skyline. renting at an average of BD16 ($43) per sq metre per
It will offer twin office towers, the five-star Shera- month. Still, the mall is reported to have been com-
ton Hotel and Moda Mall. Around 15% of its energy pletely rented out.
needs will come from turbine-generated wind pow- HOSPITALITY: Bahrain has witnessed an impressive
er. Engineering issues are rumoured to be the main increase in visitor numbers over the past few years,
cause for the delay on the project, but most analysts with arrivals by foreign nationals reaching 7.8m in
expect that the towers will be completed by the end 2007, rising from less than 5m in 2002. In 2007
of 2008. These developments are considerably above tourism had accounted for close to 7.6% of GDP, with
the current standards of market provision. By offer- revenues reportedly passing the $1bn mark. The gov-
ing generous car parking allowances and flexible ernment is hoping that it will be possible to double
space, they may end up attracting corporate occu- this figure, increasing the sector’s contribution to
piers from less well-equipped buildings. Change is GDP to 10% by 2014.
therefore expected in the secondary tier of the mar- A tourism master plan has been created which rec-
ket, with refurbishment, redevelopment or change ommends the establishment of a public-private
of use available for older buildings. tourism authority as in other Gulf states. Also rec-
RETAIL: Bahrain’s retail sector has matured substan- ommended is the creation of 12 zones dedicated to
tially over the past decade and the country is report- tourism development. The zones identified for tourism
ed to have the fourth-highest private spending on include the large, mixed-use mega-projects that are
retail in the region. Visitors from Saudi Arabia are currently under construction, such as Durrat Al
reported to account for a 30% to 35% increase in foot- Bahrain, the Amwaj Islands and Al Areen.
fall during the weekends. Bahrain’s five-star hotels reported average occu-
The Grand Prix has also had a substantial impact pancy of 72% in 2006, which was up from 68.8% in
on the retail sector. In 2007 the event drew a total the previous year, and it is certainly the strongest per-
of 90,000 people over the course of three days, result- formance for some time. In 2007 a number of hotels
ing in a gross economic impact of $548m, which reported occupancy close to 80%, driven partially by
marked a 40% leap from 2006. On average each inter- higher bookings from American military personnel.
national visitor spent $1356 per day outside the Historically there has been little marketing of
Bahrain International Circuit. Bahrain’s hospitality sector, but this is set to change
Shopping centre supply in Bahrain is concentrat- in the years to come, with investment including an
ed in the Seef area. The Seef Mall is a perennial $800m development headed by Ithmaar Bank to
rehabilitate Bahrain’s main public beach.
Bahrain: retail indicators, 2006-11 The hospitality sector boasts of an estimated 6700
Year Population Household consumption Growth rate (%) Inflation (%) rooms in 2008, with more than 2000 expected
expenditure ($m)
to come up by 2010. The Banyan Tree, which opened
2006 749,000 5476 7.9 2.19
in the Al Areen development in 2007, is the latest
2007 764,000 5993 9.4 3.39
addition. Upcoming projects include the Renais-
2008 779,000 6563 9.5 3.34
sance Marriott on the Amwaj Islands, a second
2009 795,000 7163 9.1 3.14
Ritz-Carlton on a man-made island off the Seef dis-
2010 811,000 7809 9.0 3.10
trict, a new Four Seasons on the Bahrain Bay devel-
2011 827,000 8534 9.3 2.95
opment and a new Accor beach resort, which will
SOURCE: World Bank, IMF, International Macroeconomic Data Set be located on the west coast of Bahrain at Zallaq.

Oxford Business Group

 KUWAIT 29

Kuwait
Domestic demand fuels real estate and construction growth
Kuwait is another emerging market which has ben-
efitted from the increase in oil prices. The country
is reported to hold 10% of world reserves, with the
sector accounting for 55% of GDP, 95% of export rev-
enues and 80% of government income. Post-Septem-
ber-11 repatriation of funds, moderate inflation
rates, political stability and increased earnings from
investments have all been responsible for the buoy-
ant Kuwaiti economy, which grew by 12.6% in 2006.
New infrastructure, utility, tourism and construction
projects can be attributed as both the cause and
effect of growth in the economy.
In its latest economic brief on the macroeconom-
ic indicators in Kuwait, the National Bank of Kuwait
(NBK) reported that Kuwait’s GDP grew by only 8%
to KD31.8bn ($111bn) in 2007, following a streak of
four consecutive years of double-digit growth. Fig-
ures released by the Central Statistical Office also
indicate a slowdown in non-oil sector growth though,
at 13.3%, bested the oil sector. Despite this slowdown,
domestic demand growth accelerated to 19% and
this slowdown is expected to have negligible effects
on the overall performance of the economy.
The real estate and construction sectors grew by
7.9% in 2006 and contributes approximately 6% of
the nation’s economy. According to the NBK, the
value of real estate sales grew by 67% in 2007. Vol-
ume of units sold expanded by 54% in the first half
of 2007, as compared to the same period in 2006.
Total real estate investment tradings have increased
during first-quarter 2008 to account for KD385m
($1.3bn) compared to KD490m ($1.7bn) during the
fourth quarter of 2007 with a decrease of 21.5%. The
sector has been receiving increased investor atten-
tion. Around $8bn of private investment and $3bn
in government investment is expected to come into
the sector in the next five years.
Developments trends have shifted with a wider
acceptance and affinity towards taller buildings and
international-quality offices, apartments and hotels.
Major projects include the $5bn Failakha Island, the
$6bn Boubyan Island, Project Kuwait, the $20bn
Khairan and Arifijan residential projects, and the Silk
City, a mixed-use development, with a jaw-dropping
price tag of $86bn covering 250 sq km. In total, new
real estate construction is expected to reach $129bn
up to 2010. However, construction costs have been
rising; building material costs went up 32.6% in 2006
in spite of government subsidies, and wages rose by
6.9%. Another source of weakness for development
of the sector is that the large expatriate population
(68%) is not permitted to own property.
RESIDENTIAL: In 2006 Kuwait’s population grew by
6.4% to reach 3.2m, of which the expatriate popu-
lation accounts for 68%, with a huge concentration
of unskilled male workers. In 2006 the Kuwaiti nation-
al population grew by about 3.1%, whereas the expa-
triate population increased by 8.1%. Population

Kuwait: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 3,183,000 6.42 98,717 31,014 5.36 1,963,000 2.0
2007 3,310,000 3.99 111,339 33,634 5.33 2,093,000 2.1
2008 3,443,000 4.02 145,141 42,159 5.30 2,275,000 2.2
2009 3,563,000 3.49 152,946 42,924 5.27 2,452,000 2.4
2010 3,688,000 3.51 161,247 43,723 5.24 2,596,000 2.5
2011 3,817,000 3.50 171,394 44,903 5.22 2,748,000 2.7
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

30 KUWAIT

in 2006. A number of residential projects are under

development – Silk City (500,000 residents), Arefi-
jan (100,000 residents), Jabr Al Ahmad (78,000 res-
idents), Sabbeya (50,000 units), PAHW housing (27
projects) and Khairan (30,000 units).
However, there are some question marks sur-
rounding such large-scale projects, as there is already
a surplus of housing of the style that is generally
developed to cater for expatriate rentals. Accord-
ing to figures from the Public Authority of Civil Infor-
mation, the average vacancy rate by mid-2006 was
12.9%, up from 12.1% in 2005. Meanwhile, the val-
ue of apartments and commercial properties declined
by approximately 21% in the first four months of
2007, although it increased by over 7% for residen-
tial properties. It is therefore reasoned that the mar-
ket will need to be opened to foreign investors to
prevent an oversupply situation. This is something
that those within the construction and real estate
industry appear to be expecting in the coming years.
In total, BankMuscat estimates 2.62m housing
growth and the influx of expatriates attracted to units will be built to meet the demand up to 2020.
the country’s booming economy have resulted in For the expatriate population, low-cost apartments
undersupply in the residential sector. remain the segment most under-supplied.
According to the Public Authority of Housing Wel- COMMERCIAL: As in Jordan, demand for commercial
fare (PAHW), the waiting list for housing has risen property in Kuwait has been stimulated by the Iraq war.
to over 50% in the last few years, up from 25% in the A large number of new companies have set up shop in
1990s and 17% in the 1980s. The waiting list of the country, using Kuwait as a base to target the large
applicants in mid-2007 exceeded 30,000. In Febru- and wealthy Iraqi market. Limited supply and a consis-
ary 2008 the Public Authority of Housing Care (PAHC) tent demand for commercial lands, especially within
announced its plans aimed at distributing 1000 hous- Kuwait City, have helped push prices up even further.
ing units every month up to the year 2014 in the new A number of foreign banks have been granted
cities of Jaber Al Ahmad, Saad Al Abdullah, Sabah Al licences to operate in the country, including BNP
Ahmad, Khairan and Mitlaa. Paribas, HSBC and Citibank. Project Kuwait is a $14bn
According to the recent reports by KFH the price project that will develop the northern oilfields and
indices showed a decrease in the prices of residen- other offshoot projects. All these factors have result-
tial lands in the governorates of Kuwait during the ed in an economic boom in Kuwait, with approximate-
first quarter of 2008 as the price per square metre ly 144,000 new jobs created in 2006, creating a huge
was marked down to KD739 ($2584), equal to a demand for office space, particularly in Kuwait City.
slight decrease of 5%, reflecting the price stability Commercial land rates have grown by some 11.8%
in certain areas such as Abdullah Al Salem, Residen- in 2006 and vacancy rates are low. Rental costs have
tial Shuwaikh, and Faiha, while prices decreased sig- been going up, which has increased yields and there-
nificantly at Al Qadessiayah, Doayah and Surrah. fore the demand for commercial land, rates of which
The situation with apartments is slightly different, have witnessed an increase of approximately 18.6%
with a potential oversupply of units targeted at the CAGR between 2000 and 2006.
high-income expatriate population and a shortage The average commercial price per unit went from
of low- and middle-class apartments. An estimated almost $1.5m in 2003 to $2.3m in 2005 and to $2.5m
oversupply of 30,000 high-quality units is reported, in 2006. There has been a short supply of office
with vacancy rates rising from 8.4% in 2004 to 12.6% space in Kuwait over the years. The surge in demand
from 2003, following the Iraq war was difficult to meet
with existing supply. This surge in demand played a
Kuwait: tourism and hospitality indicators, 2006-11
role in the push for new legislation to allow the build-
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights ing of taller buildings.
(4- & 5-star guests) (%) (days)
Previously, Kuwait had a maximum height for build-
2006 344,680 6.2 3.4 1,171,913
ings of 20 storeys, but in 2005 new legislation allowed
2007 366,051 6.2 3.4 1,244,572
for 100-storey buildings. This opportunity has encour-
2008 388,746 6.2 3.4 1,321,735
aged a rush to develop a new skyline in Kuwait City,
2009 412,848 6.2 3.4 1,403,683
and according to industry analysts, total expected
2010 438,445 6.2 3.4 1,490,711
supply coming up until 2009 is around 750,000 sq
2011 475,325 8.4 - -
metres. Furthermore, analysts expect that this will
SOURCE: Local statistical authorities, OBG Research
result in an oversupply. However, according to OBG’s

Oxford Business Group

 KUWAIT 31

analysis and data modelling, there is still scope for

greater expansion in this sector. Foreigners, aside
from citizens of the GCC countries, are not allowed
to own real estate in Kuwait, although in 2005 the
government hinted at a move towards allowing lim-
ited foreigners in specially designated areas. Surveys
conducted in 2006 reported an increase of approx-
imately 17% in salaries for both expatriates and
locals and were further projected to rise by anoth-
er 19% over 2007; also Kuwait’s average monthly
salary was the highest in the Gulf region, at $3100.
HOSPITALITY: Following the Iraq war, there has been
a steady stream of hotel guests into Kuwait, which
boosted the sector between 2002 and 2004. After
this point, growth in the hospitality sector slowed
considerably. Occupancy rates reached 90% between
2002 and 2003. However, in 2005-06 the average
occupancy rates were reported to be close to 70%,
with average room rates (ARRs) around $196 and
RevPAR close to $140.
Recently the InterContinental Hotels Group and
Bukhamseen Holding Group announced the signing Despite this, developers have started taking a keen
of an exclusive agreement towards developing Inter- interest in Kuwait’s retail sector. Average retail rates
Continental Kuwait Downtown. Figures released by have gone up drastically and are now approaching
the Kuwait Hotel Owners Association estimate an Dubai’s relatively high rates, indicating a strong retail
additional 3000 rooms to be added by 2010 by major market. Two new malls by Tamdeen became opera-
international chains including Golden Tulip Kuwait, tional in 2006, with the 31,000-sq-metre Marina
the Regent Messilah Beach Resort & Spa, Hilton Mall attracting over 9m customers in only its first
Olympia Kuwait, the Monarch Luxury Hotel & Con- year of operations.
ference Centre, InterContinental Kuwait Downtown The year 2007 saw the introduction of large malls
and Four Seasons Hotel Kuwait. such as Mabanee’s Avenues with a gross leasable area
The hospitality sector’s dependence on the Iraqi of 170,000 sq metres, the country’s first Carrefour,
market has prompted a large number of changes in the region’s largest IKEA store and a 10-screen mul-
order to promote tourism in the country; visa regu- tiplex. The second phase of the project is the addi-
lations have been relaxed, for the first time a licence tion of another 60,000 sq metres this year. Tamdeen’s
was given to the first private commercial line, and 360-degree Kuwait Mall will add another 75,000 sq
the government has come up with a 20-year strate- metres in this year and its 150,000-sq-metre Mall of
gic tourism plan. The government is aiming to Kuwait will be operational by 2010.
increase the number of tourists visiting Kuwait to 1m In spite of this growth, the sector faces a few
per year by 2010, of which some 650,000 are expect- setbacks due to rampant video and music piracy,
ed to stay in hotels. Some 79% of Kuwaitis travel which will definitely have an impact on retailers like
abroad on holiday, spending an estimated $3bn annu- Virgin Records. In addition, the strict censorship
ally; the government is keen to capture this local regime currently does not allow for the types of pub-
market as well. In 2007 Kuwait had 28 hotels with lic events that have the potential to induce greater
approximately 4500 rooms, while 2006 witnessed the retail spending. According to in-depth OBG research,
commencement of construction for at least 10 new upcoming supply is expected to meet the existing
hotels with more than 2100 rooms estimated to be demand in the sector. It is for this reason that the
completed by the end of 2007. Even if only a frac- development of climate-controlled shopping cen-
tion of these rooms are completed, the market will tres in Kuwait is not recommended in the short term.
undoubtedly move towards oversupply. The World
Travel and Tourism Council, in its 2006 report, fore-
Kuwait: retail indicators, 2006-11
casted a 3.6% growth annually for the next 10 years.
Year Population Household consumption Growth rate (%) Inflation (%)
According to the council’s report in 2007, the sec- expenditure ($m)
tor was projected to generate approximately 2006 3,183,000 28,363 12.0 3.09
$13.79bn of economic activity (total demand), grow- 2007 3,310,000 31,628 11.5 4.98
ing to $21.73bn by 2017. 2008 3,443,000 35,532 12.3 6.48
RETAIL: Present per capita gross leasable area in 2009 3,563,000 39,779 12.0 5.54
Kuwait is much lower than in most other Gulf states, 2010 3,688,000 44,527 11.9 4.97
indicating unmet demand. However, non-availabili- 2011 3,817,000 49,904 12.1 4.48
ty of large tracts of land has automatically placed a
SOURCE: World Bank, IMF, International Macroeconomic Data Set
limit on the number of new mall developments.

THE MARKET Real Estate 2008

32 OMAN

Oman
The country bounces back after a massive hurricane
The years 2007 and 2008 will be etched forever in
the memory of Omanis because of Gonu, a storm that
killed more than 50 people and caused $4bn worth
of damage. Though the signs of the destruction are
still evident in most cities, the Sultanate has bounced
back. Roads have been repaired, new rules banning
development in the Wadis have been introduced
and grants have been generously distributed for the
redevelopment process.
Rising crude prices ensured that economic growth
was strong at 11.6%, with manufacturing and tourism
also showing impressive performance. The World
Economic Forum’s Global Competitiveness Index
ranked Oman 42nd out of 130 countries in 2007,
which was the first year the Sultanate was included
since the study began in 1979.
The hydrocarbons sector accounted for 50% of
GDP and 80% of government revenues in 2006, with
the share declining to 27% and 65% in 2007. Under
the Vision 2020 plan released in 1996, oil’s contri-
bution to GDP should reduce to 9%, while that of man-
ufacturing should increase from the current 13% to
29% by 2020. These targets seem achievable, espe-
cially given the fact that oil production is on the
decline and the fields are ageing. In spite of new
measures to increase oil exploration and the use of
enhanced recovery processes, supplies are not sus-
tainable and the current reserves of 5.6bn barrels
of oil will likely be depleted over the next two decades.
Diversification is being given the first priority in
the country, with infrastructure upgrades being tar-
geted in order to boost the manufacturing and
tourism sectors. Being just hours away from the
world’s main shipping lines and relatively close to
Asian markets makes Oman and its re-emergent
ports, such as Sohar and Salalah, natural sites for
companies targeting markets in the East and West.
CONSTRUCTION AND REAL ESTATE: Given the
amount of infrastructural development involved in
the diversification of the economy, it is no surprise
that the construction sector is the second-fastest
growing sector, having grown at a compound aver-
age of 22% between 2001 and 2005. This sector’s
contribution to the country’s GDP rose from $3.9bn
in 2006 to $4.7bn in 2007, accounting for nearly
one-third of the country’s GDP.
Oman was previously categorised as being slow in
jumping on the Gulf Cooperation Council (GCC) real
estate bandwagon, with fewer projects and low take-
up rates. However, a perceptible increase has been
witnessed between 2007 and 2008 in the amount
of investment activity. Projects released towards the
end of 2007 and beginning of 2008 have sold out
quickly, in a matter of hours in some cases. At the
same time, land prices have increased by close to
100% since 2006. Costs in 2008 range from OR1000
($2600) per sq metre in Madinat Sultan Qaboos
(MSQ) to OR30 ($78) per sq metre in Al Amrat.

Oman: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 2,546,000 1.56 35,729 22,152 7.87 1,747,000 15.0
2007 2,570,000 0.94 40,059 23,967 7.86 1,782,781 15.0
2008 2,595,000 0.97 50,504 26,023 7.85 1,841,102 15.0
2009 2,619,000 0.92 54,392 27,833 7.84 1,897,783 15.0
2010 2,644,000 0.95 58,042 29,743 7.83 1,958,541 15.0
2011 2,669,000 0.95 62,176 31,839 7.82 2,020,897 15.0
SOURCE: IMF, World Bank

Oxford Business Group

 OMAN 33

RESIDENTIAL: Oman’s population is expected to

double during the next two decades, rising at a com-
pound annual growth rate of 2.5%, from 3.3m in
2008 to 5m by 2025. The country has a youthful pop-
ulation, with 43% of Omanis aged under 14.
A stronger economy has increased the number of
expatriates moving to the kingdom, and more than
12,000 expatriates are reportedly entering the Oman
every month. These increases in population have
resulted in a shortage of residential units through-
out the kingdom, and rising rents have made own-
ership an attractive alternative. The government is
increasing the number of land plots that it distrib-
utes and banks have responded to this rising demand
for property by providing a better choice of mort-
gage options to customers.
An increase in demand for apartments in Oman
has been augmented by a recent government deci-
sion to stop issuing permits beginning in October
2007. Unsatisfied demand has resulted in prices dou-
bling and at times even tripling in a period of one
year. Vacancy rates have dropped substantially, from ing a 25% increase. Muscat is now one of the 35 most
13% in 2003 to less than 5% in 2008. Monthly rentals expensive commercial markets in the world.
for a two-bedroom apartment range from OR700 Despite the increase in demand, Muscat has yet
($1820) in MSQ to OR150 ($390) in Muthrah, while to offer a definitive commercial centre. Offices are
a three-bedroom villa in PDO Heights would rent for generally located in the central business district
up to OR1300 ($3380). (CBD) in the east of Muscat. However, the conges-
Sale prices average OR500 ($1300) per sq metre, tion, parking problems and cramped offices of the
with new developments like The Wave demanding CBD have encouraged tenants to look elsewhere in
over OR1100 ($2860) per sq metre. Prices at Shin- the city. New companies and existing CBD tenants
ing Shati, the latest development, now average are considering moving to the west of Muscat, where
OR1100 ($2860) per sq metre – the initial release new office buildings and industrial parks are being
price in 2005 was OR265 ($689). Landlords have developed. These developments are typically low
hiked rentals by more than 100% in 2007, which has rise and offer a number of state-of-the-art offices
forced the government to introduce a rental rise as well as adequate support services.
cap of 15% over the next two years. The $300m Azaiba Business Park will be complet-
Some of the major high-end residential develop- ed by 2011 and will feature modern corporate offices,
ments coming into Muscat over the next two to upmarket retail facilities, a five-star hotel and serv-
three years include The Wave, with 4000 one- and iced apartments. Qurum City will have 35,000 sq
two-bedroom apartments, three- and four-bedroom metres of office space, while Al Argan Tower will
town houses with gardens, waterfront and beach- have 12,000 sq metres. Over 200,000 sq metres of
front villas; Salam Resort & Spa; Al Shmou; Omag- office space is expected to be handed over in the
ine; Shangri La; Yenkit; Tilal Residences and Al Qurum next four to five years. These new developments are
Gardens. These developments are not expected to not expected to satiate demand, and there will still
be able to satisfy the growing demand for luxury remain scope for construction.
housing, and there is surely scope for more residen- RETAIL: The retail sector in Oman remains under-
tial developments in Oman, especially in cities like developed in comparison to other GCC markets. Pre-
Sohar and Duqm. There is a niche demand for small viously, disposable income in the hands of Omanis
unit sizes and Western-styled units. has been low, spending patterns have been conser-
OFFICE: Growth in Oman’s domestic private sector, vative and the sector faced very stiff competition
combined with increased foreign investments and
the entry of a number of international companies Oman: tourism and hospitality indicators, 2006-11
in the country, has resulted in a huge demand for Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
office space in Muscat as well as in Sohar. A num-
2006 1,660,721 18.0 1.9 3,155,370
ber of companies are looking at Oman as a possible
2007 1,802,620 8.5 1.9 3,424,978
base in the GCC, instead of opting for Dubai or Qatar,
2008 1,884,572 4.5 1.9 3,580,688
where costs are skyrocketing.
2009 1,985,505 5.4 1.9 3,772,459
In Oman as well, rents have risen by over 50%
2010 2,107,590 6.1 1.9 4,004,420
every year since 2004, with rents in some years even
2011 2,450,732 16.3 1.9 4,656,390
doubling. Property prices have followed suit, dou-
SOURCE: Local statistical authorities, OBG Research
bling between 2004 and 2007, with 2008 witness-

THE MARKET Real Estate 2008

34 OMAN

These developments will take the retail gross leasable

area (GLA) to over 340,000 sq metres, a 70% increase
since 2006. Upcoming projects include the Muscat
Grand Mall, which is part of the Tilal Al Khuwair Proj-
ect. Muscat City Centre completed an expansion in
2007, increasing GLA by 17% and adding over 60 new
retail stores, bringing total GLA to over 60,000 sq
metres. A number of retail spaces are also under con-
struction in Sohar and Salalah.
HOSPITALITY: Tourism has been growing steadily in
Oman, with demand rising by 19% in 2006, and by
9% in 2007. Tourism accounted for 0.7% of GDP in
2004 and 2% in 2006; the government aims for the
sector’s contribution to rise to 3% over the next
decade and to attract 2m foreign visitors by 2010 –
double the figure of 2001.
The government has accordingly increased its
tourism promotion budget and has provided subsidised
land for the development of tourism projects. In April
2008 the Ministry of Tourism announced a number of
incentives to attract investments – tax and import
from Dubai. The market is now looking more posi- duty exemptions, interest-free loans, no personal
tive, as Omanis are slowly becoming more affluent income tax and no foreign exchange controls. A pub-
and the youth is increasingly brand-conscious. Exist- lic company will be established to help implement proj-
ing malls are experiencing increasing traffic, and a ects as part of a fast track procedure. Infrastructural
number of new ones are planned. The sector is poised development has been beefed up with the 2008 budg-
for growth in the medium term. et announcement of plans for the construction of six
Muscat City Centre and Markaz Al Bahjaa are the regional airports in Sohar – Al Duqm, Ras Al Hadd,
two large retail centres in Muscat. Qurum is the retail Adam, Haima and Shaleem. There are already many
centre of the city and has shopping centres like Cap- signs of success. According to the 2007 HotelBench-
ital Commercial Centre, Al Araimi Complex, Khamis mark Survey by Deloitte, average occupancy in Mus-
Plaza and Sabco Centre. This area is low lying and cat was 70.6%, while revenue per available room grew
was thus the worst-affected by Gonu. Tenants and by 52.8%. This has given Oman the title of the strongest
the mall owners suffered immense damage as a growing market in the Middle East. With the opening
result, with their insurance plans covering only a of resort projects in Oman, such as Shangri La Barr Al
part of their losses. The government has been forth- Jissah, the country has made it to the top few on var-
coming with compensations and in some cases mall ious international lists of must-see-destinations.
management has even given rental breaks to the ten- Barr Al Jissah represents the top end of the mar-
ants. Renovation works are almost complete and ket, with rates ranging from OR150 ($390) to OR350
things have started to normalise, though quite a ($910) for a standard room depending on the type
number of tenants, especially those on basement or of property. These prices represent a 100% rise from
lower levels, have vacated their spaces. They have levels in 2006, and the hotel has enjoyed an aver-
been promptly rented out to new tenants. age occupancy of 65% since its opening in February
Rentals in most malls range between OR16 ($41.6) 2006, while its break-even occupancy is 40%.
per sq metre to OR20 ($52) per sq metre, with places The Chedi and the newly renovated Al Bustan are
like City Centre and Markaz Al Bahja commanding the other premier hotels in the capital city. The Coral
much more. According to figures from Retail Inter- Al Nahda in Barka is also focusing on the luxury seg-
national, approximately 75,000 sq metres of retail ment in Oman. Salalah, Sohar, Musandam and Ras
space is in the pipeline to be completed by 2011. Al Hadd are also witnessing new developments with
brands like Six Senses, Jumeirah and Banyan Tree
entering the market.
Oman: retail indicators, 2006-11
The tourism sector’s room capacity is expected to
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
double by 2012 and several mixed-use development
2006 2,546,000 16,623 33.6 3.20
tourism projects are in pipeline. New projects will
2007 2,570,000 20,086 20.8 5.50
include hotels, marinas, shopping centres, golf cours-
2008 2,595,000 24,762 23.3 6.00
es and exhibition centres.
2009 2,619,000 31,175 25.9 6.75
Forthcoming hotel openings in Oman include Blue
2010 2,644,000 38,450 23.3 6.00
City Phase I, with three hotels; Omagine, with two
2011 2,669,000 47,744 24.2 5.50
hotels; The Wave, with two five-star hotels (Fairmont
and Kempinski) and a four-star hotel; Muriya, with
SOURCE: World Bank, IMF, International Macroeconomic Data Set
six hotels; and Sama Dubai’s Salam Resort and Spa.

Oxford Business Group

 QATAR 35

Qatar
Increasing population spurs growth in all sectors
With GDP reaching $65bn in 2007 and the oil-and-gas
sector contributing up to 56% of the economy, Qatar
is another Gulf country hoping to diversify away from
the hydrocarbons sector. Its proven oil reserves, more
than 2% of the world’s supply in 2007, are expected to
last over 60 years at current rates of production.
Gas reserves stood at 904.1trn cu feet at the end of
2007. The hydrocarbons sector accounts for about 90%
of export earnings and roughly 70% of budget rev-
enues. Oil and gas revenues have fuelled Qatar to the
highest per capita GDP in the world – $80,870 in 2007,
with expectations of reaching $85,000 in 2008.
POPULATION: In 2008 the Qatar Statistics Authority
estimated the population to be 1.45m, and the Plan-
ning Council expects the population to reach 1.5m by
the end of 2008. The last census was carried out in 2004
when the population stood at 744,029. The strong per-
formance of the economy has attracted a growing
number of expatriate workers – professional and oth-
erwise, which has contributed to the rapid increase in
the population from 2004 to 2007.
Foreign workers account for an estimated 75% of the
total population, with the majority of migrant labour-
ers coming from South Asia, the Philippines and oth-
er Arab countries. The latest estimates indicate that
approximately 37% of the population is concentrated
in Doha, while nearly 30% live in worker housing
at industrial centres across the rest of the country.
REAL ESTATE: The oil boom, expanding gas sector,
increased foreign direct investment, major real estate
projects and public infrastructure programmes have con-
tributed to the GDP, increasing by 10% from 2006 to
2007 and achieving a compound annual growth rate
(CAGR) of 27% from 2004. The finance, insurance and
real estate sectors made up 11.3% of GDP, at $7.2bn in
2007 – growing at a CAGR of 38% from 2004. Mean-
while, the building and construction sector contributed
6.3% of GDP at $4bn in 2007, growing at a CAGR of 32%
from 2004. The government has estimated that approx-
imately $125bn worth of real estate developments is
scheduled for completion by 2015.
Though over 50,000 residential apartments and vil-
las were constructed from 2003 to 2005, these units
have been unable to meet the levels of demand in the
country. Supply side constraints have to contend with
increasing shortage of materials and capacity issues.
Foreign investments in the real estate sector com-
menced in 2004, when the foreign ownership of real
estate law permitted non-Qataris to invest and own land,
buildings and constructions in three designated proj-
ects, namely Pearl Qatar, West Bay Lagoon and Al Khor
Resort developments. There are 18 special investment
zones in Qatar, where ownership is in the form of a long
lease. A second stimulant has been the growth in the
mortgage market. Up to 80% financing is available on
residential property at interest rates of less than 10%.

Qatar: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 838,000 5.28 52,722 76,537 5.50 746,000 0.9
2007 930,000 10.98 67,763 80,870 5.50 881,000 0.7
2008 1,032,000 10.97 98,260 84,833 5.50 1,044,000 0.6
2009 1,146,000 11.05 114,421 88,035 5.50 1,196,000 0.5
2010 1,272,000 10.99 133,961 92,476 5.50 1,350,000 0.5
2011 1,412,000 11.01 149,889 93,662 5.40 1,486,000 0.5
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

36 QATAR

roads. Demolition of buildings was mainly to widen

existing roads and for the beautification of different
areas of Doha. This has inevitably led to a shortage of
units in the market, as the level of construction has not
been able to keep up with the pace of demand.
From mid-2007 to 2008 rents have increased over
50% in some areas of Doha – especially in newly com-
pleted buildings, with a few areas commanding more
than $2000 per month for a one-bedroom and over
$4000 for a two-bedroom apartment. Given the high
levels of activity in the resale market, original proper-
ty prices have appreciated by as much as 100% in many
cases, with current sale prices at $2400-4500 per sq
metre for apartments and $4500-$6500 per sq metre
for villas. New supply is expected to meet demand, with
a potential correction forecast for 2011-12.
In its ongoing battle against rapid inflation, the gov-
ernment has imposed a two-year freeze on property
rents, effective from February 15, 2008. This applies to
all rental contracts signed since January 1, 2005 or
after February 15, 2008. The law also lays down guide-
An added advantage in Qatar has been the enact- lines on how much a landlord can increase the rent after
ment of Law No. 2 of 2006, which automatically grants the expiry of the ban (February 14, 2010). It replaces
non-Qataris who own property a residency visa. There- a 10% increase limit set in a previous law issued in 2006,
fore, anyone who owns residential property, subject to which expired on February 16, 2008. According to fig-
the regulations of the foreign ownership law, can apply ures released by the General Secretariat for Develop-
for and obtain a residency permit without a local Qatari ment Planning, consumer prices rose by 13.7% year-
sponsor (subject to normal residency visa conditions). on-year in the third quarter of 2007. Average inflation
Qatari Diar Real Estate Investment Company leads the between 2000 and 2004 was only 2.4%, although it
development stakes in the country with its $6bn Lusail picked up in 2005 to 8.8%, and further in 2006 to 11.8%.
development. Covering an area of 35 sq km, Lusail is Sharply rising household costs, in the wake of a rapid
expected to house a population of over 200,000 when influx of foreign workers, lay behind the jump in the
it is completed in 2016. Qatari Diar is currently involved consumer price index, with the rent, fuel and energy
in over 50 active projects in 30 countries worldwide, category increasing by 28.8% year-on-year in the third
including the UK and France. United Development Com- quarter (after a record 33% rise in the first quarter).
pany is another important player in the Qatari market, Demand for housing units increased by a CAGR of
managing the $2.5bn Pearl Qatar development. The first 8% between 2000 and 2006, while supply grew by a
investors are expected to move into completed resi- CAGR of 5% during the same period. Annual demand
dences in December 2008, while the entire develop- is estimated at 10,000 homes, while only around 5500
ment is expected to be completed in 2011. units per annum have been released into the market
RESIDENTIAL: The Qatar Statistics Authority’s popu- during 2000-06. Construction remains geared towards
lation estimate of 1.45m has posted rapid compound the luxury market, while the majority of the expatriate
growth of 10.8% since 2000. Growth in professional serv- demand is for middle-class housing. Demand in the
ices and hydrocarbons has attracted a class of wealthy high-end market is also picking up, driven by the Qatari
expatriates able to pay rents higher than those found elite, expatriates and foreign buyers from the Gulf look-
in other Gulf Cooperation Council states. The housing ing for a permanent or second home.
shortage in Qatar has been exacerbated due to the dem- Appreciating land values coupled with rising con-
olition of old buildings in the centre of Doha and around struction costs are pushing up the prices of properties
the main arterial roads such as the A, B and C ring in Qatar. However, the rental market has still been able
to sustain gross yields of 10%, in some instances up to
12%. Land prices in areas such as West Bay are now as
Qatar: tourism and hospitality indicators, 2006-11
high as $7500 per sq metre.
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights The demolition of degraded housing units has actu-
(4- & 5-star guests) (%) (days)
ally decreased the stock in the medium term, while
2006 751,223 7.2 2 1,502,446
new buildings get approval and are constructed. There
2007 805,376 7.2 2 1,610,751
have also been problems with bottlenecks in project
2008 863,432 7.2 2 1,726,865
completion. With the tremendous pressure on the sup-
2009 925,674 7.2 2 1,851,348
ply of construction materials, developers have tried to
2010 992,403 7.2 2 1,984,805
import from outside of Qatar, only to find that the coun-
2011 1,107,637 11.6 2 2,215,274
try’s capacity to take in imports is limited. Ports and roads
SOURCE: Local statistical authorities, OBG Research
are at critical mass, while border posts are understaffed.

Oxford Business Group

 QATAR 37

COMMERCIAL: Economic growth in Qatar has result-

ed in expansion of the employment base, with rates of
growth exceptional even by Gulf standards. With an eco-
nomically active workforce of 831,886 in 2007, nearly
60% of the population is employed in some form of work.
Market pressure is reflected in high rents for offices,
especially in West Bay, where new office space is avail-
able from $65-$85 per sq metre per month.
Office demand has dramatically outstripped supply.
Current office stock is approximately 400,000 sq metres
of GLA, with delivery of an additional 90,000 sq metres
anticipated in Doha by the end of the year. Demand for
new offices space is estimated at over 90,000 sq metres
per annum until 2012.
Vacancy rates for prime space are less than 1%, with
occupiers forced to settle for lower-grade space or
build their own facilities. Delays experienced in the
construction sector have delayed a potential market
correction, however, demand will continue to outstrip
supply in the short term. The supply of grade A space
will nearly treble, with the release of 550,000 sq metres
from Fox Hills Lusail, 24,700 sq metres at The Gate, increased by an impressive 27% annually, rising from
80,000 sq metres from the 80-storey commercial Dubai $115 in 2004 to $233 in 2007. Revenue per available
Towers, together with less high-profile developments. room (RevPAR) has increased by 18%, with CAGR from
HOSPITALITY: From a current base of approximately $98 to $161 in the same period. Though occupancy has
965,000 visitors, Qatar hopes to attract 1.5m tourists slipped slightly in 2007, ARRs have climbed by 8% from
by 2010. The government has earmarked tourism as a 2006 to 2007. Analysis indicates that hotel rooms are
key area for development and has supported this by expected to reach 15,000 in 2012 at current estimates,
dedicating $18bn to the sector. The Qatar Tourism and the market could still face an oversupply due to a
Agency (QTA) hopes to increase leisure tourism, which decline in occupancy rates, ARR and RevPAR.
currently stands at 10% of all visitors. RETAIL: Like Dubai, Qatar is also developing destina-
QTA is also aggressively pushing to increase the aver- tion shopping malls. The retail offering in Qatar is
age visitor stay length from one and a half days to four expanding dramatically in terms of scale and the diver-
days by 2010 and is currently concentrating on niche sity of offering. The retail experience is increasingly
markets such as sports, education, medical, and meet- being planned as more of a leisurely event than a shop-
ings, incentives, conferences and exhibitions tourism. ping trip, as evidenced by the gondoliers at Doha’s Vil-
In the hospitality sector, QTA has increased the stock lagio Mall. However, there are criticisms that shopping
of hotel rooms by 50%, from 3700 in 2004 to nearly centres in Doha may be carrying this principle too far,
5500 by the end of 2007. The current stock of hotel with the smaller centres diversifying their offerings to
rooms is expected to increase by a further 9500 by 2012; the extent that they attract patrons who may not actu-
some of the new hotels planned in Doha include the ally intend to shop. City Centre still sets the bar for size,
Hilton, Shangri-La, Four Seasons, Marriott, Rotana and with 116,000 sq metres of leasable area anchored by
Grand Hyatt brands. The national carrier, Qatar Air- Carrefour. The limited availability of space in the retail
ways, has seen a 35% increase in passengers, flying sector has pushed rents up in shopping malls, with
over 8m passengers in 2007. Qatar Airways aims to rents ranging from $500-900 per sq metre per annum
reach a fleet size of 110 aircraft by 2018. in 2007. The rapid economic growth has resulted in
Despite efforts to increase leisure tourism, the mar- increasing rents across the sector. This trend is expect-
ket is likely to remain business orientated. Currently, ed to continue until new supply arrives in the form of
tourism demand is hampered by high prices as a result a 200,000-sq-metre retail space on Pearl Qatar in 2009.
of capacity shortages and the willingness of corporate
guests to pay higher prices. The demand that business-
Qatar: retail indicators, 2006-11
linked tourism created has helped the hotel sector in
Year Population Household consumption Growth rate (%) Inflation (%)
Qatar to realise impressive growth over the past four expenditure ($m)
years, outperforming almost all other markets in the 2006 838,000 9,169 18.5 11.83
region. Including business visitors, total arrivals increased 2007 930,000 11,753 28.2 13.76
by a CAGR of 10% from 2004 to 2007, reaching 965,000 2008 1,032,000 15,674 33.4 11.96
in 2007, against 730,000 arrivals in 2004. 2009 1,146,000 20,766 32.5 9.96
Occupancy rates have been over 80% since 2004. The 2010 1,272,000 27,086 30.4 7.96
year 2007 has been an exception to this rule, since occu- 2011 1,412,000 34,831 28.6 5.96
pancies have slid to 70% from the highs of the Asian
SOURCE: World Bank, IMF, International Macroeconomic Data Set
Games in 2006. The average room rate (ARR) has

THE MARKET Real Estate 2008

38 SAUDI ARABIA

Saudi Arabia
Looking beyond oil, the economy offers more stable investments
With GDP growth expected to reach over 5% in 2008
and a recorded increase in population of about 2.5%
in 2007, the economy of the Kingdom is presently
in the midst of a persistent growth phase. Such a
strong expectation can clearly be achieved with the
acceleration of foreign investment growth through-
out the Kingdom.
OIL: Being a member of the World Trade Organisa-
tion since late 2005, as well as being the prime oil
exporter worldwide, Saudi Arabia has continued to
surpass expectations, with a potential of increasing
total oil capacity to well over 10%. The country cur-
rently holds about 25% of the world’s confirmed oil
reserves. In spite of the huge revenues generated
by oil, the government has embarked on a policy of
economic liberalisation and diversification. Having
witnessed one boom-and-bust cycle in the 1970s
and 1980s, Saudi Arabia is now paying considerable
attention to the task of sheltering the economy
from fluctuations in the price of oil.
REAL ESTATE: According to a report by the Coun-
cil of Saudi Chambers of Commerce, the real estate
industry will achieve 6.7% growth over the next
five years, owing to commercial and residential
projects, in addition to demand for land and hous-
es. Overall, real estate investments more than dou-
bled by the end of 2007 to reach about $26bn fol-
lowing increasing prices and demand, according to
a report by Kuwait-based Global Investment House.
Demand drivers for real estate include high lev-
els of liquidity stemming from generous oil revenues,
a continued preference for investing in the local
market, low interest rates and an increase in bank
credit. Real estate demand is based primarily on
population growth and economic diversification
associated with such large-scale projects as the King
Abdullah Economic City (KAEC), which is proving to
be a sustainable model.
KAEC is the first of six planned economic cities to
be developed on the coast and in Medina, Tabuk,
Rabigh, Hail and Jizan. Each establishment will have
a distinct identity and will contain a combination of
commercial, residential and industrial businesses,
which together are expected to contribute more
than $140bn of the nation’s GDP.
Research in 2008 by the Saudi British Bank shows
that real estate remained the preferred investment
within the Kingdom, with 50% of locals preferring
to invest in real estate at the beginning of 2008, com-
pared to 41% who expected to invest in equities. A
related survey of developers and agents showed
that 90% expected significant growth in the real
estate sector over the next two years.
Major contractors working in Saudi Arabia include:
ABB Lummus Global, AMEC, Aker Kvaerner ASA, ACC,
Astaidi, Bauer, Bechtel, BOUYGUES, Chiyoda, Con-
solidated Contractors, Enelpower, GAMA, Grupo ACS
and Impregilo. The largest real estate developers in

Saudi Arabia: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 23,697,000 2.50 349,138 22,290 5.69 6,384,000 9.1
2007 24,289,000 2.50 376,029 23,243 5.63 6,563,000 9.0
2008 24,897,000 2.50 464,441 24,240 5.57 6,740,000 8.8
2009 25,519,000 2.50 506,017 25,428 5.52 6,922,000 8.5
2010 26,157,000 2.50 551,172 26,707 5.46 7,109,000 8.2
2011 26,811,000 2.50 599,556 28,099 5.41 7,301,000 8.7
SOURCE: IMF, World Bank

Oxford Business Group

 SAUDI ARABIA 39

the local area are Dar Al Arkan, Al Saedan, Olayan

Group, Arriyadh Development and Tamniyat Group.
RESIDENTIAL: With a recorded population of 24.3m
in 2007, along with an average annual growth rate
of 2.5%, the population is projected to double by the
year 2050 due to the continuous arrival of newcom-
ers. The majority come from South-east Asia. In addi-
tion to this influx of new residents, about three-
fourths of the nation are under 30 years old. As a
result, the residential market remains undersup-
plied and there is significant room for future growth.
According to the Saudi American Bank (Samba),
a total of around 2.62m housing units need to be
built between now and 2020 to meet demand. Units
should be released at an average rate of 163,750
per year. In terms of value, the housing sector makes
up 75% of all real estate activity in the country,
according to Samba, adding that some $20bn per
year will be required to meet the annual housing
demand up to 2020. The capital, Riyadh, alone faces
an estimated shortage of 225,000 residential units,
and the overall shortage figure for the country could from 65% to 55%, due to a lack of real estate financ-
be as high as 1m. ing opportunities and the rather small amount of
Growth in the residential sector of up to 7% is loans given by the state-owned Real Estate Devel-
expected under the first phase of the government’s opment Fund. With a figure of 24% home ownership
eighth five-year development plan. The seventh in Saudi Arabia, compared to 95% in Dubai, the new
development plan was completed in 2004 and result- law is expected to prompt one of the largest hous-
ed in an 8% increase in residential units construct- ing booms in the Gulf Cooperation Council (GCC).
ed, with a total of 250,000 units having been added COMMERCIAL: Demand for office space, especial-
to the market. About 6.4% out of the 8% mentioned ly that for grade A offices, is heating up due to the
were self-financed. number of newly established companies and the
The eighth development plan envisages construc- continuing expansion of existing ones. This is expect-
tion of 1m housing units over a span of five years, ed to continue as the Saudi economy opens up and
allowing an increase of more than 300% in housing new investment laws lure in a greater number of for-
units built in comparison to the 2000-04 period. eign investments.
According to the housing demand allocation of the Currently, the lack of office space in prime loca-
eighth development plan, forecasts project that tions, such as Riyadh and Jeddah, has caused a hike
Riyadh and Mecca alone will be home to almost 50% in rent prices. Office space prices in prime locations
of the total units expected to be built, with up to such as King Fahd Road, the main artery in Riyadh,
10% of new construction consisting of commercial have increased from about $180-$215 per sq metre
units of the cumulative units built. to $350 in just the past year.
Average housing prices are increasing by 20% per However, supply and demand for office space is
annum. Rents in Riyadh have increased by at least expected to balance out with the planned arrival of
25% over the past year. In some districts of the cap- a host of projects in Jeddah and Riyadh over the next
ital, residential price increases of 50% and more four years. For example, among a host of other proj-
have been recorded in the year up to mid-2008, with ects, there is the Headquarters Business Park $213m,
sales prices in Riyadh now averaging SR2000- 2500 a 52-storey business tower to be constructed in Jed-
($544-680) per sq metre. Reports have surfaced in dah, which will offer about 280 units of office space.
Jeddah that some real estate owners are increasing In addition, Saudi Arabia’s Prince Khalid bin Al Waleed
rents by 10-50%, while reports of 30% increases on bin Talal Al Saud and the UAE-based real estate
lease renewals have become common.
However, with the exception of the two holy cities, Saudi Arabia: tourism and hospitality indicators, 2006-11
prices in Saudi Arabia are still relatively low compared Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
to other countries in the Gulf region. A three-bed-
2006 4,042,000 7.5 2.0 8,084,000
room flat in central Dubai would cost anywhere from
2007 4,264,645 5.5 2.0 8,529,290
$27,000 to $50,000 per annum; in Saudi Arabia the
2008 4,431,964 3.9 2.0 8,863,927
price would be around $13,000. The July 2008
2009 4,675,613 5.5 2.0 9,351,225
approval of the mortgage law by the Shura Council
2010 4,830,346 3.3 2.0 9,660,692
is being regarded as an important step forward. The
2011 5,078,999 5.1 2.0 10,157,997
Ministry of Economy and Planning estimates that
SOURCE: Local statistical authorities, OBG Research
home ownership dropped in the period 2000-05

THE MARKET Real Estate 2008

40 SAUDI ARABIA

year. On the other hand, room rates in Jeddah tend

to average about 60% of Riyadh prices, making the
rate of a single room at a five-star hotel about $160.
Similar room rates to those in Jeddah are found in
Mecca, Medina and Khobar.
International hotel chains, such as Le Méridien
Hotels and the Kempinski Group, plan to add to the
supply in the Kingdom. Currently, the majority of rev-
enues generated in Saudi Arabia within the hospital-
ity sector come from business and local tourists, due
to the difficulty that women have in entering the King-
dom. Umrah Plus services have been introduced to help
increase the average length of stay of visitors who are
arriving for their yearly pilgrimage to Mecca by includ-
ing leisure tourism as a purpose for those who are only
visiting for worship. The programme gives visitors an
opportunity to tour around other cities in the King-
dom. With these visions successfully being imple-
mented, the tourism sector is expected to reach a
total value of over $25bn in the next decade. Deloitte’s
HotelBenchmark Survey reports that occupancy in
developer KM Properties have forged a joint ven- Riyadh in 2007 was 72.7%, compared to 65.1% in Lux-
ture, which is known as KMPK Properties. The aim or and 76.8% in Muscat. Average room rates were
of this venture is to create approximately 16,000 new $183, a 29.8% change from the previous year, with a
housing units within the next five years. revenue per available room of $133, which represents
HOSPITALITY: Increasing visitor arrivals each year a 34.9% change from 2006.
have always been a challenge for the government RETAIL: As the largest retail market in the GCC
because of its interest in maintaining the Kingdom’s region, Saudi Arabia has welcomed foreign invest-
unique cultural and social integrity. An increase in ment from overseas. Over the next six years, avail-
non-religious tourism has the potential to compro- able retail space will nearly double, and much of it
mise the religious views of the Kingdom. To tackle will move out of Riyadh and Jeddah, and into small-
this, the Kingdom established the Supreme Commis- er cities and outlying regions. By 2010 Saudi Arabia
sion for Tourism, which is solely responsible for giv- will supply close to 40% of total gross leasable area
ing all aspects of tourism relatively equal attention. (GLA) in the GCC.
Tourism and hospitality attractions that have been The Fawaz Alhokair Group controls one of the
identified include diving at the Red Sea, and leisure largest mall networks in the country. The group now
tourism in cooler climates close to the border with has about 50 international brands in its portfolio
Yemen. The tourism commission proposed a devel- including Zara, Massimo Dutti, Promod, Adams, Aldo
opment project in the desert, with about a dozen and Monsoon. Fawaz Alhokair Group malls have a
tourist sites situated in mountainous locations. combined GLA of over 700,000 sq metres – about
Recently, tourism development plans in Jeddah have 30% of the total mall GLA in Saudi Arabia – with plans
been approved by Prince Khalid Al Faisal. to open 12 more malls by 2013.
New initiatives under the Jeddah Tourism Devel- French supermarket chain Carrefour has said it will
opment Plan include the establishment of a large- open four new outlets in Saudi Arabia before 2009.
scale tourism project in Jeddah, the expansion of The hypermarkets will be located in Jeddah, Taif,
regional festivals and the listing of the historic city Riyadh and Medina, while Saudi Carrefour, a joint ven-
as an international heritage site. ture between the Olayan Group and the MAF Group,
Due to the shortage in the supply of rooms in is aiming to establish an additional 20 stores across
Riyadh, room prices are at peak rates throughout the the Kingdom by 2015.
French retail chain Géant plans to double its exist-
ing representation in Saudi Arabia by opening five
Saudi Arabia: retail indicators, 2006-11
new stores in 2008, with new outlets planned for
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
Riyadh, which already has two, and Mecca. Further-
2006 23,697,000 98,694 21.0 2.31
more, Saudi Arabia-based Al Sadhan Trading Com-
2007 24,289,000 109,840 11.3 4.11
pany has said that it plans to open 20 hypermarkets
2008 24,897,000 124,248 13.1 6.20
in the Kingdom within the next three years. Mean-
2009 25,519,000 143,055 15.1 5.60
while Savola Group, which manages 14 shopping
2010 26,157,000 161,913 13.2 5.00
malls in Saudi Arabia, has signed a memorandum of
2011 26,811,000 184,276 13.8 4.50
understanding for the first phase of a retail devel-
opment at Medina’s Knowledge Economic City, cov-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
ering over 100,000 sq metres in a deal worth $133m.

Oxford Business Group

 41

Middle East
Jordan
Lebanon
Syria
Turkey
Yemen
42 JORDAN

Jordan
Great potential for further development remains in certain areas
Jordan’s economy experienced high growth rates in
2005 and 2006 – 7.3% and 6.3% respectively, with
growth slowing only slightly in the last two years –
5.7% in 2007 and an estimated 4.8% in 2008. The
growth has been the result of excess liquidity in the
region due to high oil prices and the return of Arab
funds back into the Middle East following the Sep-
tember 11, 2001 terrorist attacks on New York. Polit-
ical unrest in the region has led to many wealthy Iraqi
and Lebanese expats relocating to Jordan, which is
also being used as a gateway to Iraq by foreign firms,
UN agencies and non-governmental organisations.
A number of governmental measures, like the
Investment Promotion Law, which grants tax exemp-
tions and allows repatriation of capital and profits,
are helping to create an investment friendly environ-
ment. There are few restrictions on foreigners own-
ing property or investing in Jordan; any foreigner can
purchase a house or land in Jordan, provided they wait
five years before selling. Permission to buy general-
ly does not take more than 10 days to obtain.
Jordan is seeking further ways to stimulate and
encourage investment and development in the coun-
try. The king has called for the implementation of a
complete land-usage plan for the entire kingdom,
which will make it clear to investors where opportu-
nities exist; it has designated areas for agricultural,
tourism, industrial, housing and urban development.
All these factors have resulted in a buoyant real
estate sector. During the first quarter of 2007, the
construction sector’s contribution to GDP increased
to JD74.8m ($106.2m) compared with JD69m ($98m)
recorded for the same quarter in 2006. According to
the Department of Land and Surveys, the total val-
ue of real estate transactions in the first six months
of 2007 was JD2.96bn ($4.2bn), representing a 23%
rise when compared to the same period in 2006.
Recent investments in the country are estimated
to exceed $13bn, while planned investments over
the next five years are reported to be around $15bn.
A number of mixed-use residential and tourism proj-
ects are under development in Amman, Aqaba and
the Dead Sea. Tala Bay, Ayla Oasis, Royal Village and
Jordan Gate are major upcoming projects in the king-
dom. Aqaba has seen dramatic growth and is an area
marked for particular investment, especially in the
residential and hospitality sectors. The town has seen
the development of a series of coastal resorts, with
a mix of residential, hotel and high-end leisure devel-
opments, including the $6bn project Saraya Aqaba.
However, the market has been showing signs of a
correction since the beginning of 2008, with land and
property prices stabilising and, in some areas such
as the airport corridor, prices have even declined
slightly. The correction has been anticipated ever
since the beginning of 2007, as the increased prices

Jordan: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 5,599,000 2.30 14,101 4606 5.21 1,512,000 13.2
2007 5,728,000 2.30 16,011 4886 5.12 1,563,000 13.5
2008 5,859,000 2.29 18,508 5140 5.01 1,615,000 13.0
2009 5,994,000 2.30 20,855 5413 4.90 1,667,000 12.9
2010 6,132,000 2.30 23,062 5712 4.78 1,719,000 12.0
2011 6,273,000 2.30 25,354 6044 4.68 1,771,000 11.0
SOURCE: IMF, World Bank

Oxford Business Group

 JORDAN 43

were not believed to be sustainable. Additionally, the

ban on Iraqis from owing properties in the country
has negatively impacted demand.
However, real estate experts expect that the mar-
ket has strong fundamentals and so demand and
prices will start picking up towards the end of 2008.
Expectations for the long term are positive.
RESIDENTIAL: The residential market in Jordan is
undersupplied and is saturated with middle-income
housing units, which are delivered rapidly, creating a
surplus market. Thus, demand is greatest at the high-
est and lowest deciles of the housing market.
A number of factors are largely responsible for the
high demand for housing. The population is current-
ly growing at a rate of 2.3% and is expected to dou-
ble in the next 25 years. Jordanians are also very
young, with a median age of just 24 years and 32%
are under the age of 15 years. Changes to the land-
lord and tenant laws have led to the expectation of
higher rents, as people fearing significant rental
increases have been opting to buy. Attractive mort-
gage packages with low interest rates (12.7% in 1999, space lacking in market appeal. Unsurprisingly, many
falling to 8-9% in 2007) and longer payment sched- tenants opted instead to convert space in villas or
ules have also boosted the sector. apartments. A high proportion of current demand is
Selling prices for a high-end villa in Abdoun range driven by companies and non-governmental organ-
between JD1700 ($2400) and JD2000 ($2800) per isations operating in Iraq.
sq metre, while annual rentals range between JD80 With demand increasing and a limited supply, the
($110) and JD100 ($140) per sq metre. Rental yields rental costs for office space have increased, on aver-
are estimated to range between 7.5% and 9.5%, while age, by an estimated 30-50% since 2003. Among the
upscale, well-serviced properties command yields of newer and higher quality grade A on Mecca Street,
as much as 12%. Occupancy rates for residential prop- rents have increased by as much as 56% between 2006
erty range from 70-90%, with areas like Abdoun and and 2007. Commercial yields in Amman are estimat-
Jabal Amman enjoying occupancy rates in excess of ed to range between 9% and 11%.
90%. Apartment rentals in Jebel Amman rose by over The undersupplied position is expected to change
150% between 2004 and 2006, while villa rentals as in the next few years, once the Abdali project reach-
well as sale prices rose by over 90% in Dabuq. Rents es completion. The Abdali project alone will cater to
have risen by a compounded annual growth rate more than half of the market demand. Other upcom-
(CAGR) of 65% between 2004 and 2007, but have ing commercial projects are the Jordan Gate, the
started stabilising towards the end of 2007. Grand Amman Financial Complex and the Mihrath
Annual demand for residential units in Amman project by the Kurdi Group.
varies from 20,000 to 30,000 units; whereas between The price increases since 2003 are not sustain-
19,000 and 24,000 units are believed to be construct- able and further hikes should not be expected, as the
ed every year. Up to 10% of this demand is derived massive pipeline supply and a downturn in the eco-
from the high-end sector, which sees only half the nomic cycle could serve to dampen price growth.
demand being fulfilled with new supply every year. However, in the short term, further increases are like-
Upcoming projects are expected to contribute to a ly, with Mecca Street reaching a potential of JD160
high-end supply in excess of 2000 units between ($230) per sq metre in the next six months. OBG
2008 and 2013. Though demand for these units will Modelling suggests that grade A supply is expected
increase, returns are expected to be higher for mid- to grow by over 250% between 2008 and 2013, which
dle- and low-income housing as developers ignore
this sector, with Beitna City and Al Jiza being the only
Jordan: tourism and hospitality indicators, 2006-11
two significant developments targeting the group.
COMMERCIAL: Jordan’s favourable legal environ- Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
ment, with numerous free trade agreements, free
2006 895,724 -6.7 3 2,687,173
zones and incentives for foreign investors, as well as
2007 1,002,541 11.9 3 3,007,624
the stability of the economy, has resulted in a dra-
2008 1,069,299 6.7 3 3,207,896
matic increase in the number of new companies
2009 1,149,741 7.5 3 3,449,223
being registered. However, until very recently, there
2010 1,232,295 7.2 3 3,696,886
was little grade A office space available in Amman.
2011 1,320,389 7.1 3 3,961,168
Office supply was instead concentrated in three-
SOURCE: Local statistical authorities, OBG Research
and four-storey buildings, which offered small office

THE MARKET Real Estate 2008

44 JORDAN

Aqaba Saraya Hotels, Kempinski Hotel and Holiday Inn

are some of the upcoming hotels.
The Dead Sea is becoming a popular stop on upmar-
ket group tours of Jordan, though average stay lengths
are typically short. The market is concentrated on the
luxury hotel and spa experience. But forthcoming
supply (Sun Days, Holiday Inn, Sanabel, Crowne Plaza,
Belavista and Crystal Citi) will make the hospitality
market in the Dead Sea highly competitive.
Together, these new projects are expected to come
close to saturation of the hospitality market in Amman,
Aqaba and the Dead Sea. Nevertheless, it is worth
noting that the north of the country still remains
largely underdeveloped in terms of sizeable projects,
which are limited to Qatar’s “The Wall”, which is a
tourist resort in Ajloun. Opportunities still exist in
the north of the country; places such as Ajloun, Jerash,
Irbid, Karak and Umm Qais are virtually untouched.
They require hotels and the government has offered
additional incentives to investors in these areas.
is expected to dampen rents as the market moves RETAIL: Traditionally, the downtown area has been
towards a huge oversupply situation. Amman’s principal shopping destination. Neverthe-
HOSPITALITY: Jordan has continued to see a healthy less, the high-end retail market has followed the res-
flow of foreign visitors entering the country, with the idential development of the city westwards and a
number of foreign arrivals increasing by 8% in 2006 number of malls have been built to cater to the needs
to reach 3.2m. According to information provided by of the western suburbs.
the Jordan Tourism Board, the number of tourist Climate-controlled malls have sought to appeal to
arrivals in Jordan is expected to grow at an annual wealthy Jordanians who have traditionally travelled
rate of 7% by 2010. Amman is the top destination for abroad for their shopping experiences. The first mall
foreign visitors to Jordan and accounts for approxi- that opened its doors in 1999 was the relatively small
mately 67% of the hotels in Jordan. Amman Mall, with approximately 75 shops. The
Amman has a total of over 5000 four- and five-star Abdoun Mall, which opened in 2001, is part of Jor-
rooms enjoying an average occupancy of 62%. Fur- dan’s Kurdi Group, which in 2003 opened Amman’s
ther expansion within the sector is expected and first grand mall, the 65,000-sq-metre Mecca Mall.
OBG forecasts capacity to exceed 7000 rooms by The development was a huge success and was lat-
2013 with hotels such as Hilton, Rotana and W com- er extended to 195,000 sq metres, allowing the shop-
ing into the market. Approximately 2000 rooms are ping mall to accommodate a series of leading inter-
expected to enter the high-end segment between national brands, as well as a food court and a
2008 and 2013, resulting in a decline in the average go-karting track on the top floor. Other local shop-
occupancy rate to just over 50% by 2013. ping malls include the Zara Centre, Abdoun Mall,
Other locations are also gaining prominence. Aqa- Amman Mall and Istiklal Mall.
ba has been experiencing renewed interest from While Amman’s shoppers have embraced mall and
tourists, while a number of international developers supermarket shopping, high footfalls do not neces-
are working towards building room infrastructure to sarily translate into high per-capita spending. The
accommodate the increased demand. Occupancy rising cost of living is one of the major reasons for
rate in Aqaba are higher than in Amman, although a the slowing in retail spending.
large number of developments coming online over Annual rents in malls range between $500 and
the next few years may change the situation. SAS $1000, with the most expensive commercial spaces
Radisson, Hilton International, Iberotel, Ayla Hotels, to be found in Abdoun Mall and the least expensive
in Amman Mall. Rents have reportedly risen at a CAGR
of 36% between 2004 and 2007.
Jordan: retail indicators, 2006-11
There is a high volume of indoor shopping space
Year Population Household consumption Growth rate (%) Inflation (%)
under development in Amman: Al Baraka Mall, Beit-
expenditure ($m)
na Mall, Taj Mall, Jordan Mall and the Abdali Boule-
2006 5,599,000 13,852 13.5 6.26
vard. These new projects are estimated to double the
2007 5,728,000 15,514 12.0 5.39
total volume of organised retail space from 600,000
2008 5,859,000 17,376 12.0 10.87
in 2008 to over 1.2m-sq-metres by 2013. Retail space
2009 5,994,000 19,461 12.0 6.51
per capita is modelled to reach 0.46 sq metres in
2010 6,132,000 21,796 12.0 4.32
2013, which is considered relatively high when com-
2011 6,273,000 24,412 12.0 3.72
pared to other regional markets, indicating that
SOURCE: World Bank, IMF, International Macroeconomic Data Set
the market might be moving towards an oversupply.

Oxford Business Group

 LEBANON 45

Lebanon
Things have turned around for the real estate sector
The real estate sector in Lebanon is currently con-
sidered more stable than it has been in recent years.
It is accepted wisdom that cash has been flowing in
the country since the early 1990s as a result of inter-
est from buyers from Gulf Cooperation Council (GCC)
countries. Lebanon’s population this year is estimat-
ed to be around 3.7m, with around 40-45% of the
population living in the capital, Beirut. An increase
of over 8% in GDP and 6% in inward remittances was
recorded in 2007. Up until the time of writing, infla-
tion has risen to at least 7% during 2008.
Political stability has been extremely fragile over
the years, leading to a number of events that have
traumatised the nation. Nevertheless, developments
in the capital and neighbouring districts have not
slowed down. Despite all the recent political sensi-
tivities, construction activity does not appear to have
been affected in the capital.
Lebanon has six governorates: Beirut, Beqaa,
Nabatiyeh, North, South and Mount Lebanon. The
most popular destinations for the majority of for-
eigners are Beirut and Beqaa.
Interest rates on deposits have generally been
stable following the substantial increase that took
place in early 2005. Foreign trade exports have
remained relatively stable over the past four years.
Imports dropped off significantly in July 2006, but
other than that decline, imports of goods have
increased by 50% in 2008 compared to four years ago.
KEY DEVELOPERS: A substantial number of local
developers have been taking part in projects in the
residential and commercial sectors recently, includ-
ing Solidere, Jacques Matta, Mouawad Projects, CARE
Group, SAYFCO, BREI, Horizon Development and Ven
Invest Holding. Foreign developers that have entered
the market and established themselves in Lebanon
include Abu Dhabi Investment House, Kingdom Hold-
ing and Kempinski Hotels.
Most of the projects are financed heavily by com-
panies and investors that originate in the GCC and
the tremendous amount of investments made in the
central district has facilitated the successful com-
pletion of the majority of projects. DAMAC has pur-
chased a total area of 500,000 sq metres and has
future plans to transform it into residential units,
shopping malls and hotels.
Local developers have also been introducing a
higher standard of commercial and residential space.
This trend is being pioneered by local developer,
Jamil Ibrahim, who has been developing several of
the most luxurious residential buildings in the cen-
tre and outskirts of Beirut, including the Dream Bay
and Sky Homes developments.
RESIDENTIAL: The Lebanese real estate sector is one
of contrasts: from the brilliant success story of the
development of the downtown area, to continuing
troubles over redevelopment of wartime damage
elsewhere; from rocketing land and property prices

Lebanon: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 3,703,000 1.31 22,759 10,692 4.19 2,443,980 1.4
2007 3,751,000 1.30 24,640 11,270 4.14 2,475,660 1.4
2008 3,799,000 1.28 26,775 11,690 4.09 2,507,340 1.4
2009 3,849,000 1.32 29,103 12,277 4.04 2,540,340 1.4
2010 3,899,000 1.30 31,745 12,961 3.98 2,573,340 1.4
2011 3,950,000 1.31 34,365 13,719 3.93 2,607,000 1.4
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

46 LEBANON

ple from the Gulf. Citizens in the capital prefer to rent

homes rather than own them.
On the other hand, in the east and north of
Lebanon ownership of traditional houses is very pop-
ular. Not only do prices tend to fall outside Beirut,
but also many families have owned the houses they
do today for more than 30 years. There are also sev-
eral prime locations around Beirut that are highly
populated with luxurious villas and apartments,
including Al Rabieh, Achrafieh and Adma.
COMMERCIAL: The lack of high-end office space in
Lebanon has been building up over recent years and
many potential tenants have been left in great need
of new premises. Many international firms expect to
set up branches in Beirut in what they consider to
be quality premises in 2008. The shortage of quali-
ty in office buildings has been the main reason that
rents for commercial spaces rose by 20% in 2007.
Buying prices now could reach as much as $5000
per sq metre in central Beirut. Renting out a 30- to
50-metre office could cost anything from $500 per
in the capital, to a flat-at-best housing market in oth- month to around $900, depending mainly on the
er towns and cities. In rural areas too, the contrasts location. Office supply in 2007 in Lebanon was esti-
can be stark: between investment in high-end moun- mated to be approximately 320,000.
tain villas and resorts, to underinvestment in the International standard space remains concentrat-
isolated villages of the north and south. ed in the central business district, although rising
With an average annual population increase of costs and the rehabilitation of buildings in central
almost 2%, a decrease in average household size areas is now forcing some occupiers from central
from 4.2 to 4.1 in 2007 and an estimated supply of Beirut to move to outlying areas. Construction for
over 160,000 residential units in the city alone, it retail, residential and commercial purposes has been
appears that the number of single people renting moving towards the centre of Beirut because of its
out studios and one-bedroom apartments is increas- prime location. This has forced several firms leasing
ing, and that the tradition of living with the family space to relocate mainly to the south and north of
until marriage is slowly becoming less popular. Beirut. These businesses are now outside the city cen-
Occupancy of studios and one-bedroom apart- tre, although they are still close enough for their
ments around university campuses is over 95% clients to reach them. Rental prices on the city’s
throughout most of the year — a popular alterna- outskirts could be as low as 60% in comparison to
tive for students to residing outside Beirut and hav- those in the centre of the capital, which could affect
ing to commute every day to university. the profits of small businesses in the long run.
The increase in the price of steel and several oth- This relocation has not been a serious problem for
er materials has affected construction costs world- banks and larger tenants, which still occupy vast
wide. Rental and buying prices throughout Lebanon office spaces and entire floors in many downtown
have been affected significantly over the past eight areas. Nevertheless, a few areas have shown great
months, increasing by over 25%. promise and high demand, such as Verdun and
Prices in prime locations in Beirut start at around Ashrafieh, where high-end office space is available.
$1300 per sq metre and can reach as much as $3500 Prices have doubled in these areas on account of
per sq metre, which is making it harder for residents their strategic locations. They have a huge poten-
to buy homes. However, villas and apartments in tial of becoming the most sought-after spots in the
prime locations are mostly second homes for peo- capital after the central district.
Another widely popular way of setting up an office
in Beirut is renting out apartments and fitting them
Lebanon: retail indicators, 2006-11
with office facilities, which saves money for tenants,
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
since prices for office space are noticeably higher.
2006 3,703,000 19,190 3.2 5.57
Getting a license and setting up a real estate office
2007 3,751,000 20,048 4.5 4.06
or workstation in one’s own home is also popular in
2008 3,799,000 20,650 3.0 5.50
the more mountainous areas around Beirut.
2009 3,849,000 21,382 3.5 5.29
HOSPITALITY: Before 1975, at the zenith of the
2010 3,899,000 22,167 3.7 4.87
industry’s success, tourism contributed around 20%
2011 3,950,000 22,922 3.4 3.76
of GDP, peaking in 1974 with 1.4m arrivals. Lebanon
was a Mediterranean playground for rich Western
SOURCE: World Bank, IMF, International Macroeconomic Data Set
Europeans who jetted in for beaches, yachts, world-

Oxford Business Group

 LEBANON 47

class historical sites and a seductive mingling of East

and West. The war halted this trade and reduced both
the industry and the country to rubble.
But since the war ended in 1990, the industry has
steadily rebuilt itself. After the recent presidential
elections, the potential of the hospitality sector has
looked promising. With the economy regaining its
strength from the tourism sector, it is estimated to
soon account for over 10% of the total GDP.
The hospitality sector was affected greatly in the
July 2006 war when thousands of tourists fled back
to their countries and thousands of other reserva-
tions were cancelled. Tourism was still down by the
end of 2006 because visitors were advised not to trav-
el to Lebanon and they remained uncertain about
the future stability of the country.
With the election of President Michel Suleiman,
the situation in Lebanon has become far more sta-
ble and tourists are feeling far more secure. With
occupancy rates in 2007 still low, hotels could just
cover their costs, but did not expect profits.
However, visitor arrivals have picked up signifi- ulation welcomes international brands, many of
cantly in 2008 and with tourism this year considered which use Lebanon as a springboard into the Gulf.
stable, total arrivals are projected to reach 1.5m. The A number of popular malls in Beirut have estab-
Ministry of Tourism has pointed out that tourism lished and developed a well recognised name for
has gone up by approximately 75% with an evalua- themselves throughout the country, including the
tion of year-to-date comparison. The tourist visitor ABC group, which has opened in Ashrafieh, Dbayeh,
count has been increasing since the beginning of the and Bab Idris in downtown Beirut. City Mall, anoth-
year, with more than 30% of the arrivals coming from er successful establishment, covering 70,000 sq
neighbouring Arab countries and most of the rest metres of land, is located in north-east Beirut. The
coming from Asia and Europe. continuous success of ABC group has allowed it to
Hotels are currently working to regain the occu- open yet another branch in Amman.
pancy levels they once had. They have been reduc- The retail sector was heavily affected by the July
ing prices and offering room rates at about 80% of 2006 war. A few recognised brands were forced out
the price of the Middle Eastern average, a 30% year- of the capital, which significantly lowered footfall in
on-year decrease on Lebanese room rates. 2006. This change shifted the spotlight to other
In the mountains, hotels tend to combine with neighbouring areas. Despite the movement away
resorts. Most are not considered five-star hotels, from the capital by retail outlets, rents in the cen-
but they fill the gap and meet visitor expectations. tral district are still higher than in most other areas.
There are tourist sites that receive thousands of One of the latest possible developments planned
visitors yearly, including the famous six-column tem- for completion in early 2009 is the Beirut Souks. It
ple ruins that were constructed from the Roman is located in the central district, covering over
period, Jupiter Temple, The Great Court and Jeita 100,000 sq metres of rental space. With the open-
Grotto. These are just some of the attractions that ing of Beirut Souks, the developers hope that the
have given Lebanon a unique reputation as a place high-end souks will become a destination shopping
where people of all ages and interests can enjoy his- centre, justifying its high rents. With the political
torical sites or leisure tourism. situation becoming more stable in 2008 and
RETAIL: The gross leasable area for retail in Lebanon tourism taking off once again, it is expected that
is estimated to be in excess of 340,000 sq metres. the market will return to its previous conditions.
The retail industry in Beirut has always been recog-
nised in Lebanon for the sophisticated internation-
Lebanon: tourism and hospitality indicators, 2006-11
al brands it is able to offer customers. The residents
of Beirut have always been very fashion-conscious Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
and the latest trends are closely watched by young
2006 212,400 -6.8 2.5 531,000
Lebanese in most urban centres, which makes it easy
2007 238,313 12.2 2.5 595,782
for international brands to enter the market and
2008 267,387 12.2 2.5 668,467
establish themselves in retail outlets.
2009 300,000 12.2 2.5 750,000
Research shows that incoming tourists often set
2010 336,600 12.2 2.5 841,500
a separate budget for buying clothes, with Beirut tra-
2011 377,665 12.2 2.5 944,163
ditionally one of the Middle East’s first destinations
SOURCE: Local statistical authorities, OBG Research
for high-end shopping. The fashion-conscious pop-

THE MARKET Real Estate 2008

48 SYRIA

Syria
Gradual and steady growth
Economic growth in Syria has been consistent for
the past five years at an average rate of 5%. Nomi-
nal GDP grew by 18% in 2005 to reach S£1.48bn
($28m), the highest growth rate recorded by the
country over the past few years. The IMF also pre-
dicts a real GDP growth rate of 3.7% and 4.6% for
2007 and 2008, well below the government’s own
projections of more than 5%. Syria is not a major oil
producer in the region or on the world stage, but
the sector remains crucial to the economy, con-
tributing 50-60% of total export earnings and up to
25% of GDP. The economy is also heavily reliant on
the agricultural sector, which accounts for approx-
imately 26% of GDP and employs around 18% of the
labour force. Industry and manufacturing account
for 18% of GDP, with growth in the textiles sector
being the most significant, accounting for 35% of
the total Syrian industrial sector.
CHALLENGES: The country faces a number of fis-
cal challenges, in addition to the problem of declin-
ing oil revenues. A number of economic reforms
have been introduced to counter these challenges.
The recently approved five-year plan has reinforced
reform, stressing the importance of further trade lib-
eralisation, engagement with the outside world, the
freer flow of goods and the need to attract foreign
investment. Syria’s foreign direct investment as a
percentage of gross fixed capital formation climbed
to 10.6% in 2006 from just 3.6% in 2003. This reflects
the very serious attention that is being paid to Syr-
ia by other Arab and foreign investors who are look-
ing for new investment opportunities.
Through these reforms, the government aims to
accelerate growth to an annual rate of 7% by 2010,
lower the unemployment rate to 8% by 2010 and
reduce the number of people living in poverty. Many
reforms are aimed at improving financial interme-
diation, enhancing the business environment in the
non-oil sector, unifying the exchange rate, and
strengthening the monetary policy framework as a
means to reinforce market mechanisms in the pric-
ing of financial assets and ensure the most efficient
allocation of private sector savings. As a result of
these goals, more international companies are now
looking to establish a presence in Syria.
CONSTRUCTION: The government has traditionally
dominated the country’s construction sector. While
it still holds the lion’s share of development, it has
decreased its control in the past few years and has
worked to encourage the development of private sec-
tor investment. In 2005 the total amount of construc-
tion area in Syria stood at 16.4m sq metres, which
represented a compound annual growth rate (CAGR)
of 55% since 2002. Contractors regard 2006 and
2007 as the beginning of a phase of real growth.
These years were marked by the entry of a signifi-
cant number of high-profile Gulf investors funding
major development projects around the country.

Syria: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 18,941,000 3.19 34,919 1844 5.40 5,316,000 12.5
2007 19,405,000 2.45 37,760 1946 5.40 5,462,000 12.5
2008 19,880,000 2.45 41,923 2109 5.40 5,612,000 12.5
2009 20,368,000 2.45 43,369 2129 5.40 5,767,000 12.5
2010 20,867,000 2.45 45,033 2158 5.30 5,772,791 12.5
2011 21,378,000 2.45 46,676 2183 5.30 6,003,865 12.5
SOURCE: IMF, World Bank

Oxford Business Group

 SYRIA 49

Opening up the private sector is part of an over-

all government strategy to counteract the effect of
falling oil revenues by encouraging investment in
other sectors. Construction and real estate have
been targeted as two essential areas that are ripe
for development. Most such activity has so far been
concentrated in Damascus, with increasing activity
being seen in Aleppo and other secondary cities.
Planning has also taken a step forward, with region-
al authorities working on the planning documenta-
tion and strategy that are needed as development
activity across the country.
RESIDENTIAL MARKET: Data from the Syrian Bureau
of Statistics has shown that the number of residen-
tial units has risen from around 400,000 in 1970 to
over 2m in 2006 at a CAGR of 4.6%, while floor area
in square metres has gone up from 35m in 1970 to
212m in 2006, showing a CAGR of 5.1%.
Residential prices in the prime suburbs of Dam-
ascus, such as Malki, Mezzeh and Kaffersusse, are
between $3000 and $4000 per sq metre, while prices
in low- to middle-income areas tend to cost $1000 Many companies in Syria choose to rent residen-
per square metre and up. Rents per sq metre begin tial space and use it as an office. Major companies
at $100 per sq metre per year and climb to close to have had difficulty in finding not only the right type
$400 per sq metre in Abu Roumani. of office space, but also the right size. Shell was
The residential market reflects the recent changes originally housed in the Cham Palace Hotel for a
to both the Syrian economy and demography. Res- number of years until the government constructed
idential supply has gone up from 2m sq metres in office space for the company outside of Damascus.
2001 to over 15m sq metres in 2007. Housing prices The Areeba mobile phone company sought to obtain
in the capital, Damascus, rival those in European 20,000 sq metres for its business and has only man-
capitals, while Aleppo too has been witnessing con- aged to satisfy this partially by spreading itself across
siderable increases in rental and sales rates. New some 20 different locations.
Aleppo, Hamdanieh and Shahba have been witness- In Aleppo there is no current availability of grade
ing a construction surge with luxury villas and apart- A office spaces although it is expected that the Tariq
ments in high demand. bin Ziyad area would accommodate office spaces in
Residential prices in secondary cities are report- this category. Due to a serious lack of office spaces
ed to have risen by over 20% in the last two years, with good infrastructure facilities, many offices are
while rentals have increased by up by 40%. Average moving to residential areas. Grade B and C office
rental yields sampled across Syrian cities are still rel- spaces are available in Jameliah and Aziziah, both for
atively low, at 4-5%, a result of the propensity to renting and buying. Also once the two Awqaf build-
purchase homes rather than rent. ings are complete there will be a flow of affordable
The large youthful population is in need of low- office and retail spaces in the market. As estimated
to middle-income housing. The Iskan Al Askari Hous- by OBG, the current vacancy rates in existing build-
ing Association announced an apartment develop- ing in both Aziziah and Jameliah are 10%.
ment near Bab Jnien in Aleppo with a mere 186 units, RETAIL SECTOR: Syria is classified as a mid-income
but saw interest from over 16,000 individuals, illus- country by the World Bank, with striking disparities
trating the shortage of lower income housing. It is between the various components of society. The
reported that over 170,000 people are on the wait- bottom 20% of Syrians account for only 7.24% of total
ing lists of housing associations in Aleppo alone. expenditure, whereas the top 20% account for
OFFICE SECTOR: The structure of the Syrian econ- 45.25%. Public sector salaries are low, although 2007
omy limits private sector participation, with a result-
ing lack of prime office space across the country, even Syria: tourism and hospitality indicators, 2006-11
in the capital city. Damascus Tower, situated next to Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
Martyrs’ Square in the heart of the capital, is regard-
2006 1,110,054 10.0 1.8 1,998,097
ed as prime space. The 24-storey tower offers some
2007 1,221,059 10.0 1.8 2,197,907
550 offices and has an occupancy rate of over 90%,
2008 1,343,165 10.0 1.8 2,417,698
despite the fact that the building is hopelessly out-
2009 1,477,482 10.0 1.8 2,659,467
dated – offices measure a mere 35 to 40 sq metres,
2010 1,625,230 10.0 1.8 2,925,414
the building is in serious need of renovation, park-
2011 1,808,204 11.3 1.8 3,254,767
ing is inadequate and there is no provision of ameni-
SOURCE: Local statistical authorities, OBG Research
ties, such as wireless or broadband internet.

THE MARKET Real Estate 2008

50 SYRIA

extension building supplying a huge increase In Dam-

ascus, between 400,000 and 440,000 sq metres of
leasable area will be delivered to the market by 2012,
adding to the 41,500 sq metres that currently exist,
and contributing to an increase in the city’s space
per capita from 0.0009 sq metres to 0.09 sq metres.
Shopping City and Aziziyah Centre are the primary
shopping centres in Aleppo, while New Town and
Safeway are its first hypermarkets. Apart from these,
the city lacks formal retail space, with OBG estimat-
ing supply to be less than 20,000 sq metres. A num-
ber of malls are currently under development in the
city and if all these projects are completed, supply
of retail space will witness a tenfold increase to
200,000 sq metres by 2012. Per-capita space in Alep-
po is expected to rise from 0.005 sq metres to 0.033
sq metres in 2010 and 0.039 sq metres in 2012.
The $50m Shahba Mall, Manar Mall, Town Mall,
Mounchieh Mall, New Mall, High Education Mall,
Martini Mall, Cairo Mall and Royal Mall are among
the projects under construction.
did see the minimum wage being raised from S£4800 HOSPITALITY: With less than 40,000 beds nation-
($100) to S£5880 ($123) per month. wide, many of poor quality, the hotel sector is sig-
RETAIL: Retail in both Aleppo and Damascus was, nificantly underdeveloped in Syria. Currently the
and often still is, centred on its historical souks, country has 17 five-star hotels, 37 four-star and 54
street trading and local markets. Both cities do have three-star. Only a few foreign brands operate in the
a few boutiques, fashion outlets and higher-class country at present – Sheraton, Le Meridien, Four
retail in high-end residential areas like Mogambo in Seasons, Rotana and Sofitel. In addition, there is a
Aleppo and Malki in Damascus, but these are more local Cham Palace chain of five-star hotels, which
the exception than the rule. Syria is still quite unde- includes two hotels in Damascus, and a smaller Semi-
veloped in Western retail terms when compared with ramis chain of four- and five-star properties.
its neighbours in Jordan, Lebanon and Turkey, despite More than half of Syria’s hospitality supply is locat-
the current economic downturn in Lebanon follow- ed in Damascus, with four five-star and 11 four-star
ing continuous political tension in Beirut. hotel establishments totaling just over 2500 rooms.
There are no internationally operated retail cen- With the influx of business and leisure tourists to
tres in Syria but the pipeline indicates a number of the country, supply is often limited during peak sea-
Gulf and Arab joint ventures with Syrian government sons. In view of further growth, investments in hotels
bodies. Many of these investment projects are incor- are flourishing with over four new high-end hotels
porating a retail component. that will be integrated into mixed-use developments
Retail centres now open in Damascus are all under being planned in Damascus.
20,000 sq metres, with Town Centre’s 20,000-sq- PAYING A PRICE: Hotel rates are comparatively steep
metre extension the most sizeable project. The exten- for the existing quality of facilities and services. At
sion opened in 2006 and the 9000-sq-metre City Cen- present, the average standard rate for a five-star
tre, the 3500-sq-metre Town Centre, the 10,000-sq- room is $158 per day and $117 per day for a four-
metre Shams Centre and the 6000-sq-metres at star room, a record 20% to 40% rise, respectively, over
Skiland were released in 2007. 2006. However, average revenue per available room
In the last few years, Damascus has seen a rapid across the market was just $86, up 22% on 2006, The
growth of retail supply, with the addition of the highest standard rate is posted by the Four Seasons
Shams Centre and Town Centre’s 20,000-sq-metre Hotel in Damascus, which charges up to $255 per
day, almost 50% to 65% above what other similar
establishments charge, suggesting that many visi-
Syria: retail indicators, 2006-11
tors are happy to pay a premium for luxury.
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
The average hotel occupancy throughout the year
2006 18,941,000 20,395 7.5 10.58
in Aleppo is 60%. Occupancy may however further
2007 19,405,000 24,064 18.0 7.00
drop in the near future as a result of 500 new rooms
2008 19,880,000 27,784 15.5 7.00
being released over 2008, out of which the major
2009 20,368,000 31,576 13.6 7.00
share would be at the Rotana and Riga Palace.
2010 20,867,000 36,533 15.7 6.00
Further on there will be a steady increase in the
2011 21,378,000 41,989 14.9 5.00
number of available rooms until 2010, as there are
many new hotels, including both international
SOURCE: World Bank, IMF, International Macroeconomic Data Set
chains and boutique hotels, which are in the pipeline.

Oxford Business Group

 TURKEY 51

Turkey
A growing economy and population offer great opportunities
Although Turkey has come a long way in terms of its
economic recovery and financial markets, its recent
political unrest is threatening economic stability as
well. Higher interest rate payments cost the treas-
ury $16bn from March to July in 2008. But with the
constitutional court’s August 2008 decision not to
ban the ruling government party, the stock market
index has responded favourably and risen by 2%,
while economic forecasts have improved.
Since 2003 GDP has grown by an average of 6.9%
annually, although growth slowed down consider-
ably to 4.5% in 2007 and is expected to grow at this
rate through 2008 and 2009. Total foreign direct
investment (FDI) decreased sharply in the first quar-
ter of 2008 to $4.37bn from $9.2m during the same
period in 2007. The total FDI in 2007 amounted to
$22bn. The inflows are, however, expected to finance
the relatively large current account deficit and enable
Turkey to meet its external debt payments.
The progress of the country’s EU membership bid
is slower than ever with the negative impact of the
political situation. The govenment are not expected
to be start following all of the EU conditions for at
least the next five years. Foreign investors are relieved
by the fact that the IMF is examining the Turkish econ-
omy and risk while it is in technical negotiations for
a standby arrangement for a $10bn loan.
Construction and real estate are very important
contributors to GDP, and also to export earnings,
with Turkish contractors realising development plan-
ning from North Africa to Asia. Sluggish GDP growth
and the subprime crisis have negatively affected the
real estate sector. The construction sector grew by
an estimated 17% in 2007, slowing down from 20-
21% in the previous two years. Real estate transac-
tions reduced drastically in the first quarter of 2008.
The demographics of the country are favourable
to the real estate sector, with more than 65% of the
population living in urban centres and with a rate of
urbanisation that stands at 2.7%. About 70% of the
population is under the age of 30, while the aver-
age household size is declining. With 400,000 to
500,000 marriages a year, there are many couples
looking for new homes.
In February 2007 the government introduced a new
mortgage law, but it has not yet had a sizeable impact
on the market, with high interest rates persisting.
Homebuyers have held back, waiting for interest
rates to drop and for house prices to fall. Meanwhile,
real estate companies continue to take measures to
increase sales, subsidising interest rates on housing
loans to entice home-seekers into acquiring prop-
erty at a time when interest rates would ordinarily
be considered too high. This is despite the low mar-
gins earned from such sales.
But developers still believe that the real estate mar-
ket will be one of the most successful industries in
Turkey in a decade and development is continuing

Turkey: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 68,133,000 0.34 528,686 7760 4.30 24,399,000 10.2
2007 68,897,000 1.12 663,419 9629 4.30 23,530,000 10.2
2008 69,689,000 1.15 748,301 10,738 4.30 23,700,000 10.2
2009 70,491,000 1.15 758,025 10,754 4.30 23,880,000 10.2
2010 71,301,000 1.15 807,149 11,320 4.30 24,300,000 10.2
2011 72,121,000 1.15 853,010 11,827 4.30 24,740,000 10.2
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

52 TURKEY

programme targets and EU ambitions. Currently the

construction sector is experiencing some delays,
especially in infrastructure projects.
The Turkish residential sector has traditionally suf-
fered due to the underdeveloped mortgage market,
but recent reforms in the mortgage systems have
made this sector more attractive.
With high population growth and urbanisation
rates, the demand for residential units is climbing,
but remains circumscribed by income. It is estimat-
ed that Turkey will need some 7m new houses in the
coming decade. Current plans are to build some
800,000 houses in an attempt to meet rising demand.
More than 50% of all construction activities in Turkey
are in the residential sector.
The main types of residential property can be dis-
tinguished as villas, residential high-rises and mass
housing. Villas are generally located in the suburbs
of metropolitan cities, measure some 300 sq metres
and cost some $750,000 to $1.5m.
Residential high-rises are generally located in the
at a good pace. Foreign real estate developers are downtown areas of major cities and apartments
still interested in the market as well, with Gulf and measure 90 sq metres to 800 sq metres. They tar-
European companies entering into joint ventures get high-income individuals rather than families and
with Turkish developers through 2007-08. cost between $3000 and $4500 per sq metre. Eco-
KEY DEVELOPERS: Leading contractors operating nomical housing projects are generally located in
in Turkey include ENKA Construction & Industry Co the city suburbs, with apartments measuring
Inc, GAMA Endustri Tesisleri Imalat ve Montaj, Dogus between 85 sq metres and 250 sq metres, and are
Construction and Trading Co, Tekfen Construction & priced between $1200 per sq metre and $2000 per
Installation Co Inc, Alarko Contracting Group, Nurol sq metre. The Housing Development Administration
Construction Co, STFA Group Co, Yapi Merkezi Con- has been establishing mass-housing schemes
struction & Industry Inc, Summa Turizm Yatirimcili- designed to cater to low-income families. A total of
gi AS, Hazinedaroglu Construction Group, Soyak Co, 6848 houses with affordable repayment plans have
Baytur Construction & Contracting Co, Limak Con- been put up for sale under the a current programme
struction Industry & Trade Inc, TML Construction Co, COMMERCIAL: Turkey’s formidable economic per-
Emaar, and Sama Dubai. formance between 2001 and 2006, the recent down-
RESIDENTIAL: The current population growth rate turn notwithstanding, is reflected in a growing
of 1.3% per year is estimated to require the construc- demand for grade A office space in Istanbul, where
tion of at least 300,000 homes annually. Until now an ever-increasing number of multinational firms
supply has been keeping pace with demand, but the are establishing themselves. The grade A office mar-
government is still under pressure to provide low- ket is spread across nine separate business districts,
cost housing. According to the State Institute of Sta- three on the Asian side and another six on the Euro-
tistics, there are 11.6m registered residential units pean side. On the European side, Levent is consid-
in Turkey, creating an average household size of 6.13 ered to be the most important central business dis-
people. Construction permits for a further 350,000 trict of Istanbul, with Etiler and Maslak also emerging
houses are obtained each year. as important business centres.
Construction is largely being driven by private Prime office space is scarce in Istanbul, resulting
developers, with public spending being curbed by in increases in rents and a decline in vacancy rates.
restraints placed on government expenditure by IMF As a result of the limited supply of garde A offices,
prices continued to rise in 2007-08. Provision of B
grade office space is increasing, particularly on the
Turkey: tourism and hospitality indicators, 2006-11
Asian side, and will go some way to meeting demand.
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights Istanbul currently has almost 1.7m sq metres of
(4- & 5-star guests) (%) (days)
office space, with just over 160,000 sq metres in the
2006 1,850,000 -12.7 2 3,700,000
pipeline. This supply should be readily absorbed, giv-
2007 2,380,000 28.6 2 4,760,000
en negligible vacancy rates across the city, indicat-
2008 2,724,269 14.5 2 5,448,537
ing high demand in the market.
2009 3,175,866 16.6 2 6,351,731
Offices range in size from between 200 sq metres
2010 3,640,464 14.6 2 7,280,928
and 1000 sq metres around Istanbul. Annual rents
2011 4,088,851 12.3 2 8,177,702
for offices have risen sharply to $350 per sq metre
SOURCE: Local statistical authorities, OBG Research
at the higher end of the market. Office towers for

Oxford Business Group

 TURKEY 53

rental purposes have become popular over the last

decade and are generally located in downtown areas.
HOSPITALITY: Tourist arrivals by the end of 2007
reached 23.34m and have been growing at a healthy
rate, with more than 7.3m tourist arrivals in 2008 by
May. Although the majority of leisure tourists head
to the resorts, an estimated 25% of tourists spent
hotel nights in Istanbul. Indeed, the city is increas-
ingly on the international tourism circuit, with a 15%
increase in tourist numbers in the first five months
of 2008 as compared to the same period in 2007.
Turkey also has a thriving domestic tourism mar-
ket, with approximately 40% of stay nights attribut-
able to tourists. At present there are 28 five-star
hotels in Istanbul. According to the 2007 results of
Deloitte and Touche’s HotelBenchmark Study, aver-
age occupancy improved to 73.8%, with an average
room rate of $230, an 8.9% increase on 2006. The
government is now aggressively promoting tourism
with the March 2007 release of its Turkish Tourism
Strategy plan, set to run between 2007 and 2013,
with the aim of encouraging large-scale tourism 2007. About 35 new shopping centres, adding more
projects. This is reflected in government targets to than 1m sq metres, are currently being construct-
increase hotel bed capacity by 50,000 rooms, 10,000 ed in Istanbul and 30 more are in other cities around
of which will be created through expansion of exist- the country. With the market so heavily focused on
ing space, such as renovations and upgrades, with the nation’s largest city, particularly on its European
70% of this total likely to be located in the urban cen- side, untapped opportunity for retail development
tres of Antalya and Istanbul. The government also will expand throughout the rest of the country.
plans to exploit the potential of the Black Sea region, Realising market potential, international investors
with the Turkish government aiming for seven five- have shown considerable appetite for Turkish acqui-
star hotels to be built in the area. sitions. The US’s Merrill Lynch, with Turkish partner
Upcoming projects include four new hotels planned Krea Real Estate, holds a 50% state in Eskisehir’s
by the Spanish hotel group Barceló, distributed $35m Neo Shopping Mall and is looking to take con-
between business districts in Istanbul and the resort trol. Great things are expected from leading mall
areas of Belek, Antalya and Izmir. Antalya has become development company Multi Turkmall, a joint ven-
particularly popular, with hotel development accel- ture between Netherlands-based Multi Development
erating, along with the resort’s status as the preferred and Turkey’s Turkmall, which is developing Forum
tourism destination in Turkey for locals and foreign- Istanbul and Forum TEM, two of the largest retail proj-
ers alike. Foreign investors are initiating investments ects in the country, among others.
in hotels in southern Turkey, especially around Shopping centre space has been increasing, with
Antalya. The southern and western coasts of Turkey 10% being added in 2005 alone, taking the market
are more attractive for foreign investors than the total to just under 2m sq metres. Around 42% of cli-
coasts of Spain, Italy and Greece, due to supply and mate-controlled GLA is located in Istanbul, with 16%
lower land prices for hotel development. in Ankara and 8% in Izmir.
RETAIL: More than half of Turkey’s approximately Average annual rents in climate-controlled shop-
70.6m inhabitants are under 25 years of age. As per- ping centres are about $540 per sq metre. This aver-
capita income continues to rise, Turkey’s malls are ages out at a monthly rent of $30-80 per sq metre
expected to become all the more packed. Even though for medium-size units in Istanbul shopping centres
political uncertainty and market volatility slowed and $40 to $100 sq metres for food court outlets.
demand for consumer goods in 2007-08, the sec-
tor is expected to improve and is retaining the inter-
Turkey: retail indicators, 2006-11
est of international players. Luxury designer brands
Year Population Household consumption Growth rate (%) Inflation (%)
such as Armani, Gucci, Louis Vuitton and the UK- expenditure ($m)
based luxury boutique Harvey Nichols are all oper- 2006 68,133,000 273,914 7.6 9.60
ating in main shopping streets and upmarket shop- 2007 68,897,000 296,411 8.2 8.76
ping centres in Istanbul in order to tap the spending 2008 69,689,000 320,058 8.0 7.54
power of wealthy urban consumers. 2009 70,491,000 345,400 7.9 4.54
Istanbul has the highest gross leasable area (GLA) 2010 71,301,000 373,158 8.0 4.00
per capita in the country with a total GLA of 1.5m 2011 72,121,000 402,926 8.0 4.00
sq metres. As of February 2008 there were 188 shop-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
ping centres in Turkey, having increased by 21% from

THE MARKET Real Estate 2008

54 YEMEN

Yemen
Immense potential waiting to be tapped
Yemen is the poorest country in the Middle East, with
an estimated 40% of the population living below the
poverty line and a per-capita GDP of just $972 in 2007.
As indicated by the difference between this value and
the GDP per capita in neighbouring Oman ($15,500)
and Saudi Arabia ($15,400), Yemen also has the great-
est income disparity with its neighbours in the world.
Primarily a rural country, with 75% of the populace resid-
ing outside urban areas, Yemen also suffers from severe
development challenges, including water scarcity, high
unemployment and underdeveloped infrastructure.
According to a recent report released by the Econom-
ic and Social Commission for Western Asia (ESCWA),
economic growth in Yemen was estimated to be approx-
imately 4.3% for 2007, which represents no change
from 2006 and continues to fall short of the target set
by the government. The report highlights the Yemeni
economy’s attractiveness to foreign investors, especial-
ly in the energy, minerals and transportation sectors,
suggesting a need for more comprehensive econom-
ic reforms aimed at increasing competitiveness and at
further diversification of the economy.
Population growth remains close to 3.5%, making
Yemen one of the fastest-growing countries in the
region. Yemen’s estimated population of more than
20m is projected to grow to 70m by 2050. Such an
increase would undoubtedly put severe pressure on
the country’s already overstretched resources. Water
is a critical issue, with fears that supplies for the cap-
ital, Sanaa, may run out within the next 10 years.
Despite these negative indicators, Yemen also has a
significant number of high-income residents, as well
as a large segment of the population living and work-
ing outside the country. Many of these are now keen
to invest in tangible assets, such as the real estate
market. They remain the key investors and buyers in
terms of real estate and construction.
Yemen continues to be one of the least developed
real estate markets in the Middle East and North
Africa. There is also a serious lack of grade A facili-
ties in the retail, office, residential and – until recent-
ly – hospitality sectors, all of which are currently
experiencing increasing demand.
The lack of advanced infrastructure has been the
major deterrent to international investment, with for-
eign cash inflows thus far having been directed
almost exclusively at the oil and gas sector. Howev-
er, important measures directed by the government
in building infrastructure have made a considerable
difference, as has a pledge of $4.7bn from Gulf Coop-
eration Council (GCC) countries to help develop the
country’s infrastructure.
KEY DEVELOPERS: A number of international
investors are now interested in the country. The
largest foreign investments to date have been in real
estate, with developers from the GCC having

Yemen: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 21,622,000 3.08 19,106 884 7.10 7,287,212 26.2
2007 22,290,000 3.09 21,664 972 7.10 7,578,593 27.7
2008 22,978,000 3.09 25,863 1,126 7.10 7,881,855 26.9
2009 23,687,000 3.09 31,577 1,333 7.10 8,197,253 27.3
2010 24,398,000 3.00 34,261 1,404 7.10 8,349,000 27.1
2011 25,130,000 3.00 36,511 1,453 7.10 10,612,036 27.1
SOURCE: IMF, World Bank

Oxford Business Group

 YEMEN 55

announced plans for Sanaa and Aden. The projects

in Sanaa include Majid Al Futtaim’s Bab al Yemen, a
mixed-use residential complex in the city centre, and
Qatari Diar’s $500m Al Rayyan Hills in the new sub-
urb of Fajj Attan. In March 2008 the Emirates Invest-
ment Group (EIG) announced Sanaa Terraces and
Sanaa East as its flagship projects in Yemen. The
$500m developments are part of a series of signa-
ture projects that EIG intends to establish in the
country. Al Qudra, Emaar and Tameer are all expect-
ed to nurture a presence in the capital. In Aden, sev-
eral large mixed-use developments are planned. The
largest of these is Ferdosa, which is expected to
receive an investment of $10bn.
RESIDENTIAL: Yemen’s growing population has cre-
ated an increased demand for housing. Demand for
upmarket residential properties is mostly for villas,
which most people choose to have built themselves,
meaning that land is the most sought-after commod-
ity in real estate. On the other hand, residential com-
pounds are rare despite being the most popular
housing option for foreigners. The quality of these estate projects which are planned in Sanaa, Salalah
is generally not very high, with most developments and some of the country’s islands will be open to
having been completed in the 1980s. foreign purchasers. Large regional real estate
There is an obvious gap in the market for fur- investors are eyeing the Yemeni market, with Al
nished apartments in Yemen, which is reflected by Qudra, Diar, Emaar and Majid Al Futtaim all planning
the occupancy levels in the limited compound and developments in the capital. The majority of new
grade A apartment supply. None of these develop- residential developments are self-built villas, con-
ments is of significantly high quality, despite the fact structed privately. Licensing information indicates
that uptake rates have been very fast. that residential starts equal about 0.6% of the total
Property in Sanaa does not yet operate in a devel- stock in Sanaa. This supply gap, combined with the
oped market, in which areas can effectively be significant development of Yemen’s economic situ-
grouped together into specific price categories ation as it becomes friendlier to foreign direct invest-
according to district. The market is at a nascent ment, indicates a market opportunity that only a
stage with a limited number of large-scale housing limited number of international developers have
projects having universal selling prices. Each prop- recognised. Quality housing built efficiently and fast
erty is still judged on its own merits, based on a will find a ready market in Sanaa.
range of criteria. Location does play a key factor in COMMERCIAL: Office space is arguably the most
the pricing of land, and is the main factor affecting underdeveloped segment of the real estate market
housing prices. The unit most often used when deal- in Yemen, and one which could prove central to the
ing with real estate in Yemen is the lubna, which country’s further development. With an economy
roughly equals 44 sq metres. which remains dependent on agriculture and inter-
The number of building licenses issued indicates national companies establishing a substantial pres-
that around 1613 residential buildings were cleared ence in the country, demand for formal, high-end
for construction during 2005. Residential construc- office space has been low, but is now being stimu-
tion is broken down into 35% contractor activity, lated by Yemen’s potential for liquid natural gas
35% self-constructed for residence and 30% busi- (LNG) production. Traditionally, office buildings have
ness investments. Of total sales, 50% were to local been owner-occupied. Important Yemeni compa-
Yemenis and 50% to Yemeni expatriates as second nies tend to be very large diversified groups and
homes or investments.
The biggest driver behind the residential proper-
Yemen: tourism and hospitality indicators, 2006-11
ty market in Yemen is the expatriate community,
which is purchasing land on which to build villas in Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
the south of Sanaa. Yemen has a particularly large
2006 201,642 20.0 6 1,209,852
expatriate community resulting from the large gap
2007 231,642 14.9 6 1,389,852
between its GDP and that of its GCC neighbours.
2008 261,642 13.0 6 1,569,852
Another factor encouraging expatriate investment
2009 291,642 11.5 6 1,749,852
is the weakening Yemeni riyal, which gives higher pur-
2010 321,642 10.3 6 1,929,852
chasing power to foreign currency holders.
2011 388,311 – –
Foreigners are currently not allowed to purchase
SOURCE: Local statistical authorities, OBG Research
property in Yemen, although the large, mixed-use real

THE MARKET Real Estate 2008

56 YEMEN

In its recent report, the tourism ministry announced

a decline in tourist numbers for the first quarter of
2008 against the same period in 2007. However, the
government is also trying hard to improve the tourism
sector. Yemen’s Tourism Promotion Council has set
up its budget for 2009, as well as its plan for the next
tourism season, which will include participation in
international travel trade exhibitions and implemen-
tation of an investment promotion programme.
Opening in 2006, the Mövenpick is the only five-
star hotel in Sanaa that conforms to international
standards. With the arrival of the Mövenpick, the
number of five-star rooms almost doubled from 445
rooms in 2005 to 780 in 2006.
The five-star market is dominated by business
travellers, accounting for over 80% of stays. Accord-
ing to figures released by the tourism ministry, visi-
tors from Saudi Arabia made up the largest group
of tourists from the Arab world in 2007. Occupancy
in five-star hotels is still low, standing at an estimat-
ed 50%, but has been increasing at a relatively rap-
build their own offices. International tenants are id pace. The investments in infrastructure, pledged
largely from the oil and gas sector and also choose by neighbouring countries in 2006, are bound to
to construct their own space. increase the number of business visitors.
The only grade A office facility in the capital is found Aden has one five-star international hotel, the
in the Sanaa Trade Centre (STC), which has an expand- Sheraton, and formerly had a Mövenpick, which is
ing waiting list. Many of the villas in the newly devel- now known as the Aden Hotel. Other international
oped residential areas are also being rented as office chains in Aden include a Golden Tulip and a Mercure.
space. Most tenants are international companies, Occupancy rates are not high, standing at around
embassies, international organisations and non-gov- 50% in 2007, but are consistently rising.
ernmental organisations. Rates are varied, with prices RETAIL: The most prevalent form of retail in Sanaa
at around $5 per sq metre in the STC and $4 to $10 is small street-facing retail outlets, with an average
per sq metre in converted residential villas. unit size of 25 sq metres. They are typically integrat-
The situation is now changing, with new stock ris- ed into four- or five-storey mixed-use towers with
ing more quickly than in any other sector. Most of residences on the upper floors. Larger stores are a
the mixed-use developments announced in Sanaa more recent introduction, but even these still typi-
include commercial space, although the proportion cally concentrate on a single product. Earnings from
to be allotted for offices has yet to be established. retail remain very limited in Yemen, with the best esti-
HOSPITALITY: Hospitality and leisure development mates showing an average annual income of $800
has been limited by a perceived danger to tourists to $1000. The disparity in income means that Sanaa
from disaffected parts of Yemeni society. The gov- and Aden are home to very wealthy individuals whose
ernment is now making serious efforts to entice demand for luxury goods is thriving.
tourists to Yemen, so far focusing mainly on visitors The first international retail player in Yemen was
from GCC countries, who are attracted to Sanaa and EMKE Group’s Lulu Centre in Aden, which opened its
Aden. Tourist arrivals have been increasing but is doors in September 2006. The EMKE Group also
still very low. According to the Ministry of Tourism, established the 60,000-sq-metre Aden Mall. On its
tourist arrivals in 2004 numbered 270,000, grow- first day of business, the mall had to be closed due
ing to 335,000 in 2005. Tourist revenues increas- to crowds fighting to get in. There is one food retail
ed from $214m to $265m during the same period. chain in the capital, Hudda Supermarket, which is
planning to expand in 2009 given the success of its
operations. Rents in the shopping centres range
Yemen: retail indicators, 2006-11
from $4 to $6 per sq metre in Al Kumaim, on Hadda
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
Street, to $15 per sq metre in the STC, which is wide-
2006 21,622,000 11,235 6.3 18.25
ly regarded as the city’s most attractive location.
2007 22,290,000 12,646 12.6 12.48
There are three shopping centres in Sanaa where
2008 22,978,000 14,074 11.3 10.28
rental prices range between $4 and $15 per sq metre.
2009 23,687,000 15,488 10.1 11.00
Based on gross leasable area, OBG estimates that
2010 24,398,000 17,239 11.3 11.00
air-conditioned mall space is around 0.0072 sq metres
2011 25,130,000 19,114 10.9 12.50
per capita, a very small amount in comparison to the
GCC average of 0.35 sq metres. This is a telling re-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
flection of the country’s lower per-capita income.

Oxford Business Group

 57

Africa
Algeria
Egypt
Libya
Morocco
Tunisia
Nigeria
58 ALGERIA

Algeria
Employment rates are rising along with tourism investments
The Algerian economy has been reliant on hydrocar-
bons for the past 50 years. With enough oil to last
Algeria for at least another 50, predictions show
there are still regions available for the development
of resources. Globally, Algeria ranks number eight
for natural gas reserves and number 14 for petro-
leum reserves, holding just under 12bn barrels.
With a population of about 34.2m projected for
2008, the annual growth rate stands at just over 1%,
with 30% of the population under 15 years of age.
An annual increase in GDP of over 6% was recorded
in 2007. This growth rate is expected to be sustain-
able in the medium term. Economic expansion has
been increasing as the security situation has improved
following a significant decrease in violence and ter-
rorism attacks that had shaken the economy and
jeopardised the tourism industry.
Employment rates are projected to go up by 3-4%
over the next few years. Unemployment is estimat-
ed to drop 2-3% annually if all factors remain stable.
Algeria does not currently have a threatening sov-
ereign risk due to the large cash flow coming in from
the hydrocarbons it offers. Algeria is more secure
than many other countries with political risks. Inter-
est rates have been mostly stable over the past years
without any significant indicators hinting at change
in the forseeable future.
Algeria’s hydrocarbons provide 60% of budget rev-
enues and 30% of GDP. With a decline of oil reserves
and a possible drought over the next 50 years, Alge-
ria is seeking alternative ways to expand and improve
its economy. With the help of the International Mon-
etary Fund the fiscal situation has improved signif-
icantly over the past 10 years.
The government is determined to increase and
improve several aspects of the economy, including
its trading performance. To support this expansion,
the government is providing incentives to the pri-
vate sector and supporting companies that are will-
ing to invest in different sectors of the economy. The
educational system is also improving, which will help
to reduce unemployment and increase the pool of
skilled labourers. The government is trying to estab-
lish a clear legal system and boost the country’s cap-
ital. The government has allocated over $50bn
towards realising its objectives.
The demand in real estate has increased since the
development of the economy began. This new
demand will attract an expanded supply of housing
units to the market. The housing requirement stood
at over 1m in 2006, but with the significant expan-
sion of the real estate market and construction sec-
tor, supply is increasing.
Over the past six years the construction sector has
grown by 8% and most of the major construction proj-
ects are mainly financed by the government. Hous-
ing finance has been significant in this regard and
close to 12,000 mortgages are expected to be

Algeria: economic and demographic indicators, 2006-11

Population Population GDP ($m at GDP per capita Average Labour force Unemployment
growth (%) current prices) ($ at PPP) household size rate (%)
2006 33,800,000 2.72 114,831 3397 6.15 9,343,000 15.4
2007 34,400,000 1.78 131,568 3825 6.1 9,380,000 13.6
2008 34,916,000 1.5 158,699 4545 6.05 9,440,000 12.1
2009 35,440,000 1.5 165,187 4661 6 9,510,000 10.6
2010 35,971,000 1.5 171,712 4774 5.95 9,590,000 9.3
2011 36,511,000 1.5 180,031 4931 5.9 9,680,000 7
SOURCE: IMF, World Bank

Oxford Business Group

 ALGERIA 59

approved annually, which will help individuals and

families own homes in their own country.
Several international developers have decided to
enter the country in order to play a role in develop-
ing and improving the tourism sector, the prize assets
of which include beaches, deserts, and historic and
cultural attractions.
Projects in the pipeline include Accor’s tourism
infrastructure projects, Mehri Group’s plan to open
36 Hotels, Saudi group Sidar’s holiday villages in
Algiers and Boumerdes, and Emaats’s master-planned
projects, which include Algiers Bay, Colonel Abbes
development, Gare D’Aghaproject and Cite Tech-
nologique de Sidi Abdulla. A subway is also being con-
structed and will extend all the way from Tafourah
to Hai El Badr. There is also a new U-city in Buinan
which is expected to be completed in 2011.
Emaar’s has been the most visible commitment to
the market, with Emaar projects to deliver luxury
hotels, resorts and retail establishments with a total
investment of more than $20bn. Emaar’s projects are
distributed across Algeria, the capital Algiers and as for villas in all segments, particularly for middle-
the western coastline, and include sea-front devel- and upper-middle-class housing.
opment and the creation of a new town in Algiers. COMMERCIAL: The government is working to
RESIDENTIAL: The severity of Algeria’s housing increase employment through a dual strategy of
shortfall is indicated by the statistics. The country encouraging small and medium-sized enterprises
had a population growth rate of over 1% between and attracting international firms. As a measure of
1995 and 2006 and about 70% of the population is success, unemployment rates have fallen from 30%
between the ages of 15 and 64. Some 250,000 house- in 2000 to 19% in 2007. Approximately 9m people
holds are added annually. In contrast, 130,000 units are now economically active with an annual growth
are supplied to the market each year, of which only of 9% in the workforce. The government is planning
40,000 are constructed privately. The rest are built to construct approximately 150,000 new offices to
through the state housing programme. keep up with the increase in demand.
Algeria has a housing stock of over 5.5m with an Some international companies in the real estate,
estimated shortage of about 1m units. The govern- construction and hydrocarbons sectors are setting
ment hopes to meet demand by 2009, but it is up bases in the country, thanks to the encourage-
thought that this target is well beyond capacity. ment from the government. As such, there is a new
Demand for low- to middle-income housing is source of demand for workspace, particularly from
high. The government has devoted $12m to address- foreigners seeking office facilities that live up to
ing the shortage of housing units and aims to deliv- international standards. Limited grade A space has
er 200,000 low-cost housing units annually until forced many companies to establish offices in resi-
2009 to fill the supply gap. Currently the supply avail- dential villas or apartments in upper-class areas.
able is still thought to be insufficient to fill the With a lack of housing supply, rents have increased
nation’s growing demand. for tenants. In addition, businesses are also expect-
Vacancy rates in some parts of Algeria are at ed to sign long-term leases.
approximately 20-30%, mainly due to heavy migra- In line with the increase in development activity,
tion from the south of the country towards the north. national and international builders are now looking
Housing prices and rents are heavily influenced by at the commercial segment and have several plans
the government, which has dominated the residen- to set up and develop grade A offices. A number of
tial segment since the nationalisation of housing
following the end of French occupation. Strict ten-
Algeria: tourism and hospitality indicators, 2006-11
ancy laws have impeded market development and
helped to keep prices historically stable, despite the Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
gap between supply and demand.
2006 640,692 11.0 3.6 2,306,491
Residential land prices start at just over $100 per
2007 711,168 11.0 3.6 2,560,205
sq metre. Property prices can exceed $2000 per sq
2008 789,397 11.0 3.6 2,841,829
metre for apartments and $4000 per sq metre for
2009 876,230 11.0 3.6 3,154,428
villas in mid- to upper-end segments.
2010 972,616 11.0 3.6 3,501,418
Rental yields are 5-7% and are expected to rise
2011 1,079,603 11.0 3.6 3,886,572
moderately in the future. There are several oppor-
SOURCE: Local statistical authorities, OBG Research
tunities across the country for apartments, as well

THE MARKET Real Estate 2008

60 ALGERIA

Developments in the private sector were intend-

ed to add more than 50,000 rooms to the nation’s
supply between 2004 and the end of 2007, with
plans to add an additional 130,000 beds between
2008 and 2013. Hotels currently in the planning
phase include projects by Accor’s Sofitel and Mer-
cute Hotels, which has a joint venture with the local
private group Mehri to develop a chain of mid-mar-
ket hotels throughout the country.
Saudi group Sidar is developing two holiday villages
in Algiers and Boumerdes. Further government inter-
vention, especially to promote Algeria as a tourist
destination, will boost the sector and create room
for more hospitality projects. The average room rate
stands at just under $250 per night.
RETAIL: Purchasing power has been rising for Alger-
ian citizens, especially for those working in the pub-
lic sector. The World Bank calculates average income
in Algeria to stand at $7600 with 9% growth in real
income since 2003. Income disparity is severe, with
integrated business centres are being developed in a class of wealthy families estimated at less than 3%
the greater Algiers region. This construction will alle- of the total population. In 2007 the state approved
viate concerns over the lack of quality office space a 25-35% increase in public service salaries, which
and encourage international companies to open has benefitted thousands of civil employees. This has
their branch offices in Algeria. ultimately boosted the retail sector and increased
HOSPITALITY: Algeria has 1200 km of coastline that consumer spending, particularly in the commercial
includes mountains, high plateaus, varied desert centres of Algiers and Oran.
landscapes with dunes and oases, a good climate, The volume of traded goods is reported to be ris-
and a rich historical and cultural heritage, with ves- ing by over 5% annually, while trade liberalisation has
tiges of Phoenician, Roman, Arab and Ottoman archi- reduced public sector domination of distribution.
tecture. Algeria’s tourism industry is also assisted by The privatisation process has attracted foreign dis-
its proximity to its European customers. Several his- tributors, especially from French companies, which
torical attractions have helped to increase the num- have established operations in the retail market.
ber of visitors coming to the country, including the However, the retail market remains largely under-
spectacular Mount Chrea, the famous Zighout Yousef developed with several procedures a customer has
street and the Roman ruins in Timgad. to go through, heavy taxes and barriers to foreign
The attractions, along with reduced civil conflict investment. These barriers make it difficult for for-
and violence, have boosted the number of tourists eign companies to enter the country and establish
visiting the country. During 2000-05, Algeria wit- developments and investments. Franchising is not
nessed a compound annual growth rate of over 10% common, as it is not yet governed by any legislative
in tourism traffic, reaching close to 1.5m visitors in measure. Among pioneer brands France is well rep-
2005 from 866,000 in 2000. resented by Yves Rocher, Carre Blanc and Celio. Cred-
Occupancy rates within the country remain low but it card usage has increased with over 250,000 clients
have climbed following growth in visitor numbers and reported to be holding bank cards that are accept-
a comparatively long average stay length of three to able at 1700 retail outlets.
four days. As the market improves, an increasing Carrefour is planning to expand into Algeria; how-
number of developments are being announced in the ever, with average income still remaining low, there
hospitality sector. There are approximately 300 mid- are doubts about the stability of the market and
sized government projects reported to be under way. economic feasibility of large hypermarkets opening
up in the country. Several luxury retail establish-
ments integrated with master-planned projects are
Algeria: retail indicators, 2006-11
now under way and are expected to modernise and
Year Population Household consumption Growth rate (%) Inflation (%)
improve the retail sector. The high-end niche mar-
expenditure ($m)
kets are being targeted by the new developers.
2006 33,800,000 33,311 -3.0 2.50
Opportunity exists to develop more retail facilities
2007 34,400,000 35,908 7.8 3.70
in Algeria to cater to both the high-end as well as
2008 34,916,000 38,505 7.2 4.30
the middle-income groups.
2009 35,440,000 40,139 4.2 4.05
Climate-controlled space is planned in the Gulf-
2010 35,971,000 41,768 4.1 3.70
funded, mixed-use projects. Emaars development
2011 36,511,000 44,204 5.8 3.25
in Algiers Bay will deliver significant space in the
SOURCE: World Bank, IMF, International Macroeconomic Data Set
market, as will the Gare D’Agha retail development.

Oxford Business Group

 EGYPT 61

Egypt
Construction and real estate scramble to keep up with demand
With a population of more than 80m, Egypt has the
second-largest population in Africa. More than 95%
of the country’s numbers are concentrated in less
than 5% of its land, primarily in the fertile band on
either side of the Nile. About 42% of the population
is classed as urban, with the UN expecting this pro-
portion to rise to 54% by 2030. By 2050 the UN fore-
casts total population will reach 126m.
Per capita GDP was estimated at $5400 in 2007
and is growing at rates above global and North
African averages, with 7.2% growth in 2007. Econo-
mist Intelligence Unit forecasts suggest that this will
accelerate to 7.4% in 2007-08, before easing slight-
ly to 6.9% in 2008-09. Egypt does, however, contin-
ue to run a budget deficit, at close to 7.5% of GDP
in 2007, which has been the cause of some concern.
Growth has been predicated based on increased
investment and a surge in exports. Since 2004 the
Nazif government has instituted a series of funda-
mental economic reforms, which have included
reductions in tariffs and taxes, privatisation of pub-
lic holdings and legal changes designed to promote
economic diversification. A stringent privatisation
program means that, among other asset sales, more
than half of the banking system is now privately held.
This has resulted in Egypt being recognised as the
leading reformer in 2007 by the World Bank.
IMF observers have also been highly complimen-
tary about progress, concluding in February 2008 that
economic liberalisation is directly linked to growth
and that the positive effects have expanded from
new sectors, such as energy, construction and
telecommunications, to labour-intensive sectors,
such as agriculture and manufacturing. This has
caused a corresponding decline in unemployment,
which has fallen from 10.5% to approximately 9%.
Problems remain, however, as the economy is still
subject to government manipulation. Heavy indus-
try is also broadly state-controlled and accounts for
the largest proportion of GDP at 17%. The IMF also
warns that sustaining growth will be dependent on
reducing the size of the public sector, continuing a
programme of tax reform and cutting subsidies.
Population expansion has been a matter of seri-
ous concern to the government. Initial results from
the 2006 census suggest that it has increased 22%
in the past 10 years alone. Population growth may
also further accelerate, as 38% of the population is
aged under 15 and the potential exists for Egypt’s
population to reach almost unmanageable levels far
beyond the 100m mark. Government targets are to
stabilise the population at 100m, an important tar-
get, as close to 20% of Egyptians already live on less
an $1 per day. Population density is also notable,
with 20% of the people concentrated in Cairo.
The real estate market in Egypt is regarded as
healthy, with continuing high levels of demand from
population and GDP growth, and foreign investment.

Egypt: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 74,200,000 1.78% 107,375 5,094 4.25 21,600,000 10.3
2007 76,000,000 2.43% 127,930 5,491 4.20 22,100,000 10.3
2008 77,500,000 1.97% 151,258 5,874 4.15 22,850,000 10.3
2009 79,100,000 2.06% 175,452 6,279 4.09 23,650,000 10.3
2010 80,600,000 1.90% 194,208 6,709 4.04 24,480,000 10.3
2011 82,100,000 1.86% 213,323 7,208 3.99 25,520,000 10.3
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

62 EGYPT

increased by close to 40% since the beginning of 2008

primarily due to the price of steel, which climbed from
$565 per tonne in December 2007 to $1400 per
tonne according to official estimates. Contractors
operating in the market say that unofficially, the rate
for steel has climbed to as high as $1800 per tonne.
RESIDENTIAL: The rate of population growth has
placed a large burden on housing provision. The
annual additional requirement for housing is estimat-
ed at 570,000 housing units, with production at
300,000, creating an unsatisfied demand for 270,000
units annually. The government calculates produc-
tion will need to be increased to 820,000 housing
units per annum. Under the National Housing Proj-
ect announced in 2005, the government has pledged
to construct 500,000 housing units by 2011, 50% of
which will be in new cities.
Housing construction has risen by 6-7% in 2007,
with a 5.2% increase in rents and a 20% increase in
the initial asking price for residential units. The new-
ly prosperous middle class are creating additional
More than $50bn of foreign funds has been com- demand that has not yet been met by developers,
mitted to large-scale developments in Egypt, includ- despite the introduction of tax exemptions and tax
ing resort projects and the opening of new urban holidays. This price inflation has been concentrat-
townships in line with the government plan to dis- ed in high-end developments, with warnings that the
tribute the population more equally. According to market may be reaching saturation point for such
Global Finance House, foreign direct investment into housing. However, there has been no rationalisation
real estate increased by 136% between 2005 and of prices yet, with land continuing to rise significant-
2008, now standing at $39m per annum. ly in 2007, especially in the new districts, 6th of
The real estate sector declined, as its contribution October City and New Cairo.
to the percentage of GDP between 2006 and 2007 Appetite for prime residential housing and living
slid from 3.3% to 3.1%. Although it grew by 9.9% dur- quarters remains concentrated in Cairo. The most
ing the same period. Between 2001 and 2007 the popular high-end areas for buying and renting have
real estate sector grew at a compound annual growth traditionally been Zamalek and Mohandiseen on the
rate of 8.5%. The building and construction sector west bank of the Nile, and Maadi on the east bank
rose by 27% and its contribution to GDP moved of the Nile in the south of the city.
upward to reach 4.4% during the period between There is a wide disparity in residential pricing. In
2006-07, as opposed to 4.1% in the previous year. New Cairo, for example, it is possible to get a villa
Also, the share of the real estate sector’s foreign for as little as $650 per sq metre. However, in the
direct investment inflows reached $39m in 2006, new developments with strong marketing, the price
compared to $16.5m in 2005, a surge of 136%. A can be four times higher. Local developers suggest
mortgage finance law was introduced in 2001, but that demand is concentrated in the $75,000 to
there have been technical barriers impeding imple- $170,000 bracket, which still remains considerably
mentation. As a result of the improving environ- outside the means of most buyers. Large-scale devel-
ment, the total value of mortgage finance doubled opments that are in the $2,800 to $13,000 bracket
from $187m to $375m between 2006 and 2007, and are still in great demand by as many as 300,000 units
is expected to climb to $936m by the end of 2008. per year. According to some estimates, costs for
The main threat to the market is posed by rising high-end properties in certain areas have climbed
construction costs, which estimates suggest have as high as $1800 per sq metre.
OFFICE: Egypt has long been characterised by a lack
of international-standard office space, with demand
Egypt: tourism and hospitality indicators, 2006-11
concentrated in the capital. Since 2003 significant
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights measures to redress the balance have been made
(4- & 5-star guests) (%) (days)
through developments such as City Stars and the
2006 554,049 5.5% 3 1,662,147
Smart Village. Whereas previously, local or interna-
2007 584,621 5.5% 3 1,753,863
tional firms would be headquartered in residential
2008 616,880 5.5% 3 1,850,639
villas for which commercial licences had been
2009 650,919 5.5% 3 1,952,756
obtained, or occasionally in colonial-period buildings
2010 686,836 5.5% 3 2,060,507
in the Downtown area, the trend towards purpose-
2011 724,734 5.5% 3 2,174,203
built, high-technology offices in new communities
SOURCE: Local statistical authorities, OBG Research
on the periphery of the city is emerging in Egypt.

Oxford Business Group

 EGYPT 63

In the period between 2000 and 2006, approximate-

ly 900,000 sq metres of grade A office space were
added to the Cairo market. Such investments have
primarily been in the areas around Cairo, leading to
fears that the historical centre of the city is being
abandoned to decay by international and local busi-
nesses and investors.
Even as investments in office space have declined,
indications point to continued high demand for
grade A office space through 2013, outliving per-
haps the high points of the high-end residential seg-
ment. The periphery of Cairo and Alexandria will
increase in commercial significance and the demand
for quality accommodation is expected to continue
to rise at approximately 10-15% per annum.
Many are banking on the belief that demand will
continue to rise at the periphery in the medium
term. However, it is worth noting that all of the coun-
try’s top-ten financial institutions remain headquar-
tered in traditional office areas in Mohandiseen,
Dokki, Zamalek and Downtown Cairo.
RETAIL SECTOR: In recent years the Egyptian retail lengths reached 96.4m nights, with a long average
sector has undergone a period of radical change stay length of 9.8 nights. The government now tar-
that has seen an end to the import substitution poli- gets a further increase to 14m foreign arrivals by
cies of the past, as well as a drastic reduction in tar- 2011-12 and has embarked on a corresponding
iffs. Important international retailers are currently expansion of tourism infrastructure.
moving into the market and they need space to do The expansion of the tourism sector has encour-
business, spurring the growth of climate-controlled aged a number of international hotel chains into
retail centres and shopping complexes. the market, with the Marriot, Mövenpick and the
The catalyst for the explosion of demand for retail budget Easy Hotel chains pursuing expansion plans.
space has been the dramatic reduction of tariffs on The priority for the Ministry of Tourism is to upgrade
many imported goods since 2004. Industry experts Egypt’s infrastructure, creating another 15,000 rooms
believe that Egypt will need a rapid expansion of every year to accommodate an extra 1m visitors.
retail space to support the resulting retail surge. The hospitality market has stable and consistent
The country’s premier shopping centre is current- occupancy rates at 70%, although room rates in Cairo
ly the Citystars complex, which was completed in continue to climb from a city average of $120 per
2004 and encompasses 150,000m sq metres of retail night. Occupancy rates in the capital rise to 95% in
space with some 400 retail units. The shopping cen- five-star hotels during the summer months, with the
tre has proved extremely profitable making close to market driven by visitors from the Gulf region.
$400 per sq metre per annum. Citystars works on a The occupancy rate in the greater Cairo area for
revenue-sharing basis and takes 12% of the retail- the first six months of 2007 was 75.6%, a 4.6%
er’s revenues. The competition is increasing, how- increase over 2006 statistics. Although these figures
ever, with five more malls of more than 20,000 sq suggest healthy growth in the hospitality sector,
metres planned for Cairo. The main investors for most hotels reported a drop in their crucial summer
such projects have come from the Gulf. season. Occupancy during the period between July
Currently, Citystars is the only modern shopping and August, which is traditionally the busiest
mall in Cairo. It is recognised as the preeminent mar- time of year for the tourism hospitality segment, is
ket leader and has performed very strongly. In 2006 down in 2008, standing at approximately 80%. This
the average footfall was 1.6m per month. In 2007 is a 10% decrease on the figures for August 2006.
average footfall increased to 1.9m per month. In the
first phase, rents were averaging $350 per sq metre
Egypt: retail indicators, 2006-11
per annum according to Citystars’ management. In
Year Population Household consumption Growth rate (%) Inflation (%)
phase two, the average rents for women’s fashion expenditure ($m)
brands and casual wear will range from $800-1400 2006 74,200,000 82,795 17.4 7.24
per sq metre. Average overall rents are currently in 2007 76,000,000 94,983 14.7 8.55
the $600-750 per sq metre range. 2008 77,500,000 111,047 16.9 9.41
HOSPITALITY: Tourism is an important contributor 2009 79,100,000 129,192 16.3 7.80
to the Egyptian economy, providing 3.5% of GDP and 2010 80,600,000 149,852 16.0 7.70
12.6% of employment. Tourist arrivals have per- 2011 82,100,000 174,449 16.4 6.70
formed strongly, increasing by 11.6% in 2006-07 and
SOURCE: World Bank, IMF, International Macroeconomic Data Set
contributing a total of $8bn. In 2006-07 total stay

THE MARKET Real Estate 2008

64 LIBYA

Libya
Real estate tops the list of lucrative investment opportunities
Libya has the ninth-largest oil reserves in the world
and the economy remains heavily dependent on oil
wealth. Hydrocarbons account for more than 95% of
export earnings. Earnings from oil were estimated at
50% of total GDP and 75% of government revenues
in 2007. Flush with this money, the government is now
seeking ways to entice foreign investment into the
country. Politically, Libya remains heavily controlled,
which is likely to prevail in the near future.
CONSTRUCTION AND REAL ESTATE: The construc-
tion and real estate sector presents some of the best
opportunities for investors seeking to take advantage
of Libya’s new economic wealth since both are cur-
rent government priorities. The majority of buildings
represent old stock, with construction dating to the
1970s and 1980s. Built under government tender,
the quality of design and construction is not of the
highest standards, with an emphasis on functional-
ity rather than aesthetics.
A number of major real estate developers have
entered the Libyan market over the last few years.
The majority have formed a joint stock company with
Libyan agencies in order to benefit from local com-
pany status. Projects range from mixed-use towers
in the central business district (Daewoo, Hydra Prop-
erties) to larger townships and self-contained ven-
tures (Tameer, Emaar), as well as a number of tourism
projects planned in the capital or near popular sites
(Beroko, Corinthia). The demand is widespread across
all sectors, but developers who have launched proj-
ects in Libya have not always found the endeavour
easy. The process of acquiring permission is opaque,
and plans can be subject to sudden and arbitrary
change. With outside interest in the market a new
concept to Libya, pricing can be irrational.
Sale prices for neighbouring buildings of almost
identical design and footprint in prime areas can
vary hugely according to the date of construction and
the quality of maintenance. Prices paid for land by
foreign investors have recently doubled, as local
authorities test how far Gulf and international
investors will go for market entry.
The growing number of construction projects in
the country reflect the increasing market interest,
with 17 new projects in 2000 and 84 in 2005. Inter-
national developers with projects now in the plan-
ning stages are typically second-tier firms with inter-
ests in other economic fields. Local developers have
proven reluctant to take on projects of any scale,
and often have ambitions limited to construction of
single hotels or residential towers.
The key factor keeping projects small has been a
lack of funding and access to lending. International
banks are reluctant to lend in the Libyan market, and
the majority of smaller projects, including hotels,
residential towers and restaurants, are built on spec-
ulation by landowners. The market structure is now
changing, with increasing numbers of international

Libya: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 5,970,000 1.98 49,718 8327 4.50 1,752,000 28.1
2007 6,089,000 1.99 57,064 9372 4.40 1,830,000 31.1
2008 6,210,000 1.99 78,886 12,703 4.40 1,917,000 30.6
2009 6,333,000 1.98 88,359 13,952 4.40 2,014,000 30.5
2010 6,459,000 1.99 98,564 15,260 4.40 2,111,000 30.4
2011 6,587,000 1.98 107,523 16,323 4.40 2,209,000 30.3
SOURCE: IMF, World Bank

Oxford Business Group

 LIBYA 65

developers acquiring land. The presence of big-name

developers such as Emaar, Tameer and Majid Al Fut-
taim is a new development over the past few years.
Major projects include the Zowara-Abu Kemash mega-
project city development; Ghazala Towers, a $240m
project in Tripoli; and Tameer’s $20bn planned resi-
dential city of Wadi Al Sharqui. Local Libyan compa-
nies are unable to deal with the demand for large
grade A construction projects spanning all sectors.
Although local costs are significantly lower than
international company prices, construction costs are
bound to increase as international developers are
recruited to satisfy demand.
RESIDENTIAL: The 2006 census recorded the Libyan
population at 5.3m and growing at an annual aver-
age of 3-4%, while the current population estimates
are in the range of 6.2m. The provision of adequate
housing for all Libyans has been a top priority for the
government, and apartment buildings in the city are
almost all state-owned. Building stock in the central
areas is dilapidated, and newer suburbs on the extrem-
ities of cities are where the bulk of residential con- low-rise commercial buildings, to villas and apart-
struction is now taking place, much of it in the form ments that have been turned into offices.
of villa construction. Owned office space is rare. All prime supply is cur-
Most Libyans prefer living in independent houses rently leased, together with the majority of second-
and villas, so apartments are common only in the ary and converted villa offices. There are properties
downtown areas. A large number of new villas are that are being developed in this sector, although
being constructed as old buildings are being demol- there are still very few of that are of significant size
ished. Despite interest rates being high and devel- or extent that could have an effect on the current
opment lending hindering new construction, the res- demand for office space. Demand is expected to
idential market is undersupplied and in a period of remain at the present high levels and increase in the
rising construction. International corporations are foreseeable future.
tending to build compounds for staff, causing take- Villa conversions account for the majority of the
up rates on residential compounds to slow. office supply in Libya, with a number of government
The monthly cost of buying has been kept artifi- offices and embassies using this as a solution. Mul-
cially low and, even though the government is now ti-storey buildings account for just over 3% of the total
subsidising less, prices are between $36,000 and stock in Libya. The Corinthia Business Centre is the
$48,000 for a two-bedroom apartment, with month- only genuinely grade A office space available. It is
ly payments of $160 to $320. International develop- 100% occupied and likely to remain so, considering
ers such as Magna and Hashoo Group are building that a number of tenants have signed 10-year leas-
units targeted specifically towards the luxury mar- es. Rents in other office buildings have remained
ket. Sale prices at the higher end of the residential stable at $30 per sq metre per month compared to
spectrum were at an average cost of $1333 sq metre. $80 per sq metre per month in the Corinthia. The price
A recent decision by the government to supply gap is more likely a function of poor management in
500,000 new homes has seen a wave of residential government centres than the market refusing to
construction projects across the capital. Partner- climb above $30 per sq metre per month.
ships with international construction companies have The rentals and lease terms in villas are similar to
introduced realistic tenders and quality government that of the residential villas and apartments. OBG cal-
housing stock to the country, which will be offered culates that Tripoli requires over 1.9m sq metres of
for more realistic prices and rental agreements. office space, of which 5% should be prime. It is unlike-
COMMERCIAL: Libya is beginning to attract foreign
investment, and new company registrations are ris- Libya: tourism and hospitality indicators, 2006-11
ing. While the chambers of commerce do not release Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
figures, they report they receive more than 100 appli- (4- & 5-star guests) (%) (days)
2006 228,980 7.0 2.5 572,450
cations in each major town monthly, translating to
2007 222,197 -3.0 2.5 555,494
over 5500 new offices per annum.
2008 244,417 10.0 2.5 611,043
The average size of a registered business concern
2009 268,859 10.0 2.5 672,147
in Libya is still small, but the commercial class is grow-
2010 295,745 10.0 2.5 739,362
ing rapidly, creating demand for office property. The
2011 325,319 10.0 2.5 813,298
Tripoli office market is highly diversified, ranging from
SOURCE: Local statistical authorities, OBG Research
state-owned multi-storey towers, privately owned

THE MARKET Real Estate 2008

66 LIBYA

The average room rate (ARR) is relatively low, with

the exception of the Corinthia, whose current monop-
oly allows it to charge four-times the average high-
end hotel room rate. When new luxury supply enters
the market in 2009, ARR should standardise at $250
to $300, in line with surrounding markets. The demand
for hotel accommodation is certain to increase on
the back of the growing oil industry.
There is demand for both four- and five-star hotels,
not only in Tripoli but also in Benghazi and other
cities, with occupancy rates in the range of 85-90%.
According to February 2008 statistics from the Gen-
eral Authority of Tourism, there are 13,638 rooms
across 268 hotels in Libya, of which only 10-20% are
suitable to be offered to the international market.
Most high-end hotels are state-run and are often
old, poorly furnished and lack the style and service
comparable with international standards. However,
they still enjoy high occupancy rates and guests are
often turned away because of the lack of vacancy.
A growing tourism market will also create demand
ly that future office supply will have a marked impact for new hotels. Any new hotel which is managed by
on the market, due to levels of latent demand, with an international brand and is of a five-star standard
annual additional take-up being just around 2% of can command an average rack rate of $400 per night
total demand. Growth in the Libyan economy, and by for a standard room. Opportunities exist for a qual-
inference in the office market, will not be exponen- ity internationally branded five-star hotel targeting
tial, but is likely to operate on a steep curve. Rents business visitors in Tripoli, as well as a resort hotel
for new luxury space will be set at more than $100 on the coastline close to archaeological sites.
per sq metre per month, and occupiers will pay above RETAIL: The retail market in Libya is poised to react
the odds for large units with an international stan- to the new market conditions being encouraged by
dard of fit-out and security. government incentives. Shopping centres have been
HOSPITALITY: The main source of demand for the successful, with 100% occupancies in the new Oasis
hospitality market is business visitors who are asso- Centre, Zakher Al Yamama and the Andalus Gate.
ciated with oil companies and who account for 70% Some of the demand drivers include high dispos-
of the overnight visits country-wide. However, leisure able incomes, demand for foreign brands by higher-
tourism is a government priority. Libya has a wide income groups and a lack of other leisure activities.
range of untapped potential in terms of sites, histo- However, existing laws make it difficult to introduce
ry and landscape. To this end, a government-focused international brands to the market, and the lack of
tourist development project in key areas such as Lep- popular brands makes it almost impossible to collect
tis Magna, Sabratha and Sebha is hoping to boost sufficient rent to support the cost of shopping cen-
visitor arrivals. The government targets a threefold tre construction.
increase in tourist arrivals by 2010. In spite of these hindrances, the total number of
Most visitors, whether on organised tours or retail units increased from 69,845 to 122,821 between
travelling independently, spend an average of two 1995 and 2006. OBG calculates that 28,000 sq metres
nights in Tripoli. Construction began in August 2007 of climate-controlled space exists in Tripoli, a total
on Tripoli’s second international airport, set to of 0.013m sq metres per capita, if using a popula-
become the new air traffic centre for the country, tion of greater Tripoli of 1.1m, as estimated by the
with the capacity to house 100 planes. Vinci of Fran- 2006 census. By 2010 this will have increased to 0.09
ce and Turkey-based TAV are the main contractors. sq metres, factoring in the compound annual popu-
lation growth and the reopening of three of the for-
mer government cooperatives, Souk al Juma, Souk al
Libya: retail indicators, 2006-11
Thalatha and Souk Ain Zara, as well as new retail
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
space inside upcoming mixed-use developments.
2006 5,970,000 9389 9.1 3.38
Preliminary studies by developers looking at open-
2007 6,089,000 9922 5.7 6.65
ing dedicated malls suggest that they hope to achieve
2008 6,210,000 10,429 5.1 8.00
monthly rentals of around LD30-50 ($24-40) per sq
2009 6,333,000 11,087 6.3 7.50
metre. Upcoming retail centre developers would be
2010 6,459,000 11,607 4.7 7.00
wise to take cultural norms into account by includ-
2011 6,587,000 12,190 5.0 6.50
ing leisure and play areas for children, distinct café
areas for men and women and locating their shop-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
ping developments centrally, in high-income areas.

Oxford Business Group

 MOROCCO 67

Morocco
Seeking more stable growth sources through diversification
The Moroccan government’s ongoing efforts to diver-
sify the economy paid off, with GDP growth of 7.3%
in 2006, up from 1.7% in 2005. Due to the drought
that severely reduced agricultural output, however,
the GDP growth rate slowed to 2.1% in 2007.
One of the major challenges that Morocco faces
is high unemployment and underemployment. While
overall unemployment stood at 7.7% in 2007, urban
unemployment was as high as 33% among urban
youths. Morocco’s unemployment rate fell to 9.1% in
the second quarter of 2008, down from 9.4% in the
same period in 2007.
Continued dependence on foreign energy and
Morocco’s inability to develop small and medium-
sized enterprises also contributed to the slowdown.
Moroccan authorities are implementing reform efforts
to open the economy to international investors.
Strong ties with the US, liberalisation of the econo-
my, and an inflow of funds from Moroccans working
abroad have all contributed, as have increased lev-
els of foreign direct investment – from $2.5bn in 2005
to $5.2bn in 2007 – and new laws permitting prop-
erty ownership by foreign nationals.
Morocco is a low-income country trying to restruc-
ture its economy away from an agricultural base and
towards more stable sources of growth. Sectors tar-
geted for growth include industrial development,
construction, services and outsourcing. Despite struc-
tural adjustment programmes supported by the IMF,
the World Bank, and the Paris Club, the Moroccan
dirham is only fully convertible for current account
transactions. In 2000 Morocco entered an Associa-
tion Agreement with the EU and in 2006 entered a
free trade agreement with the US.
REAL ESTATE: The real estate boom, growing at a
much faster rate in Morocco than in the EU, is likely
to continue at least until 2010. Despite high manu-
facturing costs, nationally produced cement is among
the cheapest in the world and will continue to pro-
vide a solid foundation for future growth in the con-
struction industry. Future expansion and growth of
the sector is currently constrained by a dearth of
well-trained human resources. Programmes such as
private training plans are necessary to ensure ongo-
ing development. There is no doubt that future invest-
ment success is certainly available in Morocco. Qual-
ity construction and renovation could easily transform
a town with potential, such as Fez or the ancient
northern area Chefchaouen, into a success story.
Foreign developers have been attracted by the pri-
vatisation and public offering of state-owned land,
which initially covered 56,000 ha. The Plan Azur to
create resorts in Saidia (Berkane), Lixus (Larache),
Mazagan (El Haouzia, El Jadida), Mogador (Essaouira),
Taghazout (Agadir) and Plage Blanche (Guelmim)
has resulted in concessions being awarded to four
international developers. There are numerous high-
end mixed-use developments, including the 6000-ha

Morocco: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 30,436,000 0.97 65,405 3,922 5.30 11,273,000 9.7
2007 30,732,000 0.97 73,429 4,076 5.30 11,053,000 10.2
2008 31,030,000 0.97 84,402 4,385 5.30 11,218,000 9.8
2009 31,331,000 0.97 91,336 4,674 5.30 11,420,000 9.5
2010 31,635,000 0.97 99,079 4,985 5.30 11,586,000 9.5
2011 31,942,000 0.97 107,744 5,332 5.30 11,791,000 9.3
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

68 MOROCCO

and inefficient, composed of individually built units,

mostly non-contract-based, which restricts move-
ment. A rent control policy in the form of a “no
improvement work, no rent rise” system, and tax poli-
cies have somewhat disenchanted large private
investors in the rental market. However, the situation
is gradually changing, with some new tax incentives
and the entry of fully fledged property consultancies.
The real estate sector is in the midst of the largest
influx of investment ever seen in Morocco. The indus-
try is intent on convincing foreigners to purchase
second homes and investors to buy into the market
on a large scale.
Upcoming supply is insufficient to meet a decades-
old shortfall, and additional demand has, of course,
worsened the situation. As a result, prices have more
than doubled over the past five years, rising by an
estimated 30% annually in prime locations. Howev-
er, prices are still below prevailing rates in other Mid-
dle East and North Africa countries. High-end units
cost $1000-1500 per sq metre. Rental yields range
Bab Al Bahr development in Bouregreg Valley; the between 7% and 9%.
$2bn Amwaj project; the $1bn Marrakech Reem As such, the residential segment is bullish and is
Investments development; Emaar’s $3bn Saphira anticipated to leap ahead. Major projects include the
development; Al Qudra’s $44m Loukos City; and Qatari Saidia coastal project, with 3000 high-end apartments
Diar’s recently launched $600m Al Houra Resort, a and villas to be completed by 2013; the Spanish Fedesa
luxury resort project in Tangiers. project in Ayamonte; and Al Houra Resort. Also planned
RESIDENTIAL: Morocco is home to some 33.7m peo- are the Emaar and ONA Group Bahia Bay golf commu-
ple, and the population is growing at a compound nity, scheduled for 2011; the Emaar Saphira project,
annual growth rate (CAGR) of 1.53%. The urbanisa- scheduled for 2015, a 330-ha development; and the
tion of the population is also continuing apace, plac- Al Omrane development, Tasmena, scheduled to be
ing increasing pressure on housing in urban centres. completed in 2015, which will include 48,000 middle-
The demand for housing stock breaks down into 10% income housing units and some 1400 low-income units.
for luxury homes, 60% for moderate housing and Among the industry’s recent success stories is the
30% for low-cost housing. entrance of Al Qudra Holding, a UAE-based compa-
As a glut of upmarket homes appear on the mar- ny that plans to pump some $2.72bn into Moroccan
ket, and as the government concentrates on encour- developments over the next 10 years.
aging low-cost housing developments, a gap in the Strong government support is steadily building the
middle is also opening up. Despite a huge housing supply for the low-cost segment on the market. Real
deficit that has spurred real estate deals nationwide, estate credit provided by banks has grown by an aver-
12% of lodgings are empty. Nationwide, owners occu- age of 15% over the past three years, particularly due
py 64% of properties in Morocco and renters live in to public policy that supports low-income housing.
only 29% of units. Nearly 500,000 units are unoccu- Falling interest rates have also helped – in 2004 they
pied, most of which are new and of moderately high were up 10-12%, but now developers can finance a
standards. More than 10% of the nation’s housing is real estate development for between 5% and 7%.
considered unhealthy. Low interest rates hinder the Public-private partnerships (PPPs) are also stimulat-
rental market, and many people do not have faith in ing the real estate market, in particular via tax breaks
the protections offered to renters by a relatively weak offered for those in the social housing sector. Devel-
legal framework. The rental market is fragmented opers keen to buy land at knockdown prices can do
so as long as they guarantee that 20% of the units
will be low-cost housing. The government sells the
Morocco: tourism and hospitality indicators, 2006-11
land at reduced prices to public corporation Al
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights Omrane, which sells the land, again at reduced prices,
(4- & 5-star guests) (%) (days)
to a series of private developers.
2006 4,590,833 12.2 3.4 15,608,832
COMMERCIAL: The commercial sector is in the ini-
2007 5,095,825 11.0 3.4 17,325,805
tial stages of development, as Morocco has only
2008 5,656,365 11.0 3.4 19,231,641
recently opened up its economy. The country is
2009 6,278,566 11.0 3.4 21,347,124
increasingly seen as a regional centre for transporta-
2010 7,000,000 11.5 3.4 23,800,000
tion, transit and business. The nascent opportunities
2011 7,735,821 10.5 3.4 26,301,791
in real estate, finance, manufacturing, and the cur-
SOURCE: Local statistical authorities, OBG Research
rent emerging offshore outsourcing businesses, have

Oxford Business Group

 MOROCCO 69

created an inflow of foreign companies to Morocco

and an expanded employment base.
Casablanca hosts the traditional central business
district and has quality office space, such as the
Casablanca Twin Centre. Casablanca is facing a huge
space deficit; it spreads over 18,000 ha but needs
26,000 ha, given its population, and is only expand-
ing at a rate of 1000 ha per year. Many developers
want to build vertically, but they are not getting the
support they need from urban planning authorities.
Vacancy rates have been falling and rents rising in
several locations. Rates range between $20 and $30
per sq metre for grade A space. Commercial yields
are published at 8-9%. Several projects are under
way and are expected to spark the evolution of a
competitive office sector. Among these are Casablan-
ca’s Casanearshore, which will deliver a total of
250,000 sq metres by 2010 to be followed by Rabat
Technopolis, TangierShore and MarrakechShore, all
targeting information and communications technol-
ogy firms. The growth of the office sector is direct-
ly proportional to the growth of the offshore sector, years (2001-05) stems from the emergence of a mid-
and the demand for new offices will depend on the dle class with higher disposable incomes and new pat-
growth of the outsourcing industry in the kingdom. terns of consumption. The arrival of clothing and
HOSPITALITY: Tourist development is a part of the shoe franchises has expanded the market to 308
government’s “Vision 2010” plan, which aims to attract chains operating within nearly 2000 outlets.
10m tourists to the country by 2010. Visitor numbers However, the sector is still undeveloped, with only
hit a record high of 7.7m in 2007, a 13% increase from a few shopping malls, most of which are small in size,
2006. Provisional statistics also showed a jump of 12% and the market remains dominated by street-front
in tourism revenues to $7.6bn. A part of the strategy shops. Retailing is concentrated in Casablanca and
is the promotion of new beach destinations, with six Rabat. The popularity of hypermarkets and supermar-
seaside resorts already licensed by the Tourism Min- kets is increasing, influenced by the appeal of the one-
istry. These will increase capacity by 111,000 beds, stop shop concept.
of which 70,000 will be located in hotels. As demand grows for high-end retail space, prop-
The government intends to invest $12bn in order erty prices are on the rise, with retail spaces in
to achieve these goals. The government is trying to Casablanca and Rabat commanding between $2500
ensure a higher standard of tourism facilities by and $5500 per sq metre. Facilities are improving.
encouraging renovation of existing hotels and reclas- Mega Mall in Rabat offers space for rent in return
sifying hotels to conform to international standards. for management, administrative and marketing serv-
Over the past five years, foreign tourist arrivals – pre- ices. Banks now offer franchising loans at 6.95% inter-
dominantly leisure travelers – grew at CAGR of 10%, est up to seven years, and will cover up to 70% of the
and 2006 witnessed a dramatic increase of 17%, to total investment, which is expected to boost the mul-
reach 3.6m, from 3.1m in 2005. Tourism’s growth was ti-chain system, creating potential for new retail space.
15% in February 2008. Overall, the Moroccan retail property market offers
Vision 2010 aims to create 80,000 hotel rooms, of sizable opportunities. However, the large share is
which 65,000 will be located on the coast, and the currently occupied by the informal economy and the
remaining inland at cultural destinations. Meetings, competition from counterfeit and contraband prod-
incentives conventions and exhibitions tourism is ucts poses a structural challenge to the industry,
being developed with the establishment of huge con- despite brand awareness spreading in the population.
vention facilities in the area.
Several hotel establishments have already com-
Morocco: retail indicators, 2006-11
mitted to build in the country; projects in the pipeline
Year Population Household consumption Growth rate (%) Inflation (%)
include a five-star hotel in Amwaj, hotels in Marina
expenditure ($m)
Casablanca, and several other developments. Large
2006 30,436,000 39,989 19.8 3.29
real estate development investments from within the
2007 30,732,000 44,788 12.0 2.04
Middle East will also have a huge impact on Moroc-
2008 31,030,000 49,937 11.5 2.00
can tourism. Upcoming supply is not expected to be
2009 31,331,000 57,139 14.4 2.00
enough to cater for demand, and therefore the mar-
2010 31,635,000 64,361 12.6 2.00
ket has great investment potential.
2011 31,942,000 72,633 12.9 2.00
RETAIL: The retail market is building a strong foun-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
dation in Morocco. Market growth of 22.5% over five

THE MARKET Real Estate 2008

70 TUNISIA

Tunisia
High demand and an expanding economy drive growth
In 2007 growth in real GDP accelerated to 6.3%, con-
tributing to lower unemployment. With food and oil
costs rising sharply, and the Tunisian dinar weaken-
ing against the euro, inflation is expected to reach
an average of 5.5% in 2008, easing to 4.1% in 2009.
Average annual income per capita in Tunisia is
approaching $3000. Tunisia has a diversified econom-
ic base, which includes agriculture, manufacturing,
tourism and services, though industrial production
represents about 28% of GDP. Manufacturing indus-
tries, producing largely for export, are a major source
of foreign currency revenue along with tourism.
Tunisia’s large expatriate population, about 1m, also
makes a positive and significant contribution.
The Tunisian economy is open to foreign direct invest-
ment (FDI), although it screens potential investors to
reduce the impact on domestic competitors, certain
sectors and the employment market. FDI in Tunisia
reached a record $1.8bn in 2007, which was an increase
of 36% over the previous year’s figure. EU countries cur-
rently remain the leading provider of FDI to Tunisia and
the country has signed an association agreement with
the EU, which went into effect on January 1, 2008. The
agreement eliminates Customs tariffs and other trade
barriers on a wide range of goods and services.
Tunisia’s population increased from 8.9m in 1994
to around 10.4m in 2008 and the current popula-
tion growth rate has been estimated to be 0.98%.
REAL ESTATE AND CONSTRUCTION: Several new
large projects are under way, including Sama Dubai’s
Century City in the capital’s centre and Bukhatir’s
Tunis Sports City. The largest project coming up out-
side Tunis is from Emaar Properties, which announced
the building of the $4.5bn coastal resort Al Qous-
sour. In 2007 other Arab property developers, such
as Al Maabar, Damac and the Gulf Finance House have
also expressed an interest in investing in Tunisia.
Despite the rising price of construction materials,
Tunisian construction firms stand to profit from all
these developments and investments, as foreign
investors are likely to outsource part of their proj-
ects. Urbanisation is one of the major drivers for real
estate development; the urban population is grow-
ing at an annual rate of 2.8% per year. Thus there is
a high demand from buyers for higher standard of
building and community design. The key development
area in Tunis is the northeast between the downtown
and the coastal areas, such as Sidi Bou Said and La
Marsa. Lac Nord has been one of the main areas of
development for more than a decade.
One of the main issues in the construction sector
is the rising cost of materials as well as labour costs,
which have been rising due to industry wages being
set by the unions. The workers’ unions have a strong
influence on the market.
Out of the 1206 registered private developers in

Tunisia: economic and demographic indicators, 2006-11

Population Population GDP ($m at GDP per capita Average Labour force Unemployment
growth (%) current prices) ($ at PPP) household size rate (%)
2006 10,172,000 1.29 30,962 3044 4.50 3,503,000 13.9
2007 10,304,000 1.3 35,010 3398 4.48 3,593,000 13.9
2008 10,438,000 1.3 39,244 3760 4.47 3,676,000 13.9
2009 10,574,000 1.3 43,476 4112 4.45 3,764,000 13.9
2010 10,711,000 1.3 47,128 4400 4.44 3,851,000 13.9
2011 10,851,000 1.31 51,299 4728 4.42 3,935,000 13.9
SOURCE: IMF, World Bank

Oxford Business Group

 TUNISIA 71

the country, only around 100 are currently active on

ongoing projects. Recently, some major Arab devel-
opers, such as Dubai Holding, Bukhatir and Emaar,
signed major deals to join the real estate market.
RESIDENTIAL MARKET: The government takes a keen
interest in the housing sector in Tunisia, intervening in
the market to help enable families to own housing suit-
ing their needs and budget. The state builds 15% of
homes, most of which are social housing, and this inter-
vention has been successful and has led to a decrease
in slum housing. Nationwide, 80% of new houses are
built by individual house-owners, with state-owned
developers making up 3% of construction. Private devel-
opers account for the remaining 12-15% of construc-
tion. Under the 11th development plan (2007-11), the
government aims to build a further 300,323 homes for
a cost of $7.79bn. Half of these homes will be for social
housing, 40% for middle-class dwellings, while the
remainder is reserved for luxury apartments and villas.
It is estimated that only 20% of households rent
their houses in Tunisia. For renting the most popular
demand is studios, one- and two-floor apartments. With OFFICE SECTOR: There is a broad consensus that
an emerging trend for wealthy families to move to buy-to-let or construct-to-let office space is the
apartments in central Tunis to avoid long commutes, most lucrative real estate niche in Greater Tunis.
there is a demand for luxury apartments. Demand is considerably high, particularly in the small
Population growth and a decline in household size and medium-sized enterprises bracket of local com-
have fostered growth in demand, with an estimated panies, such as call centres and IT firms, and the grad-
45,000 new households being created each year. A ually growing number of multinationals setting up
potential market also exists in people from neighbour- in Tunis. Tenants in grade A office spaces comprised
ing countries. According to the Ministry of Tourism, 50% information and communications technology
there are 1m Libyan and 700,000 Algerian visitors to firms, along with 15% financial services, 15% media
Tunisia per annum. Purchase of property for foreign- and communications, 10% medical and legal profes-
ers in Tunisia is possible but difficult, requiring per- sions and 10% other.
mission from a district governor, which can arbitrar- The newest and most burgeoning office area with-
ily take two months or seven months. But the legal in Tunis proper is located northeast of the city cen-
framework to invest in second homes is becoming tre. Rental prices are some $30-$50 per sq metre per
gradually easier, with the introduction in May 2005 month. In Central Tunis pricing is relatively low at $16
of a new land law. The market for foreign investment and $30 per sq metre per month. Problems with traf-
is thus underdeveloped, yet shows good potential, par- fic circulation and a lack of parking have encouraged
ticularly for the retirement market. companies to move to the emerging office district
Tunis’s top residential areas have traditionally been of Les Berges du Lac.
the coastal suburbs, such as Carthage, Gammarth and New offices under construction in Montplaisir,
Sidi bou Said. Following the rehabilitation of Lac du Les Berge Du Lac and 2500 office spaces announced
Nord, several new prime suburbs have been created. in Dubai Holding’s Century city are likely to meet
Prices in Tunis depend primarily on location. Construc- demand in future. Office space in Les Berge Du Lac
tion of high-end villas can cost $680 to $850 per sq is in greatest demand, especially from foreign com-
metre without the land. Recent sales have seen prices panies. Embassies, banks, oil companies and other
rise as high as $1.9m for villas on plots of 1000 sq sectors are moving their headquarters here. The
metres. Outside Tunis, most top residential properties area houses a variety of multinational companies,
are located between Nabeul and Sousse, a popular
region for both Tunisians and foreigners seeking a sec-
Tunisia: tourism and hospitality indicators, 2006-11
ond home. Prices depend on location, but are gener-
ally between 20% and 30% lower than similar proper- Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
ty found in and around Tunis.
2006 268,000 4.5 3.5 938,000
The current supply of luxury accommodation is not
2007 280,060 4.5 3.5 980,210
meeting current needs. With the completion of Lac
2008 292,663 4.5 3.5 1,024,319
projects and new Emirati developers coming into
2009 305,833 4.5 3.5 1,070,414
the market, for instance the Century City by Dubai
2010 319,595 4.5 3.5 1,118,582
Holding and Emaar in Hergla, the supply is predict-
2011 335,261 4.9 3.5 1,173,412
ed to increase. Though there will be considerable
SOURCE: Local statistical authorities, OBG Research
demand new construction may lead to oversupply.

THE MARKET Real Estate 2008

72 TUNISIA

everyday goods, second-hand clothes and hardware.

International retail brands are brought to Tunisia
under licences which are generally awarded to a
small number of politically-privileged groups. These
licences or franchises are very difficult to obtain
because of the government’s protectionist policies.
Pricing range for retail varies widely according to
precise location but for a prime spot in central Tunis,
$20-$50 per sq metre per month is normal. In Les
Berges Du Lac pricing is more expensive than in cen-
tral Tunis, at $40-$60 per sq metre per year and the
tenant profile is individually-owned boutiques, jew-
ellers, and some international brands. Many of the
medina shops are family-run and have been passed
down through several generations. Tunisians as con-
sumers are becoming increasingly aware of brands,
sophisticated in their shopping choices and in gen-
eral terms are spending more money on non-essen-
tial items. Malls are a relatively new phenomenon in
Tunisia. Only two of the existing facilities– Tunis City
and Carrefour – are on the scale of malls elsewhere,
including LG, Xerox, IBM, British Gas, Arab Banking and even they are based around the dominant pres-
Corporation, Ericsson and petroleum companies. ence of a hypermarket.
Office space rents average out at $95-105 per sq HOSPITALITY: Tunisia is the leading tourist destina-
metre per month, and yields are between 3% and 4%. tion in North Africa. The government aims to attract
An estimated 80% of rented office space in the Lake some 10m tourists by 2010. However, there has been
I are foreign companies and the remaining 20% are criticism of a market characterised by mass tourism
Tunisian companies that deal with foreigners. and low occupancy rates. The Tunisian hotel sector
RETAIL SECTOR: Tunisia’s commercial sector lags well is dominated by low-cost seaside hotels often man-
behind more developed countries in the building of aged by integrated tour operators. Roughly a quar-
Westernised shopping patterns and facilities. Only ter of the country’s hotels are in the Djerba-Zarzis
recently large-scale retail distribution appeared, and zone on the eastern seaboard and another quarter
it is still limited to the Greater Tunis area. Nation- can be found in the Nabeul-Hammamet resort area.
wide, the sector is estimated to employ some 450,000 Despite the developed infrastructure and copious
Tunisians. The retail labour force is at least 95% of capacity, the sector faces a number of serious chal-
Tunisian nationality and there is no shortage of a lenges including massive seasonal dependence, deep
workforce. The sector is restricted both by an unwill- financial debt, an oversupply of rooms, mixed cus-
ingness on the part of the government to allow com- tomer service standards and a low rate of return vis-
petition from supermarkets and also by political its. Tunisia has an over-capacity of rooms and beds,
patronage networks which are able to retain key with occupancy rates of 90% in summer in some
new developments in the hands of a very small num- hotels, and as low as 22% out of season. With spend-
ber of politically favoured groups. ing per visitor at just over $300, authorities have been
Small, often family-owned, shops still dominate working to the broaden the country’s appeal to high-
the Tunisian retail sector. Small-scale commerce er-income segments. While Tunisia’s hospitality sec-
from these individual outlets still accounts for tor leans heavily on seasonal leisure tourism, the
between 85% to 90% of the turnover of the retail market in the capital is orientated towards business
sector, according to government figures. One note- visits. Tunis has a high volume of five-star hotels in
worthy shopping phenomenon in Tunis itself is the comparison to the rest of the country.
continued popularity of the traditional medina for International brand penetration in Tunisia is high,
with major players such as a Accor, Sheraton, Mar-
riot and Best Western owning and operating prop-
Tunisia: retail indicators, 2006-11
erties in the city and its outer suburbs. Tunisian
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
chains El Mouradi and Abou Nawaz own five-
2006 10,172,000 19,556 7.0 4.5
star hotels in Tunis, and there is a high volume of
2007 10,304,000 21,030 7.5 3.15
independent hotels. Around 90% of the country’s
2008 10,438,000 22,229 5.7 4.7
hotels are managed either individually or by Tunisian
2009 10,574,000 23,727 6.7 3.5
chains. Chief amongst these are Abou Nawas, El
2010 10,711,000 25,307 6.7 3.3
Mouradi, Golden Yasmin, Les Orangers, Marhaba,
2011 10,851,000 26,918 6.4 3.1
Miramar. Most foreign hotel companies active in
Tunisia do not own their hotels outright but rather
SOURCE: World Bank, IMF, International Macroeconomic Data Set
sign management contracts with the local owners.

Oxford Business Group

 NIGERIA 73

Nigeria
A diversifying economy spells a bright future
The Nigerian economy, oil-dependent for over two
decades, is moving towards diversification. Oil has made
Nigeria rich, even if oil funds have been unequally dis-
tributed. However, overdependence on hydrocarbons
has led to problems in the Niger Delta, declining rates
of production and the low rate of employment.
Non-oil sector growth has been increasing steadily,
allowing the economy to consistently outstrip targets
established under the IMF’s Policy Support Instrument
programme, which has been operational since 2005.
Total external debt fell steeply from more than $22.2bn
in 2005 to $6bn in 2007, reflecting substantial debt relief
as well as the accelerated repayment of debt by the
Nigerian authorities themselves. Government capital
spending more than doubled over the same period
and $1bn of debt relief was allocated to a virtual pover-
ty fund in both 2006 and 2007.
The current account balance has seen some partic-
ulary healthy improvement from -2.7% of GDP in 2003
to 9.7% in 2007, and the surplus is expected to grow
during 2008-12 due to exceptionally high export earn-
ings, mainly from petroleum, since it accounts for more
than 90% of foreign exchange earnings.
Despite the healthy rate of growth, a number of
problematic economic issues have yet to be resolved.
Corruption is a key problem, and one that the govern-
ment is working to address. The World Bank estimates
that due to corruption, approximately 80% of all oil rev-
enues benefit only 1% of the total population.
Forecasts for the Nigerian economy by most inter-
national agencies are positive. Oil and non-oil growth
are both expected to grow in 2008, with an increase
in oil production and economic reforms encouraging
the non-oil sector. Forecasts of GDP growth in 2008
are at 7.4%, while foreign direct investment in the oil
sector should remain above $2bn in2008. Nigeria is
expected to make the list of the 20 largest economies
by 2025, overtaking Italy, Canada and Korea by 2050.
REAL ESTATE AND CONSTRUCTION: The real estate
sector has seen sustained growth since the beginning
of 2000, with developers beginning to build homes for
affluent Nigerians. Abuja is dotted with many of these
estates, as are Lagos and Port Harcourt. As such, the
value of real estate and business activities grew by a
30% compound annual growth rate from N167bn
($1.6bn) Naira to N809bn ($6.51bn) from 2000 to 2006.
The development of the real estate market has been
triggered by an increase in the number of projects
approved and under construction in Nigeria. Accord-
ing to the central bank’s housing construction index,
from 1998 to 2005, approved projects in residential,
commercial and industrial segments have increased by
an average of 29%, 15% and 27%, respectively.
Buildings under construction exhibit a similar upward
pattern with residential construction climbing 145%,
commercial up 46% and industrial up 47% over the
same period. A contraction in actual construction activ-
ities from 1997 (the HCI base year) occurred and is

Nigeria: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 140,004,000 2.75 146,889 1049 5.10 49,621,000 11.0
2007 143,854,000 2.75 166,778 1159 5.16 50,129,000 11.0
2008 147,810,000 2.75 219,937 1488 5.23 51,299,000 10.0
2009 151,874,000 2.75 250,626 1650 5.29 52,418,000 10.0
2010 156,051,000 2.75 273,118 1750 5.36 53,596,000 10.0
2011 160,342,000 2.75 292,326 1823 5.43 54,581,000 10.0
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

74 NIGERIA

moved to Abuja almost 30 years ago. Most large pri-

vate sector national and international companies still
have their head offices in Lagos.
Office space in Nigeria is often of a poor standard,
with unreliable infrastructure and a lack of proper fit-
ting. A new generation of dedicated office buildings are
under construction in Lagos, Port Harcourt and Abu-
ja, but very few reach international standard. Interna-
tional firms frequently choose to construct their own
space. This means that sales of office space are rare.
Minimum lease periods in the rental market are two
years, but some leases extend up to five years, with rent
paid in advance for the entire period of lease.
The lack of dedicated historic supply means that res-
idential to office conversions are common. Most villa
conversions are located in high-end residential areas
occupied by international firms or embassies and high
commissions. Commercial rents in residential areas are
higher than those payable in central business districts,
though some international tenants prefer to use villas
rather than the low-quality space available in commer-
attributable to a preparatory period for democratic cial buildings. In the capital, villas usually rent on the
transition when political tensions affected the real residential market for $40,000 per year, while commer-
estate market, as developers were reluctant to build in cial tenants have to pay $120,000 per year, or $600 per
view of political and economic crises at that time. sq metre, which is five times higher than the average
RESIDENTIAL MARKET: Massive urban migration (5.3%) rent in dedicated commercial buildings.
has placed pressure on the number of available hous- In the capital commercial rents have been rising
ing units in the country, especially in Lagos and, more steadily with the average rent in the CBD more than
recently, Abuja. The Federal Housing Authority calcu- doubling since 2001 and increasing 20% since 2006.
lates that there is a deficit of 12m homes in Nigeria. RETAIL SECTOR: Despite a sizeable natural consumer
Over 120,000 housing units per annum are needed base, rising disposable incomes and stable growth in
to meet the immediate needs of those who seek to buy consumption pattern, growth in the retail sector has
their own house in Nigeria, while official estimates been disrupted by inconsistent governmental policy,
place the requirements at 1.5m houses annually to which includes importation bans on some consumer
attain the goal of “housing for all” as spelt out in the products and the disruption of retail projects in free
federal government’s housing policy. At present, just zones. The 40,000-sq-metre Tinapa Shopping Mall Proj-
as oil funds are inequitably distributed, with approxi- ect, with free zone status, for instance, is currently sus-
mately 80% of oil wealth going to just 1% of the pop- pended during Customs investigations, despite being
ulation, there is significant disparity in housing. named as a government pioneer project. The 23,000-
The lack of housing is most apparent in Abuja, with sq-metre Palms in Lagos remains the only enclosed
the Federal Capital Territory having been selected as shopping centre of any size, although up to 20 proj-
the capital and government employees moved to the ects of similar size are under planning.
new city before an adequate supply of housing could The retail market is in the early stage of its evolution,
be assured. Infrastructure provision has also lagged with the first categorically branded regional mall, the
behind, with the result that apartment rentals are 23,000-sq-metre The Palms (Lagos), established in
increasing more than 10% and villa rates more than 17% 2006, the 40,000-sq-metre Tinapa Shopping Mall (Cal-
annually. Costs per sq metre can reach up to $1700. abar, Cross River) in 2007 and the 6000-sq-metre Ced-
OFFICE SECTOR: Lagos remains the commercial cap- di Plaza (Abuja) in 2004. Mall space is typically absorbed
ital of Nigeria, even though the political capital was during early phases of construction and even the Tina-
pa project is 50% leased by a mix of local, regional and
international retailers, despite high-profile difficulties.
Nigeria: retail indicators, 2006-11
With formal retail supply new to the market, Nigeria
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
retail remains concentrated on street trading and local
2006 140,004,000 90,387 15.7 8.34
markets. International brand penetration is minimal,
2007 143,854,000 101,265 12 5.47
and restricted only to Lagos, as Abuja has no retail
2008 147,810,000 114,784 13.3 8.59
space acceptable to international retailers. This struc-
2009 151,874,000 129,654 13 8.5
tural deficiency ensures that an estimated $5m leaves
2010 156,051,000 150,926 16.4 8.5
Nigeria every day as affluent locals travel to shop in Dubai
2011 160,342,000 172,180 14.1 8.5
and the EU. Industry players estimate that around 500
Nigerians travel to Dubai every day, spending anywhere
SOURCE: World Bank, IMF, International Macroeconomic Data Set
up to $10,000 each on travel expenses and shopping.

Oxford Business Group

 75

Asia & Far East

India
Sri Lanka
Pakistan
Indonesia
Malaysia
The Philippines
Singapore
Thailand
76 INDIA

India
A very large market continues to expand
In 2007-08 the Indian economy continued to expand
at a robust pace for the fifth consecutive year,
although there were signs of moderation in the
growth momentum. GDP grew by 9% in 2007 to reach
$1099bn, compared to 9.4% in 2006. The industrial
sector grew by 8.1% and the services sector, which
accounts for nearly 63% of GDP, grew by 10.7%.
The overall growth of the service sector has been
largely driven by the performance of the trade, hotels,
transport and communication services sub-sectors,
which have registered double-digit year-on-year
growth rates over the last four years. In addition, the
financial services sector registered year-on-year
growth rates of 13.9% and 11.8% in years 2006-07
and 2007-08, respectively.
Economic performance has been accelerated by
high rates of investment, credit growth with gener-
ous domestic savings (34.8% of GDP), robust export
earnings, as well as strong fiscal consolidation. With
the economy reasonably open to foreign investors,
foreign direct investment has increased by 47% from
around $22bn in 2006-07 to $32bn in 2007-08, and
is set to continue increasing substantially.
The sheer size of the market remains a key source
of strength. A report by Goldman Sachs has suggest-
ed that rates of growth over 5% annually could per-
sist in India for an extraordinary 50 years. With 1.14bn
consumers and a middle class estimated at close to
250m people, demand for residential, commercial,
retail and hospitality space will continue to grow.
Income is also rising, with an estimated 6.2m house-
holds now having an annual income of over $5400.
Inflation based on the wholesale price index
increased to 11.9% in July 2008 compared to 5.77%
in 2007, reflecting the impact of higher internation-
al crude oil prices and strong demand for commodi-
ties. Against this backdrop, the Reserve Bank of India
(RBI) was forced to reduce the liquidity within the
economy. It hiked up the cash reserve ratio by 125
basis points to 8.75% during April-July 2008 in five
stages of 25 basis points each. The repo rate, under
which it finances commercial banks, was raised twice
during the same period by 75 basis points to 8.5%.
India ranks amongst the top economies on most
indices maintained by international consultants,
including those maintained by OBG. There are signs,
however, that a greater attention to market realities
may be creeping into the Indian dream. Firstly, returns
are forecast to fall to 12% to 20% in future years, down
from past yields as high as 30%. Secondly, the mon-
etary interventions by the RBI have had a direct
impact on the real estate industry, as indicated by
the lending figures. Government statistics suggest
that in the year up to May 2008, credit to commer-
cial real estate rose by just under 32% year-on-year,
while housing credit increased by less than 14%,

India: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 1,112,996,000 1.55 877,224 2406 5.30 506,920,000 7.8
2007 1,129,978,000 1.53 1,098,945 2659 5.30 516,430,000 7.8
2008 1,146,936,000 1.50 1,232,946 2886 5.30 525,940,000 7.8
2009 1,164,148,495 1.50 1,357,232 3129 5.30 535,490,000 7.8
2010 1,181,619,304 1.50 1,499,135 3396 5.30 547,260,000 7.8
2011 1,199,352,305 1.50 1,654,288 3694 5.30 558,910,000 7.8
SOURCE: IMF, World Bank

Oxford Business Group

 INDIA 77

down considerably from 2007, which showed growth

in lending to the real estate sector to be just under
90% and over 30% for housing alone.
Despite increasing land prices, in 2007 the sec-
tor saw sustained interest from a growing number
of foreign investment firms, such as CapitaLand,
Deutsche Bank, Goldman Sachs and Merrill Lynch,
resulting in a number of deals. Some are even financ-
ing riskier projects involving land parcels with exist-
ing tenants who need to be resettled, while some
funds have tied up with local developers in the re-
development of the Dharavi slum area. Partnerships
include HDIL with Lehman Brothers, Akruti Nirman
with Limitless and Oberoi Constructions with Shimao
Group, a major Chinese developer.
However, a number of the deals by foreign funds
were made during a period when the real estate sec-
tor in India was on a high-growth trajectory, which
has been stabilising from the end of 2007 onwards.
Thus, despite the line-up of substantial funds, high-
cost entry barriers are prompting some firms to not
deploy all of their resources. $190 per sq metre per month for prime apartment
KEY DEVELOPERS: Given the size of the country and units in primary cities. However, recent reports sug-
its regional variations, major developers are acting gest that rising interest rates have slowed down the
on a regional rather than national basis. But in the off-take of residential units and developers have
last couple of years, a handful of developers, such been forced to reduce prices or hold on to them.
as Ansals, DLF, HDIL, India Bulls, Parsvnath, Sobha and COMMERCIAL: Both rental values and capital val-
Unitech have listed their companies on Indian share ues for office spaces in the CBD and surrounding
markets in a bid to raise funds for expansion across areas have showed an appreciation of approximate-
India. These developers, while strong in their own ly 45-50% in 2007. Nevertheless, in 2008, excluding
home markets, have had to rely on regional tie-ups CBD and off-CBD micro-markets, rental rates and
to get projects moving. capital values in micro-markets have remained rel-
RESIDENTIAL: India has the second-largest popu- atively stable. The global market slowdown has also
lation in the world, growing at an annual rate of 1.6%, had an effect on the local real estate market with
with 32% of the population below 14 years of age. tenants deferring or re-evaluating their long-term
According to the government’s 11th five-year plan, plans. Earlier commitments are now being down-
which expires in 2012, India is facing a housing short- sized, which has directly affected the demand situ-
age of around 24.7m units. This shortage has led to ation in some micro-locations.
an additional annual housing requirement current- There is a substantial likelihood of a marginal cor-
ly estimated at 360,000 units by the end of 2012. rection in some micro-markets on account of the
At present the government estimates that $84bn upcoming supply in the second half of 2008 and
worth of investment will be needed to reach targets beginning of 2009. The development of a number
for housing the growing population. of special economic zones (SEZs) around the coun-
In 2007 the total stock of residential units was esti- try should make surplus office space available at
mated at around 58.8m. Defined as households with competitive rates in the future. It is expected that
an annual income of over $2250, the middle- and the focus of office activities may shift from the CBDs
upper-income population showed a 14% and 21% to SEZs on the outskirts of cities due to the avail-
compound annual growth rate (CAGR), respective- ability of better infrastructure and quality of con-
ly, between 1996 and 2006 and is forecast to increase struction, as well as cheaper rents and tax benefits.
further by 15% and 22% CAGR by 2012. Demand for
housing in the middle- to upper-income sector is
India: tourism and hospitality indicators, 2006-11
expected to hold at around 1m units annually until
2012. This has sparked a plethora of apartment proj- Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
ects, especially in major cities like Mumbai, Delhi,
2006 3,648,019 1.5 3.4 12,403,263
Chennai and Bangalore, with vacancy rates remain-
2007 4,038,790 10.7 3.4 13,731,887
ing low at between 5% and 8%.
2008 4,796,988 18.8 3.4 16,309,761
Prices and capital values have appreciated by rates
2009 6,835,224 42.5 3.4 23,239,761
as high as 50% to 150%, and property prices current-
2010 7,897,716 15.5 3.4 26,852,233
ly range between $1500 per sq metre and $6400 per
2011 9,217,554 16.7 3.4 31,339,684
sq metre in prime locations. Rents have risen by 50-
SOURCE: Local statistical authorities, OBG Research
100% and now range between $45 per sq metre to

THE MARKET Real Estate 2008

78 INDIA

centrated in Bangalore, Chennai, Mumbai and Del-

hi. New supply will also be concentrated in these
cities, with expected supply close to tripling by 2010,
and very little formal retail space in the 784 towns
with populations of more than 50,000 people.
Following the liberalisation of investment laws,
interest among international retailers such as Car-
refour, Wal-Mart and Tesco has increased. Howev-
er, regulations demand a joint-venture with a local
partner, so Walmart joined with AV Birla Group in
2007 and Tesco with the TATA group in 2008.
The average rentals in investment-grade retail
ventures has been increasing since 2005, rising by
25-30% in 2007 alone, primarily because of limited
supply and improvement in terms of tenant profile,
mall management and facilities offered. Average
rents in the malls in prime locations in the largest
cities are in the range of $1050 to $1500 per sq metre.
Given the current economic scenario, coupled with
the anticipated increase in the total retail mall space,
there could be a rise in vacancies and a stabilisation
Sales prices now range between $10,000 and in rentals in the near future.
$13,500 per sq metre for prime locations. With costs HOSPITALITY: Approximately 5m foreign visitors
rising, rents are also increasing and reached $1100 travelled to India in 2007, up from 4.4m in 2006.
to $1500 per sq metre in CBDs. Yields remain com- Tourism revenues in 2007 showed a substantial rise,
paratively stable at 10-12%. having increased by 33.8% to reach almost $12bn,
Primary cities studied by OBG anticipate a doubling up from the $8.93bn recorded in 2006.
or tripling of high-end stock by 2011-12. However, Compared to developed leisure markets such as
modelled demand suggests that this supply may be Malaysia (20.97m in 2007) or Thailand (14.46m),
absorbed depending on the performance of the IT the number of foreign arrivals remains compara-
and outsourcing industries during the period. tively low. However, these figures do not take into
RETAIL: India is regularly ranked as the most appeal- account domestic tourism, which accounts for more
ing market for retail development, having topped AT than 75% of hotel stays and business visits account
Kearney’s Global Retail Development Index for the for around 60-80% of demand. This part of the mar-
past three years. According to the Ministry of Com- ket is now being exported, with high room rates in
merce and Industry, organised retail supply is increas- Mumbai, Bangalore, Delhi and other cities making it
ing at a rate of more than 25% annually and is in step cost-effective for businesses to transfer events and
with population growth, which sees 20m to 25m conferences to surrounding countries.
people enter the middle class each year. The total number of hotel rooms was reported to
Retail analysts have called for the development be around 110,000 in 2007, of which over one-third
of 600 shopping centres in India over the next are in the four- and five-star categories. Occupan-
decade, of which at least 200 are planned or already cy rates in the high-end hotel segment averaged
under development. However, there is concern that 73% in 2007, but are over 90% in commercial cities.
income and spending simply may not be able to sus- The average room rate for four- and five-star hotels
tain this level of development. Shopping patterns will in primary cities is around $230. In 2007 hotel rates
also need to change, with land availability and a in Mumbai climbed by 30% over a six-month period,
comparatively low incidence of car ownership impact- ending at more than $300 and placing India’s com-
ing appetite for large out-of-town centres. mercial capital on the list of global cities where room
Throughout India total mall space remains less rates are growing most quickly.
than 6m sq metres, 1m sq metres of which is con- With an undersupply and comparatively low oper-
ating costs, the hotel sector has attracted a large
India: retail indicators, 2006-11
number of developers and as many as 100,000 new
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
hotel rooms are expected to be released onto the
2006 1,112,996,000 512,267 9.4 6.20
market by 2010. This supply will again be concen-
2007 1,129,978,000 567,611 10.8 6.40
trated in India’s commercial centres and room rates,
2008 1,146,936,000 625,003 10.1 5.20
which have increased by 8% annually since 2002,
2009 1,164,148,495 690,362 10.5 4.00
are expected to stabilise.
2010 1,181,619,304 761,361 10.3 3.90
This reaction has already been observed in
2011 1,199,352,305 840,320 10.4 3.90
Bangalore, where slowing hospitality demand,
connected to the IT sector, caused average room
SOURCE: World Bank, IMF, International Macroeconomic Data Set
rates to decline by as much as 10% during 2007.

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 SRI LANKA 79

Sri Lanka
Despite considerable challenges, real estate continues to grow steadily
In spite of the fractured peace process between the on investment, however, as the result of prohibitive
Sri Lankan government and the Liberation Tigers of real estate investment regulations, which include a
Tamil Eelam (LTTE), the country’s economy contin- 100% property tax for foreign buyers of freehold
ues to witness a growth rate of above 6%. Social real estate. Therefore, few foreigners purchase prop-
instability and rising inflation, which continues to be erty and expatriates tend to restrict themselves to
above 25% per year, remain the major concerns for leased property. The biggest driver of the real estate
the government. Recently the government allocat- sector is the tourism and second-home market.
ed 18% of its Rs925bn ($8.59bn) budget to defence Despite the 2004 tsunami and the prospect of
spending, after quitting an internationally brokered renewed civil war, the number of tourist arrivals has
ceasefire and pledging to destroy the LTTE in Janu- remained steady since 2003 at about 550,000 visi-
ary 2008. Against this backdrop, the country has tors per year. However, the second-home market is
experienced strong economic growth, which reached largely driven by expatriate Sri Lankans looking to
7.4% in 2006. However, 2008 witnessed a slowdown invest in their country and planning for their future
in which expansion fell back by 1.4% to 6.2% in the return. The UK is a key market for these potential buy-
first quarter compared with 7.6% in the fourth quar- ers, with approximately 10% of demand for residen-
ter of 2007. A contributing element to the country’s tial property in Sri Lanka coming from Britain. Many
fairly good growth rate is the unexpectedly strong new condominium properties in Colombo are being
increase in foreign direct investment (FDI), which marketed aggressively.
averaged $282.2m per annum in 2002-06 and is RESIDENTIAL: Sri Lanka has a population of 20.3m
estimated to be equivalent to 14% of GDP in 2007. (2007) and an annual growth rate of 1.1%. Over 46%
Real estate and construction remain comparative- of Sri Lankans are under 25 years old, indicating
ly stable. Construction has consistently accounted high levels of future demand. A supply gap of approx-
for 6% of the Sri Lankan economy since 2003. Sec- imately 284,330 residential units was exacerbated
tor growth has begun to pick up only over the past when more than 78,000 homes were destroyed
three years, with 9% growth recorded since 2004. across the country as a result of the 2004 tsunami.
Housing developments, particularly in the post tsuna- The capital is now seeing a trend away from the
mi reconstruction phase, have also been hampered central city areas as land there has become too
by spiralling construction costs, which have increased scarce and expensive. Outlying suburbs, such as
by more than 30% per year. The industry has lost out Nawala and Rajigiria, have become increasingly
Sri Lanka: economic and demographic indicators, 2006-11
Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 19,773,000 0.78 26,963 1364 4.10 8,080,000 7.6
2007 19,928,000 0.78 30,012 1506 4.10 7,500,000 7.6
2008 20,085,000 0.79 34,787 1732 4.00 7,875,000 7.6
2009 20,242,000 0.78 38,318 1893 4.00 8,268,750 7.6
2010 20,401,000 0.79 42,053 2061 4.00 8,682,188 7.6
2011 20,541,000 0.69 46,268 2253 4.00 9,342,034 7.6
SOURCE: IMF, World Bank

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80 SRI LANKA

COMMERCIAL: Demand for office space in Colom-

bo is limited. It is estimated that Sri Lanka attracted
$300m in FDI in 2007, making it the smallest recip-
ient of FDI in South Asia. This is reflected in the lim-
ited presence of international offices in the capital,
with many of the non-Sri Lankan offices belonging
to Indian affiliates. The Sri Lankan economy remains
dominated by productive, export-oriented indus-
tries, such as agriculture and textiles. The relative-
ly small size of the services industry also affects
demand for office space. However, growth in the
country’s workforce was 9% from 2001 to 2006 and
averaged around 5% from 2005 to 2007.
Sri Lanka is lacking in grade A office space, with
most demand for prime space absorbed by the World
Trade Centre (WTC) towers. In Colombo the Fort area
has traditionally been considered the central busi-
ness district as it is home to the WTC, the Ceylinco
high-rise and the Bank of Ceylon building. Howev-
er, as a result of the security issues affecting the cap-
ital, its Fort area has now become a high-security
important residential and commercial centres. The zone, with many buildings in a poor state of repair,
2004 tsunami caused the price of coastal land to with the exception of the aforementioned three.
plummet, and land acquisitions are now controlled The capital has limited alternative office space, with
by government restrictions. Foreign interest has also the Access Towers and Hatton National Bank (HNB)
declined since the introduction of a 2007 law that towers, both located in the Colombo 2 district, pro-
set the land tax at 100% for foreign acquisition, viding the only other high-end purpose-built space.
although condominiums with four floors or more Alternatively, the Cinnamon Gardens area in Colom-
are excluded from taxation. The option of taking out bo 7 has some residential converted office space used
a 99-year lease to evade property taxes is unpopu- by a number of local companies, and the Liberty
lar due to the bureaucracy and length of time required Plaza and Majestic City shopping malls have com-
for the administrative procedure of gaining exemp- mercial space above them. In total, the central dis-
tion. As a result, a minimal number of foreigners are tricts of Colombo have less than 150,000 sq metres
now purchasing property. Foreign purchases account- of grade A space. Occupancy in the grade A space
ed for less than 5% of the market in 2008, compared segment is extremely high, with HNB and Access
with 15-20% three or four years earlier. Land prices towers turning away potential customers. The WTC,
in the city can reach up to $1600 to $2600 per sq the largest commercial space in Sri Lanka, with
metre. Cinnamon Gardens and Kolluptiya are the 65,000 sq metres, has 90% occupancy. There will be
most exclusive residential addresses. limited supply in the market within the next three
The government is focusing on providing low- and to four years. In the central districts, the construc-
middle-income housing. As part of the 2006 hous- tion of the second Access Tower is the only confirmed
ing programme, the government pledged to build large grade A commercial development in the
10,000 housing units clustered in villages, thereby pipeline. Suburban areas, such as Nawala, Rajigiria
involving local communities in the development. In and Battramulla, are earmarked for development to
addition to this, the package features an awareness complement the strong supply of residential prop-
programme, community planning, provision of infra- erty being constructed in these areas.
structure facilities and a per-household financial HOSPITALITY: The hospitality sector is particularly
package of $573. The government has also sug- important for the Sri Lankan economy. Tourism is the
gested providing 2000 serviced land plots by 2009. country’s fourth-largest foreign-exchange earner.
Sri Lanka’s tourism industry has remained resilient
in the face of political instability and natural disas-
Sri Lanka: tourism and hospitality indicators, 2006-11
ters, and the number of foreign visitors to the island
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights nation has been consistent over the last five years.
(4- & 5-star guests) (%) (days)
Nevertheless, the industry is currently going
2006 223,841 1.9% 10.4 2,327,948
through a testing time, especially after the break-
2007 232,784 4.0% 10.1 2,351,120
down of a ceasefire between the government and
2008 235,023 1.0% 10.1 2,373,735
the LTTE in January 2008. The number of tourism
2009 240,375 2.3% 10.1 2,427,787
nights increased by 21.9% and tourism receipts by
2010 246,171 2.4% 10.1 2,486,330
11.7% in 2006. However, this could be drastically
2011 256,547 4.2% 10.1 2,591,122
affected in the near future if civil unrest continues
SOURCE: Local statistical authorities, OBG Research
to dominate the nation’s politics. However, there

Oxford Business Group

 SRI LANKA 81

have been highlights in the industry, including a

recent agreement between the World Bank and the
Sri Lanka Tourism Board. According to this agreement
the World Bank has agreed to provide funds to the
Sri Lankan government for a tourism initiative among
small entrepreneurs and rural communities. The
funding will make use of private sector expertise
and resources wherever possible in private-public
partnerships as well as community-based initiatives
to empower local communities and small business-
es. The agreement also aims to cover human resource
capacity building in government tourism institutions.
Also, the assistance may include policy development,
compliance and regulatory mechanisms, as well as
marketing and promotion strategies for positioning
Sri Lanka's tourism offerings in key markets.
The majority of visitors to Sri Lanka are leisure
tourists who are attracted to the range of picture-
perfect beaches, temples and hill districts that the
country offers. The south-west coast below the cap-
ital of Colombo is heavily developed, boasting a large
variety of leisure hotels and resorts. Colombo has RETAIL: Despite having a comparatively high per-
two international hotels, the Hilton and the Holiday capita income in relation to India, Pakistan or
Inn. The city also has a large number of local and Bangladesh, Sri Lanka is still classified as a low-
regional operators. All hotels in the capital are heav- income country. The World Bank estimates real annu-
ily reliant on business guests, as there are few al per-capita income to be $1355. However, income
tourism-related activities in Colombo itself. Indeed, disparity is considerable and a wealthy upper- and
many tourists bypass the capital altogether, choos- middle-class population exists, particularly in the
ing instead to go directly to the resorts in the south. capital. Indian shopping tourism plays a key role in
These resort hotels garner as much as 60% of the retail economy, bringing in an estimated 100,000
their business from package tours. The meetings, tourists in 2006, an increase of 22.5% on 2005. Cli-
incentives, conventions and exhibitions segment is mate-controlled space is limited, however, and high-
becoming increasingly important, with hotels attract- end retail is restricted to high-profile districts, such
ing corporate guests and reporting occupancy rates as Cinnamon Gardens and Kolluptiya.
that are considerably above the market average. Colombo is dominated by street-facing retail activ-
With corporate rates rising in India’s commercial ity and organised retail is fairly underdeveloped. The
cities, Sri Lanka has become an attractive alterna- city has five major shopping centres, all of which are
tive, a fact the Sri Lankan Tourism Board reinforces locally managed. The Galle road has emerged as the
with an aggressive marketing campaign in India. The prime retail destination with many upmarket stores
majority of hotels in the Colombo area also report opening in recent times. Among the larger malls,
strong revenue from banqueting, which at certain the Crescat Boulevard, Liberty Plaza and Majestic City
times of the year exceeds room revenue. target the luxury market. Majestic City is the largest
Occupancy rates across the country averaged shopping centre in the country and Crescat Boule-
47.8% in 2006, which was down from a high of 59.3% vard is part of a large, mixed-use development that
in 2004. This trend continued in 2007 with most of incorporates a 30-storey luxury residential tower, a
the hotels reporting their occupancies at just about five-star hotel and the luxury mall. Although a num-
50%. The average length of stay is relatively high at ber of shopping malls are currently under develop-
10.4 nights in 2006, up from 8.7 nights in 2005. Sri ment, market forecasts suggest that retail space will
Lanka’s hotel occupancy rates dropped despite the remain in undersupply in the short to medium term.
fact that the tsunami had caused hotels to reduce
their prices and rates. The city centre hotels in par-
Sri Lanka: retail indicators, 2006-11
ticular have suffered to some degree or another, as
Year Population Household consumption Growth rate (%) Inflation (%)
a result of the heightened security that surrounded expenditure ($m)
the capital following an escalation in violence 2006 19,773,000 19,261 15.6 9.50
between the LTTE and the government. 2007 19,928,000 21,666 12.5 19.70
Hotel supply is increasing slowly but steadily, with 2008 20,085,000 24,459 12.9 11.50
the government registering 12 new hotels and 48 2009 20,242,000 27,901 14.1 9.00
guesthouses in 2006. According to the Sri Lankan 2010 20,401,000 31,742 13.8 8.50
Tourism Board, the country had 248 hotels with a 2011 20,541,000 35,965 13.3 8.00
total room capacity of 14,511. The government fore-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
cast of total room stock of 25,000 rooms by 2010.

THE MARKET Real Estate 2008

82 PAKISTAN

Pakistan
Momentum returns to the market
The Pakistani economy slowed down in 2007-08, with
GDP growth falling to 4.6% from an average of 7.5% per
year during the preceding four years. The increased
political tensions have had a considerable negative
impact on the economy – making Pakistan a high-risk
investment destination at the moment. The future,
however, looks brighter. The Economist Intelligence
Unit is forecasting growth at more than 5% and stronger
macroeconomic fundamentals in 2008-09.
Pakistan’s real estate market underwent an intense
period of growth post-September 11, 2001. At that time,
investors from the Gulf and the Pakistani diaspora
pulled billions of dollars out of Western markets. Yet,
political instability in 2007 has prompted developers
and buyers to hold back on making investments, opt-
ing to wait for conditions to stabilise. There are already
signs that momentum has returned to the real estate
market, with property prices in prime areas of Islam-
abad and Karachi beginning to climb back.
Real estate and construction in Pakistan has been a
direct beneficiary of the return of capital. Overseas
remittances jumped from $1.5bn to $4bn in 2002.
Increased liquidity helped real estate prices to rise con-
sistently from 2002 to 2005. The Central Bank also
took a role in promoting real estate investment, as
interest rates declined to historic lows of 3-4% from
as high as 22%, resulting in greater use of credit and
financing options. Until recently the property surge
has mainly been confined to the major cities and, as a
result of high-risk activities there, the urban market
began to turn in mid-2005. Institutional investors moved
out of property investment, causing a decline in prices
by as much as 40% between 2004 and 2006. Undevel-
oped plots were the worst affected portion of the mar-
ket, with prices in certain areas declining by 40–50%
across key cities. Although interest rates have been
raised to contain inflation, property prices and rentals
have been increasing steadily for the past year.
Pakistan’s real estate sector is now seeing a number
of large-scale projects from Gulf investors. The largest
investments include Nakheel’s $68bn Sugarlands City,
the Karachi Waterfront development by Limitless,
Emaar’s Crescent Bay in Karachi, the Highlands and
Canyon Views projects in Islamabad, and the Bundal
and Buddo Islands project worth $43bn.
RESIDENTIAL: While Pakistan has seen a flurry of con-
struction activity in the high end of the market, there
remains a significant national shortage of housing –
an estimated deficit of 500,000 units. For instance,
Karachi, Pakistan’s fastest-growing city, is experienc-
ing an annual shortfall of 80,000 housing units per
year. Around 26,700 new housing units are produced
each year in the formal sector in Karachi, yet it is not
enough to meet the demands of the sector. The remain-
der of the housing requirement is met by building semi-
official housing, which is usually built on agricultural
lands that are bordering the city limits or in the
consolidation of land in low-income inner-city areas.

Pakistan: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 155,400,000 1.88 127,002 817 6.17 47,920,000 9.8
2007 158,170,000 1.78 143,766 909 6.15 49,180,000 10.2
2008 160,942,000 1.75 160,152 995 6.12 50,580,000 10.3
2009 163,714,000 1.72 175,452 1072 6.10 51,840,000 10.2
2010 166,485,000 1.69 192,350 1155 6.07 53,150,000 10.0
2011 169,253,000 1.66 211,351 1249 6.05 54,410,000 9.8
SOURCE: IMF, World Bank

Oxford Business Group

 PAKISTAN 83

The low- and middle-income segments of the sec-

tor remain short-supplied. Unofficial settlements or
“katchi abadis” account for up to 35% of all of Pakistan’s
urban housing stock and are a particular problem in
Karachi, where demand for low-cost housing far out-
strips supply. The government believes the current
housing crisis in Pakistan dates back to a population
surge in the 1980s and 1990s when the total popula-
tion in Pakistan increased from 84.2m in 1981 to 130.6m
in 1998 – an increase of 55%.
Pakistan currently has a population of 165m, mak-
ing it the world’s sixth-most-populous nation. Urban
population has increased by thirty-seven times since
the Second World War and is now growing at the rate
of approximately 5% per annum. The UN Populations
Fund estimates that the population of the country will
increase by around 80% between 2002 and 2025,
reaching more than 260m and potentially 318m by
2050. This is a significantly high growth rate compa-
rable only to that of Nigeria, Iran and Ethiopia.
OBG modelling estimates the total number of resi-
dential units across Pakistan at 19.3m, while the esti- lish their offices in villa conversions in residential areas
mated demand was for 26.4m units, with a yearly of the city. Lahore has virtually no grade A commercial
requirement for 570,000 additional houses. Annual space, but a growing number of companies are look-
production was 300,000 units in 1998, and it is not ing to set up offices in the city, particularly in the IT,
believed to have risen significantly since that time. As telecoms and textiles sectors. Average occupancy rate
a result of this supply stagnation, an annual unsupplied in Lahore’s existing commercial stock is 79%.
demand of 270,000 units emerged. This situation has Blue Area in Islamabad, Shahrah E Faisal in Karachi
essentially created a housing crisis in Pakistan. and Main Boulevard in Gulberg Town in Lahore are
Gated communities and master-planned develop- home to most businesses. Rental prices in these areas
ments have become an extremely important trend in range from $100-$400 per sq metre with new devel-
the Pakistani real estate market over the past decade. opments asking for rent up to $750 per sq metre. Sale
Home buyers, particularly Pakistanis returning from prices range between $1000 and $3000 per sq metre,
overseas, have become increasingly security conscious. and up to $10,000 per sq metre in new developments.
According to OBG modelling, the demand for high- Companies are struggling to find adequate office
end housing will remain higher than the supply through space in all three of Pakistan’s major cities. However,
2013, particularly in Karachi, even with all the large- there is a high volume of office space currently under
scale projects under construction or in development. construction in Lahore and Karachi, which should result
Clear demand remains for housing by low- and mid- in a drop in rental prices. It is estimated that in Karachi
dle-income groups. Current developments with phas- the gap between supply and demand in this market
es targeting overseas Pakistanis, such as Lake City will be largely reduced by the year 2010, yet the sec-
Lahore (a golf development) and Bahria Town cater tor will still be undersupplied. Islamabad also has a
exclusively to high-income groups. Wealthy Pakista- high volume of office space under development, with
nis, both at home and abroad, see cities like Islamabad, a further 965,000 sq metres set for completion by
Lahore and Karachi as a potential second home mar- 2013. In Lahore, 2.7m sq metres of commercial space
ket, often due to the presence of relatives in these cities is being developed. The markets in Lahore and Islam-
and the opportunity to make good investments. The abad may become oversupplied when all the new units
interest from overseas investors in property across arrive, despite the projected requirements of econom-
Pakistan is varied but huge in some sectors. Areas such ic growth in several sectors such as IT and telecoms.
as that of the Defence Housing Authority develop-
ment in Lahore have seen huge interest in their prop-
Pakistan: tourism and hospitality indicators, 2006-11
erties. The values of plots have rocketed up to more
than 20 times their worth pre-September 11, 2001. Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights
(4- & 5-star guests) (%) (days)
COMMERCIAL: Pakistan’s strong economic growth is
2006 429,273 4.7 1.2 515,128
driving the demand for office space. There is a marked
2007 403,645 -6.0 1.2 484,374
shortage of grade A office space in Pakistan’s major
2008 442,634 9.7 1.2 531,161
cities, especially in Islamabad, where demand is so high
2009 469,181 6.0 1.2 563,018
that rentals have risen to levels comparable to prices
2010 497,633 6.1 1.2 597,160
paid in New York and London. The average occupan-
2011 525,061 5.5 1.2 630,074
cy rate in commercial towers in Islamabad is 96%, and
SOURCE: Local statistical authorities, OBG Research
the lack of supply has forced many companies to estab-

THE MARKET Real Estate 2008

84 PAKISTAN

two Hyatt properties, an Intercontinental and a Mar-

riott. These accommodations are being built as part
of Expo Centre Lahore, a project currently under con-
struction and set to open by March 2009. In Karachi,
new projects will increase the number of four- and
five-star rooms 42% by 2009. In addition to that, there
are 10 more hotels being planned around the city.
French hotelier Accor has announced plans to build
12 Ibis hotels across Pakistan over a period of five
years. Major developers are establishing properties in
Gwadar – the Hashoo Group opened a Pearl Continen-
tal and plans to establish a Marriot in the near future.
Occupancy rates have struggled to remain high in Pak-
istan’s major cities, with a national average of 69.2%
in three-, four- and five-star properties. Due to the
high volume of supply that is set to hit the market by
2010, further investment in hotel properties in Karachi,
Islamabad or Lahore seems ill-advised for the next
three to four years. Good opportunities are instead
concentrated in secondary cities.
RETAIL: Domestic demand has been the cause of retail
HOSPITALITY: Pakistan’s ability to attract foreign expansion in Pakistan in the recent past, with dispos-
tourists has been constrained largely by the country’s able incomes rising and international brands cautious-
reputation for political and social instability. The north- ly entering the market. Retail and wholesale trade
ern region of Kashmir has long been a point of inter- accounts for more than 19% of GDP, and the sector is
est and insecurity. There is very little international growing at a rate of 9% per annum. More than 97% of
awareness of Pakistan as a tourism destination, despite retail trade takes place in private or family-owned
its diverse cultural heritage, opportunities for shopping stores, meaning that the lion’s share of the sector is
and exceptional outdoor activities. informal, unmapped and not easily quantifiable. At
Statistics from the government show that 839,500 present, Pakistani consumers have shown a strong
tourists were registered as having visited Pakistan in preference for street-facing retail over malls or “plazas”
2007, down 6.6% from 898,400 in 2006. Data from the – tower blocks with retail on the first two floors and
Ministry of Finance shows that 2008 has also started offices and apartments in the remainder of the build-
on a negative note with tourist arrivals down by over ing. This is particularly apparent in Lahore, which is
5% in the first four months compared to the same peri- Pakistan’s most dynamic retail market.
od in 2007. The decline has certainly been a result of In Lahore, the most expensive retail space is locat-
the unstable political situation in the country, even ed at Fortress Stadium, a street-facing development
though the numbers are still high when compared to attached to a sports stadium. Even though retail space
2003, when there were just over half a million tourists. in the city is expected to double by 2013, the sector
In spite of the low visitor numbers, Pakistan’s con- will remain severely undersupplied, such is the level of
struction surge has spilled over into the hospitality demand. However, retail in the capital city, Islamabad,
industry, with several major hotel brands entering the remains fairly undynamic. Most activity is concentrat-
market for the first time. Islamabad is a particular focus ed around sector markets such as Jinnah Market and
for international brands, with more than 2500 rooms Super Market. Units in these markets are street-fac-
slated for completion by 2013. The high-profile Cen- ing and predominantly occupied by small private oper-
taurus Project will feature Pakistan’s first seven-star ators, although some international brands, such as
property and will contain a 350-room hotel operated Bata, have managed to open outlets.
by Hilton Group. In Lahore, there are 800 hotel rooms The Centaurus Project will also feature Islamabad’s
scheduled for completion by 2010, distributed among first international standard mall. The project is being
built by Pak-Gulf Construction and will be construct-
ed as part of the same complex as luxury apartments,
Pakistan: retail indicators, 2006-11
modern offices and the aforementioned seven-star
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure (m)
hotel. The mall will boast five storeys, parking, a cine-
2006 155,400,000 120,438 14.2 7.92
ma and air-conditioning. There is still plenty of room
2007 158,170,000 143,221 18.9 7.77
in Pakistan’s market for more international-standard
2008 160,942,000 169,863 18.6 8.50
malls of this kind, particularly in Karachi and Lahore –
2009 163,714,000 200,209 17.9 7.50
where the retail sector is strong but undersupplied. For
2010 166,485,000 235,046 17.4 6.50
potential investors and developers, rental yields for
2011 169,253,000 277,815 18.2 5.50
retail property in these cities are low, around 4%. This
is because they are generally purchased for use by the
SOURCE: World Bank, IMF, International Macroeconomic Data Set
owner who can make a larger profit by not renting out.

Oxford Business Group

 INDONESIA 85

Indonesia
Strong fundamentals override worries
Indonesia is the world’s fourth-most-populous coun-
try with nearly 225m people inhabiting over 17,000
islands. The Indonesian population that resides in Java,
Bali and the few neighbouring islands comprise 60%
of the total population of the country, yet the islands
make up only 7% of Indonesia’s land mass. An esti-
mated 9m people live in Jakarta, but it is said that
during the day there are up to 12m people there due
to the volume of visitors. This makes Jakarta the most
densely populated city in Indonesia.
In 2007 GDP grew 6.3%, elevating it to a per-capi-
ta average of $3725. That growth is forecasted to
finish slightly lower in 2008 at 5.1%, due to the recent
global fuel prices. Inflation was reigned in consid-
erably during 2007, dropping to 6.96% compared to
the 14.55% of 2006. This rather large decrease was
due to broad government efforts to stabilise the
rupiah. However, now that the government has made
a decision to raise oil prices, inflation could again
bounce back as high as 10% in 2008. That scenario
does not bring cheer for poorer Indonesians who are
already suffering from high energy and food costs.
The tourism and agriculture sectors remain the pri-
mary drivers of the economy in Indonesia. Tourism
made up 7.2% of the country’s annual GDP in 2007,
and is expected to remain relatively consistent despite
a very slight decline to 7.1% in 2008. According to
the World Travel & Tourism Council, real GDP growth
for the travel and tourism economy in South-east
Asia is expected to average 6.3% per annum until
2017, while that for Indonesia is projected at 6.4%
over the same period. However, the current shaky
market situation is largely due to the lack of both
consumer and investor confidence in the market. If
the upcoming 2009 elections run smoothly, the lat-
ter should return to the market.
RESIDENTIAL: One of the issues requiring the atten-
tion of the government in Jakarta is that the city
suffers from a huge undersupply of affordable hous-
ing. The government has plans to address this issue
at first by constructing 1000 low-cost residential
buildings around the city. The goal is to have these
apartments built by 2011, as well as at least 1.35m
low-cost houses from 2004-09 in order to accom-
modate the needs of low-income earners.
In the short term the government is pro-actively
developing plans for affordable housing that include
subsidies for homes and financing options to low-
income groups. Some major players that are getting
involved in these plans are the Agung Podomoro
Group, the Gapura Prima Group, the Artha Graha
Group and Bakrieland Development – all of which
are Indonesian companies.
However, sales for apartments and condominiums
intended for the other end of the income ladder stood
at 55,223 units in the first quarter of 2008. Of these,
43% were lower-middle grade, 49% were middle grade
and the remaining 8% were higher grade units, accord-

Indonesia: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 222,051,000 1.30 364,379 3456 4.08 107,625,000 10.3
2007 224,938,000 1.30 432,944 3725 4.08 109,860,000 9.6
2008 227,862,000 1.30 488,149 3979 4.08 111,950,000 9.2
2009 230,824,000 1.30 536,168 4251 4.08 113,940,000 8.7
2010 233,825,000 1.30 587,509 4552 4.07 115,830,000 8.4
2011 236,865,000 1.30 645,793 4896 4.07 117,620,000 8.2
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

86 INDONESIA

second home or as a retirement home. Beachside

developments in key areas are increasingly popular.
Like Bali, Lombok is also catching the attention of
investors as being ripe for development. Emaar has
recently begun a joint venture with the Bali Tourism
Board to develop a 1200 ha plot of land on the coast.
The project’s estimated cost is over $600m.
Indonesian cities are rapidly urbanising. By 2010
the population living in the cities is predicted to rise
by about 50%. The past decade has seen Jakarta’s
workers move to neighbouring cities in the Bodetabek
area (Bogor, Depok, Tangerang and Bekasi) to avoid
high property prices in the capital. This trend, how-
ever, is quickly becoming obsolete and people are
now moving back into the capital, as both poor city
infrastructure and increasingly congested roads make
the commute almost impossible.
OFFICE: The steadily decreasing unemployment rate
reveals that jobs are being created and the econo-
my is seeing growth. This is leading to an increased
demand for office space. There is a total supply of
ing to Jones Lang Lasalle. A further 29,803 units are approximately 5.4m sq metres of office space in
expected to be completed by the end of 2010. This Jakarta, of which 1.9m sq metres is grade A office
rate of construction is currently on pace to lead to an space. A further 725,183 sq metres is under con-
oversupply of high-end units. Most condominiums in struction, scheduled to be completed by the end of
Jakarta offer strata-title ownership, which is available 2010. Occupancy levels at the end of 2007 were at
to foreigners but is based on leasehold titles that are an average of 87.8% in the CBD. Slightly lower than
valid for 20-50 years of ownership. Sales of high-end the 2007 figure of 88.2% overall, but strata-title
apartments in Jakarta have been impressive over 2007 offices common to agreements with foreign com-
and 2008, with 70% of new units selling out in advance, panies are more in demand than in previous years.
according to Provis. Expatriate workers are the tar- Due to the stiff competition for premium office
get market for this higher-end segment , however it space in Jakarta, older buildings are undergoing
is unlikely that their numbers will be substantial enough refurbishment and large companies are paying more
to sustain the high volume of supply that will be made to move into bigger, better quality office space.
available over the next two years. Occupancy rates are Rental prices for prime office space in the CBD in
already below optimum levels, at 75% in the CBD and Jakarta are also increasing. They now stand between
72.7% elsewhere in the city. $10-15 per sq metre per month, yet it appears that
Statistics show that foreigners prefer only to lease rentals are going to stabilise within the next few
apartments in Jakarta instead of purchasing prop- years as more stock comes on board.
erty, due in part to the leasehold titles that are valid Building office space outside the CBD is becom-
for a limited period. There are a total of 7032 serv- ing an increasingly popular trend with developers
iced and non-serviced purpose-built apartments in since most people live in suburban areas and traf-
Jakarta, which had 84% occupancy in 2007. fic poses a huge problem in the city. The cost of
The real estate market in Surabaya, Indonesia’s building office space outside of the CBD is much less,
second-largest city, has also been growing at a note- due to lower land prices, yet presents a traffic issue.
worthy pace over the past few years and is emerg- Over 1m sq metres of new office space will be com-
ing as another major Indonesian business centre. ing to the market within the next three years. In the
Unlike Jakarta, Bali is very popular with foreigners meanwhile, however, the market in Jakarta will get
seeking to purchase property either as an investment, more competitive. New and higher-quality buildings
will have the advantage. They will be able to provide
tenants with more efficient, well-equipped and
Indonesia: tourism and hospitality indicators, 2006-11
secure office space. The demand for grade A office
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights space in Jakarta due to oil, mining and finance com-
(4- & 5-star guests) (%) (days)
panies will remain high over the next few years.
2006 3,312,519 -2.6 2.5 8,281,297
RETAIL: With a middle class estimated to be over
2007 3,746,800 13.1 2.5 9,367,000
50m within a population of 225m, there is certain-
2008 3,839,488 2.5 2.5 9,598,720
ly a market for retail in Indonesia. International brand
2009 4,039,872 5.2 2.5 10,099,681
tenants have a significant presence in the country
2010 4,138,390 2.4 2.5 10,345,974
and enjoy a large consumer market with an elastic
2011 4,309,122 4.1 2.5 10,772,804
appetite for shopping. The majority of retail space
SOURCE: Local statistical authorities, OBG Research
supply is concentrated in Jakarta and its satellite

Oxford Business Group

 INDONESIA 87

towns. However, the past year has seen the con-

struction of shopping centres completed both in
Surabaya, and on the island of Java. With Surabaya’s
increasing urbanisation and its residents becoming
more at ease with the city’s development, Surabaya
is said to be rivalling Jakarta in terms of construc-
tion and as a business centre. Some notable shop-
ping centres and malls that have become landmarks
within the city include Surabaya Plaza, Mal Galaxy,
Mal Surabaya, Tunjungan Plaza, Maspion Square,
Jembatan Merah Plaza and Plaza Marina.
Developers are also looking at Bali as a location
to build shopping malls and retail space. The island’s
sole large-scale shopping centre, Discovery Mall, has
very high occupancy and is currently undergoing
expansion to accommodate retailers that wish to
enter the market. Retail trade increases, along with
those of tourism, mean that Bali is becoming more
and more popular not only as a holiday destination
but as a place for second homes.
The amount of retail space on the market is antic-
ipated to grow by 28% by 2011. By 2009 1.2m sq number of UAE tourists visiting Indonesia has sig-
metres of new gross leasable area (GLA) will be put nificantly increased, growing annually at a rate of
on the market. This will bring the total stock to between 10-13% for this group alone.
approximately 5.5m sq metres, of which Jakarta alone A new airport under construction in Lombok is
will account for 74%. The total stock of retail space scheduled for completion in 2009. It will have a pas-
(both leased and strata-title) in Jakarta is nearly 3.1m senger capacity of 2.4m people, three times that of
sq metres. A further 688,289 sq metres of space is the existing airport. This means that Lombok will be
scheduled for completion at the end of 2009. Occu- more accessible to visitors, of which fewer will have
pancy rates at the end of 2007 were at an average to fly to Denpasar Airport for a connecting flight.
of 84%, almost 7% higher than the end of 2006. Bali tourism has continued to recover despite fresh
Although with the new stock coming on board, occu- travel warnings and, in the first half of 2007, achieved
pancy rates are set to decline slightly. the region's highest revenue per available room
At the end of 2007 average gross rental rates were growth at 58.6% . Improvements have been largely
up. However, rental rates for premium grade A space driven by a 37.6% rise in occupancy, reflecting a
have dropped slightly since 2006, leaving it at $130 return in public confidence. Direct foreign arrivals
per sq metre and in Jakarta at $72 per sq metre. reached an all-time high in the first quarter of 2007,
HOSPITALITY: Despite setbacks, such as the 2004 a fact that injected capital and more market confi-
tsunami and terrorist attacks, the Indonesian tourism dence into the area. The average value per five-star
industry has remained stable. The number of tourists hotel room in Bali is $169,000, significantly higher
who visited Indonesia rose 13% to 5.51m in 2007, from than that of five-star rooms in larger Jakarta where
4.87m in 2006. In Bali alone there were 1.74m tourist the average is $114,000.
arrivals. Most tourists hail from East Asian countries, In Jakarta, there are 14,518 hotel rooms of four-
such as Japan, China and now increasingly the Mid- and five-star quality, with a further 2440 rooms to
dle East. The Indonesian government is promoting be built within the next two years, yet overall occu-
Indonesia to Arab countries in the Gulf and putting pancy rates were low – 67% at the end of 2007. This
emphasis on Islamic links between the cultures. is because of increasing demand for hotels and
Tourism represents the second-largest source of the number of available rooms remaining stagnant
foreign capital in Indonesia, amounting to 9% of GDP. due to the closure of a few older hotels in Jakarta.
Indonesia has considerable tourism potential, being
a country of diverse terrain, such as islands, moun-
Indonesia: retail indicators, 2006-11
tains, jungles and beaches. However, much of this
Year Population Household consumption Growth rate (%) Inflation (%)
potential has been under-exploited because of a
expenditure ($m)
lack of resources, poor infrastructure and little-to-
2006 222,051,000 228,473 24.2 13.10
no development strategy. To attract private sector
2007 224,938,000 257,921 12.9 6.41
investment in tourism development, the Indonesian
2008 227,862,000 296,057 14.8 7.12
government has adopted a fiscal incentives policy
2009 230,824,000 347,226 17.3 5.94
for development projects, such as hotels, tourist
2010 233,825,000 399,262 15.0 4.90
resorts, recreational parks and convention facilities.
2011 236,865,000 461,888 15.7 4.28
Already the government has successfully targeted
SOURCE: World Bank, IMF, International Macroeconomic Data Set
investors from the Middle East. In particular, the

THE MARKET Real Estate 2008

88 MALAYSIA

Malaysia
Steadily growing and rapidly diversifying
In 2007 Malaysia experienced GDP growth of 6.3%,
which exceeded the government’s forecast of 6%.
However, the figures for 2008 are not nearly as opti-
mistic, with a forecasted growth rate of 5%. The pro-
jected decrease is due to the government’s decision
to stop providing fuel subsidies, which will cause a
significant rise in prices as they begin to match glob-
al fuel prices. The price hikes are expected to put a
damper on private consumer spending and overall
economic growth. At the same time, however,
Malaysia is experiencing the benefits of the world-
wide increase in fuel prices in the export market
since the production of hydrocarbons is one of the
country’s main economic drivers.
STEADY GROWTH: In spite of the losses associat-
ed with the end of the fuel subsidies, the Malaysian
economy is growing steadily and rapidly diversifying.
In the past, the country’s economy was mainly driv-
en by agriculture and the production of raw mate-
rials. However, in the past decade, the government
has managed to transform the economy into an
emerging multi-sector market with tourism, servic-
es and manufacturing playing more important roles.
The government has introduced a number of new
economic development corridors since the imple-
mentation of the Ninth Malaysia Plan, with special
attention being given to specific regions: East Coast
Economic Region (ECER), Northern Corridor Eco-
nomic Region (NCER) and the Iskandar Malaysia.
Foreign direct investment (FDI) plays a large role
in the country’s economic development. According
to Malaysian trade minister, Rafidah Aziz, FDI soared
by almost 69% in 2007. The government complete-
ly sanctioned FDI in 2007, resulting in RM125.3bn
($35.9bn) in the manufacturing and services sector.
At the end of 2007 Malaysia was ranked the 14th
most attractive in the world to FDI, according to UN
Conference on Trade and Development statistics.
YOUNG PEOPLE: Malaysia has an estimated popu-
lation of 27.7m people, with a population growth
rate of 1.74%. The median age is 24 years, while 32%
of the population is under the age of 15 years.
Up to 80% of the country’s residents live on the
mainland of western Malaysia, with just under 30%
living just in the Klang Valley (which is also known
as the Kuala Lumpur Metropolitan Area). This urban
area has an estimated population density of 7388
people per sq km. Rural Malaysia has yet to experi-
ence many of the benefits of the nation’s econom-
ic growth. There are approximately 5m people living
in the eastern states of Sabah and Sarawak in Bor-
neo, with most coming from the indigenous tribes
(15% of Sabah and 40% of Sarawak) who live in rural
areas. Malaysia has the highest income disparity in
South-east Asia. Wage gaps between income groups
and even ethnic groups have been an issue in the
past and a system of more even wealth distribution
is one of the goals of the Ninth Malaysia Plan.

Malaysia: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 26,392,000 1.70 156,091 12,404 4.31 10,682,000 3.3
2007 26,841,000 1.70 186,482 13,315 4.28 10,941,000 3.2
2008 27,297,000 1.70 207,583 14,023 4.25 11,180,000 3.4
2009 27,761,000 1.70 222,196 14,776 4.22 11,380,000 3.2
2010 28,233,000 1.70 240,238 15,685 4.19 11,630,000 3.2
2011 28,713,000 1.70 259,745 16,695 4.16 11,870,000 2.9
SOURCE: IMF, World Bank

Oxford Business Group

 MALAYSIA 89

In 2007 the real estate market was estimated to

be worth over $29bn. The capital city, Kuala Lumpur,
has a huge amount of new developments coming
online each year. Outside of Kuala Lumpur, cities
such as Penang and Johor Baru are up and coming,
with numerous new residential, commercial, retail and
mixed-use developments under construction.
Laws restricting the purchase of residential real
estate in Malaysia by foreigners virtually no longer
exist. Since the end of 2006 foreigners have been
allowed to purchase residential property valued
above RM250,000 ($71,750) per unit. The number
of properties that can be purchased is unlimited.
Previously, foreigners were only allowed to own prop-
erty to be used strictly for personal use and not for
any type of investment purposes. Local financing is
now available to foreigners as well.
Property-related tax in Malaysia includes a stamp
duty, which varies. The percentage can increase to
up to 3% depending on the sale price of the prop-
erty. In April 2007 the capital gains tax was repealed
in Malaysia. Previously, the tax was as high as 30% bought property in the area as an investment, a sec-
for properties sold within a year and gradually less ond home or a retirement home.
for properties held for longer periods. OFFICE: There is a shortage of prime office space
RESIDENTIAL: As of September 2008 there were in the capital’s central business district. Prime office
27.7m people living in the country, with the major- buildings have occupancy rates as high as 95%, with
ity of the population living in the major cities, such the Petronas Towers and the Menara Maxis at almost
as Kuala Lumpur, Johor Bahru and Penang. Just under 100% occupancy. This is expected to relax slightly in
30% of the population resides in Kuala Lumpur and 2008, with new stock coming on board, but there
its metropolitan area, making the city and the sur- will still be a huge demand for prime office space.
rounding region the main focus of most developers. This is driving many developers to construct office
In 2007 the high-end condominium market per- space in the city centre. Meanwhile, to cope with the
formed well in terms of take-up rates, occupancy and acute shortage of prime office space and stiff com-
rising capital values. Some developments had an petition, many older buildings are undergoing ren-
increase of 50%-70% from the initial launch price. ovation and refurbishment.
Despite this, the demand for premium condomini- According to a survey by DTZ, a global real estate
ums remained high with some developments selling adviser on costs, it takes approximately $3120 per
out within a month from the launch date. Average employee to establish a workstation in Kuala Lumpur.
occupancy rates were at 83% in the city centre and This is five-times less than what it would cost to set
up to 90% in popular suburban areas. up a workstation in Singapore and nine-times less
Capital values for high-end condominiums this than Hong Kong. This makes Malaysia still one of the
year were between $2500 and $3120 per square cheapest places in Asia to establish an office.
metre in the city centre and between $1300 and The total amount of office space in Kuala Lumpur
$2350 per sq metre in suburban areas. Rental yields is 3.7m sq metres, with another 1m sq metres of office
in Kuala Lumpur range between 6.5% and 7.5% but space in the rest of the Klang Valley. An additional
rentals are not increasing at the same rate as capi- 120,000 sq metres to enter the market by the end
tal values. However, Malaysia is still one of the most of 2008. According to Knight Frank, an indepen-
affordable options in Asia in terms of luxury hous- dent global property consultancy, office space
ing, especially when comparing Kuala Lumpur to supply is expected to grow by 20% by the year 2011.
rivals such as Singapore City or Hong Kong.
BUYING PROPERTY: Among some of the other areas
Malaysia: retail indicators, 2006-11
of interest for purchasing residential property in
Year Population Household consumption Growth rate (%) Inflation (%)
Malaysia are Penang and Johor Bahru. Penang has a expenditure ($m)
large expatriate community that is mostly made up 2006 26,392,000 65,101 14.2 3.59
of British and Japanese expatriates who bought into 2007 26,841,000 71,918 10.5 2.11
the Penang property market during the “Malaysia, 2008 27,297,000 80,117 11.4 2.43
My Second Home” campaign, which was launched 2009 27,761,000 89,776 12.1 2.50
six years ago to attract foreigners to buy property 2010 28,233,000 100,639 12.1 2.50
in Malaysia and to spend their retirements there. 2011 28,713,000 112,763 12.0 2.50
Johor Bahru has also attracted many foreigners, par-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
ticularly Singaporeans and Indonesians, who have

THE MARKET Real Estate 2008

90 MALAYSIA

market will likely follow suit, the retail market is still

expected to perform well, although it will clearly not
exceed the previous year’s sales.
Due to the large amount of retail space that was
completed in 2007 and the projects that are still
under construction, the Klang Valley area has become
almost completely saturated with large shopping
centres. Occupancy rates for shopping centres in
Kuala Lumpur were at 86.4% at the end of 2007. A
total of 4.2m sq ft of retail supply was released in
2007, bringing the total supply up to 315,870 sq
metres in the Klang Valley. In 2008 so far only 26,000
sq metres of space is set to be released.
HOSPITALITY: Tourism continues to be a vital indus-
try for Malaysia, both as an important foreign
exchange earner and as a source of domestic employ-
ment. Growth has been strong in recent years, and
it looks set to continue, despite the extremely com-
petitive region in which the country lies. Malaysia
has not just held its own in this field, but has con-
sistently increased its arrival numbers.
Although capital values of office space are not as The year 2007 saw 20.97m visitor arrivals, which
high of those of high-end condominiums per sq is a 9.6% increase over 2006. With the success of the
metre (which can range from an average of $2000 government’s “Visit Malaysia” campaign in 2007
per sq metre in 2006 to $2800 at the end of 2007), (which was extended to the end of August 2008),
rents for office space in Kuala Lumpur at the end of Malaysia aims to further increase that figure to
2007 stood between $15 and $23 per sq metre and 22.5m visitor arrivals. The total tourist receipts were
are expected to rise by the end of 2008. over $14.7bn. Statistics from the Ministry of Tourism’s
RETAIL: Although Malaysia’s GDP growth forecast promotion organisation, Tourism Malaysia, show that
was a low 5%, the central bank – Bank Negara the largest number of tourists was from countries
Malaysia – registered a 7.1% growth in the first quar- belonging to the Association of Southeast Asian
ter of 2008. Despite this, personal disposable income Nations, followed by Japan, China, Australia, the Mid-
has not increased as salaries have remained stag- dle East and India. In line with this, the state gov-
nant and the cost of living continues to rise. It is ernments of Terengganu, Kelantan and Kedah are
expected that consumer spending will drop dramat- aggressively promoting their states as leading tourist
ically due to global fuel price hikes and the govern- destinations in 2008 with their own campaigns.
ment’s decision earlier in 2008 to cut fuel subsidies. According to Tourism Malaysia, Kuala Lumpur cur-
Economists have forecast that there will be a signif- rently has 232 hotels, a slight increase over the 2007
icant change in consumer patterns and lifestyles. The figure of 229. The total number of available rooms,
retailers that will be most affected by this change however, dropped slightly from 31,576 rooms in
in spending behaviour will be those whose products 2006 to 31,334 in 2007 as a number of hotels were
are not considered to be necessities. under renovation. Some 15,843 rooms in Kuala
However, as a result of increasing tourism to Lumpur are in four- and five-star hotels.
Malaysia and a huge portion of retail sales coming Average room rates in 2007 were RM330 ($97) for
from upper-income residents and tourism spend- five-star hotels in Kuala Lumpur and RM183 ($54)
ing, the retail market is expected to remain stable, for four-star hotels in the capital. According to HVS,
according to the Malaysian Retailers Association. a global hospitality industry consulting organisation,
In 2007 retail sales grew by 8% due to higher the average value per room of a five-star hotel in
tourist and consumer spending. Although GDP Kuala Lumpur was $166,000 in 2007, which is a 26.7%
growth is predicted to slow in 2008 and the retail increase from the previous year.
Malaysian hotels saw an increase in occupancy
Malaysia: tourism and hospitality indicators, 2006-11 rates from 2006 to 2007 with the occupancy rate in
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights Kuala Lumpur rising from 70.5% in 2006 to 77.2% in
(4- & 5-star guests) (%) (days)
2007. Other cities that saw a significant increase in
2006 2,440,437 8.0 7.04 17,178,089
occupancy rates between 2006 and 2007 include
2007 2,576,253 5.6 7.27 18,736,582
Kedah, Putrajaya and Selangor, with 6%, 21% and
2008 3,704,438 43.8 7.52 27,844,439
5.4% increases, respectively. Putrajaya in particular
2009 4,258,670 15.0 7.77 33,089,397
saw a significant increase due to its rising popular-
2010 4,829,966 13.4 8.03 38,784,793
ity with business visitors due to its close proximity
2011 5,415,828 12.1 8.30 44,949,076
to Kuala Lumpur. Five new hotels are expected to
SOURCE: Local statistical authorities, OBG Research
open in the area between the end of 2008 and 2009.

Oxford Business Group

 THE PHILIPPINES 91

The Philippines
Remittances and IT services are key
The economic slowdown in the US was expected to
have an adverse impact on the economy in the Philip-
pines, worker remittances were expected to fall,
business-process outsourcing (BPO) operations were
expected to lose business and inflation was expect-
ed to skyrocket due to the high prices of essential
imports, such as rice. However, the economy has
shown its resilience by growing at a rate of 7.3% in
2007 and growth in the first quarter of 2008 has
been reported at 5.2%. Although growth is expect-
ed to slow to 4% toward the end of 2008, it is antic-
ipated that inflation will be curbed at 5.8%. The serv-
ices sector has continued to drive growth, now
accounting for almost 55% of the country’s GDP.
INVESTMENTS SLOWING: The impact of the weak
global financial market and the downturn in the US
economy has impacted the inflow of foreign direct
investment (FDI) into the country. FDI grew by 26%
in 2006 and the beginning of 2007 also saw strong
growth. Data from May 2008 has shown that the net
FDI in the first five months of the year was $725m,
well below the net inflow of $2.3bn during the same
period in 2007. Also, the central bank has cut its 2008
estimate for total FDI from the $4.2bn that was orig-
inally forecast to $2.6bn.
Surprisingly, this has not resulted in a reduction
in remittances from overseas foreign workers. Remit-
tances reached $12.8bn in 2006 and $14.4bn in
2007. Remittances in the first quarter of 2008
reached $4.7bn, which is a 35% increase from the
same period in 2007. In 2008, worker remittances
are expected to reach a total of $15.6bn.
This has helped revive the real estate and construc-
tion sectors. After several years of stagnation, the
real estate sector started recovering and witnessed
escalating capital values, prices and rents over the
past couple of years. Demand has been expanding
and absorbing all of the upcoming supply leading
to reduced vacancy rates of between 3% and 6%,
compared to nearly 18% in 2000-01. The services
sector, which has been growing at a compound
annual growth rate (CAGR) of 6.9% between 2001
and 2007, is the fastest-growing sector in the Philip-
pines, with growth in 2007 reaching 8.7%. The thriv-
ing BPO segment – including contact centres – and
information technology (IT) industries, as well as
continued low interest rates and overseas remit-
tances, are the main contributors to this.
TECHNOLOGY SERVICES: There has been signifi-
cant development in the IT, IT-enabled services and
BPO industries, as well as interest from foreign
investors and growth in the tourism sector. The sec-
tor is set to develop further with the introduction
of the real estate investment trust law and the ratio-
nalisation of the laws concerning foreign ownership
of land. Currently foreign investments are limited to
40% equity on land and leaseholds of up to 75 years,
100% equity is permitted for condominium units

The Philippines: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 86,973,000 2.01 117,562 1352 5.00 34,095,548 7.9
2007 88,712,000 2.00 144,129 1625 5.00 34,572,204 7.9
2008 90,486,000 2.00 173,332 1916 5.00 35,056,460 7.9
2009 92,296,000 2.00 186,863 2025 5.00 35,547,231 7.9
2010 94,142,000 2.00 202,230 2148 5.00 36,045,603 7.9
2011 96,025,000 2.00 219,068 2281 5.00 38,893,205 7.9
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

92 THE PHILIPPINES

high-end projects from Ayala Land and Rockwell. In

2007 the prices paid for developed land in the areas
within the CBD ranged between $4000 and $5400
per sq metre. In other areas the prices were lower
and generally fell between $1200 and $3000 per sq
metre. Average land rates in 2008 stood at $6700
per sq metre in the Makati CBD and $3000 per sq
metre in Ortigas.
The stock of grade A residential units is increas-
ing, although not at the aggressive rates seen in
some other Asian markets. The stock of condomini-
um units supplied by the Makati business district
totalled 11,170 in 2007 with the number reported
to have grown by 2% in the first quarter of 2008.
The increase is much higher in newer locations like
Fort Bonofacio, Rockwell and Eastwood, with Fort
Bonofacio alone expected to add another 8523 units
by 2011. Residential prices are expected to rise by
8% in 2008 to end at an average rate of $2300 per
sq metre compared to an average of $1833 per sq
metre in 2006. Rents are also reported to have risen
and retail establishments. Outright ownership of by 15% in 2007 with a slower growth of 4% expect-
land is not permitted and the situation is unlikely to ed in 2008 as a result of the increased supply.
change in the near future. Although the saturation will be visible in the high-
A number of projects are now under construction, end residential sector, housing for the upper mid-
with local developers such as Ayala Land, Robin- dle class and middle class is expected to continue
sons Land, Megaworld and Citiland leading the way to remain in demand for some time.
in development. Sizeable projects that are under COMMERCIAL: The growth of the outsourcing sec-
development in Manila include the Rockwell Cen- tor has stimulated the office segment. The number
tre, The Fort and others that are located in the of companies registering climbed and the quantity
Makati business district and Ortigas Centre. of new jobs being created has risen. In 2006 the
RESIDENTIAL: The Philippines has a population of industry employed 235,000 workers and earned rev-
over 90m with growth at a compound rate of 2.2% enues of $3bn. As many as 300,000 people in the
over the last decade (1999-2008). Up to 62% of the Philippines are currently employed in the BPO and
population is between the ages of 15 and 64 years contact centre industries, and the government hopes
and as much as 10% of the population lives and to increase this by at least 40% over the next cou-
works overseas. ple of years to meet the growing demand worldwide.
Demand from Filipinos who are living overseas The Philippines now ranks second to India as the
has provided a stimulus to the residential market, destination of choice for BPO companies. Local mar-
with the majority of high-end units being sold to ket analysts have said that the sector has been grow-
absentee owners. Condominiums units, accommo- ing at a rate of 100% per annum on average over
dation near the business district and community- the last five years and 50% annually in the last two
type townhouses are all seeing increased levels of years. Statistics released by the Business Process
demand in the Manila area. Association of the Philippines shows that the coun-
Strong macroeconomic indicators have caused try has a 5% share of the $45bn worldwide IT-enabled
interest rates to drop considerably, making it easi- services market. By 2010 the industry aims to have
er for individuals to finance the purchase of homes a 10% share of the worldwide market, which is
and condominiums. Buoyancy in the sector is reflect- expected to result in around 900,000 employees
ed by rising capital values as a result of dominant and about 1.2m-1.5m indirect jobs. This growth is
expected to result in a huge demand for office space.
Total office stock has been estimated at 2.65m sq
The Philippines: tourism and hospitality indicators, 2006-11
metres at the beginning of 2008, with forecasts
Year Tourist Arrivals Tourist arrivals growth Average stay length Total stay-nights putting it at 2.72m sq metres by the first quarter of
(4- & 5-star guests) (%) (days)
2009. In 2006 vacancy rates fell below 2% for grade
2006 1,137,334 8.4 2.5 2,843,335
A spaces with prices going up by 20%. In the last quar-
2007 1,309,705 15.2 2.5 3,274,263
ter of 2007 vacancies have been reported at 2.3%,
2008 1,508,200 15.2 2.5 3,770,501
with vacancies rising slightly in the first quarter of
2009 1,736,779 15.2 2.5 4,341,947
2008 to 3%. Prices rose by 2% in the first three
2010 2,000,000 15.2 2.5 5,000,000
months of 2008 to reach $2600 per sq metre. This
2011 2,137,770 6.9 2.5 5,344,426
growth is slow compared to the 6% rise during the
SOURCE: Local statistical authorities, OBG Research
same period in 2007, which was mainly the result of

Oxford Business Group

 THE PHILIPPINES 93

a dearth of new supply. However, prices are still

expected to continue to rise to around $2800 dur-
ing 2008. An eventual slowdown will occur as a
result of an additional 800,000 sq metres of space
that is expected to come on-line by 2009.
Rents increased by 30% per annum in 2006 and
in 2007. Rentals in the Makati CBD have risen by over
50% in the last year and now range between $25
and $29 per sq metre per month. Rental prices are
approaching pre-1997 Asian financial crisis peak
levels, but these are not expect to be sustainable in
the long term. There have been reports that some
landlords in Makati’s grade A market have reduced
rents by 6% to 8% in the last quarter of 2007, bring-
ing the average to $20 per sq metre per month.
Developments in the Makati CBD include Del Rosa,
with 41,000 sq metres; Glorietta, with 14,000 sq
metres; and SM Cyberzone, with 12,000 sq metres.
Meanwhile, the expansion of the GT Tower added
around a total of 7000 sq metres of new space.
While the market is currently undersupplied, many
local real estate experts say that they expect that has been modest in the past with stock growing at
the new supply coming into the market will slow 9% CAGR between 2001 and 2006. The year 2007
down price rises in the medium term, although the saw an even slower growth with supply rising from
high-end segment will continue to pick up. 4.53m sq metres in 2006 to 4.6m sq metres in 2007.
HOSPITALITY: Composed of 7107 islands, the Philip- The pipeline is not very large and 2008 will see
pines has a number of natural attractions, includ- another very small increase in retail space, while
ing beaches, forests, mountains and waterfalls, 2009 is expected to see a 3% increase. The amount
together with a diverse cultural heritage and trop- of gross leasable area per capita stood at 0.053 sq
ical climate. Tourist arrivals in the first six months metres in 2008 and is projected to increase to 0.057
of 2008 went up by 6.9% to reach 1.6m. This is an sq metres by the end of 2010.
increase compared to the 2.8m visitors in 2006 and In the first quarter of 2008, retail vacancy rates
the 1.5m in the first six months of 2007. Partial data were reported to be around 13.7%, which is a 10%
on tourist spending for the first six months of 2008 decline from the same period in 2007. In the absence
reached $1.87bn. By 2010 visitor receipts are pro- of substantial new supply, vacancies are expected
jected to rise to $4.59bn. Tourism is a pillar of the to fall further to 11.1% by the end of 2008.
government’s five-year development plan and it is In spite of the dropping vacancy rates, annual
hoped that increased investment in the sector will rents per sq metre have fallen from $322 in 2007
generate billions of dollars and millions of jobs. to $315 in 2008 at the Ayala Centre and from $254
Metro Manila has over 42,000 hotel rooms, of in 2007 to $259 in 2008 at Ortigas. In 2009, rents
which 55% fall in the deluxe-quality category. Occu- are expected to rise slightly to $329 and $270,
pancy rates have remained stable at around 74% respectively in Ayala Centre and Ortigas.
between 2007 and 2008, while the average length Recent openings include SM Group’s Mall of Asia
of stay ranges between 2.3 and 2.5 days. Resort-type at 391,000 sq metres and Ayala Land’s Trinnoma at
accommodations, such as beaches and golf cours- 195,000 sq metres. Henry Sy’s SM Centres, which
es, run on a seasonal basis during the rainy seasons dominates shopping centre development by hold-
and exhibit annual occupancy of around 50%. Room ing around 2.7m sq metres of current stock with 28
rates vary considerably between destinations. shopping malls across the country, has also started
Most international hotel brands are present in introducing hypermarkets under the same name.
the country and include Shangri-La, Hyatt, Sofitel,
InterContinental, Dusit and Crowne Plaza. The
The Philippines: retail indicators, 2006-11
Department of Tourism has embarked on an inten-
Year Population Household consumption Growth rate (%) Inflation (%)
sive tourism campaign to attract a projected 5m expenditure ($m)
tourists by 2010, which has encouraged a number 2006 86,973,000 82,372 20.3 6.23
of new hospitality developments. Projects that are 2007 88,712,000 94,257 14.4 2.77
in the planning or construction phase include the 2008 90,486,000 109,799 16.5 4.44
300-room Marriott Hotel; Ayala’s beach resort com- 2009 92,296,000 128,529 17.1 3.78
plex in Bataan; and several hotels in Fort Bonofacio. 2010 94,142,000 149,084 16.0 3.50
RETAIL: Disposable income is climbing due to eco- 2011 96,025,000 173,702 16.5 3.50
nomic growth and the rising value of remittances
SOURCE: World Bank, IMF, International Macroeconomic Data Set
from Filipinos working overseas. Retail development

THE MARKET Real Estate 2008

94 SINGAPORE

Singapore
A healthy economy, but still room for development
Singapore attracts more than $7000 in foreign direct
investment (FDI) per capita per year. GDP per capi-
ta was estimated at $48,900 in 2007 and has grown
by 7.5% over the past three years. The economic
expansion has been attributed to increased exports
and growth in the knowledge economy. Unemploy-
ment rates in 2008 are expected to fall below 2%.
Singapore is also known for the size of its fiscal
reserves, with more than $110bn invested overseas
and a generous account surplus.
According to the Ministry of Trade and Industry,
the growth forecast for Singapore’s economy for
2008 is between 4% and 6%. Domestic inflation
reached a 26-year high of 7.5% in April and May
2008, due to external price pressures. However, infla-
tion should ease in the second half of the year.
Singapore has a population of 4.6m and it is
increasing at an annual rate of 1.1%. With a land
area of just 690 sq km, population density across the
island is more than 7000 people per sq km, but
despite this, significant areas of land are still being
reserved for green space, military and government
purposes. However, as a result of government poli-
cy discouraging large families through a system of
financial bonuses and support, Singapore’s birth
rate is now one of the lowest in the world.
REAL ESTATE AND CONSTRUCTION: The majority
of Singapore’s citizens live in apartments, 85% of
which are government constructions. Singaporean
citizens and permanent residents, a status granted
to expats staying in the country over the long term,
have the right to apply for subsidised housing, pro-
vided that combined household income remains
below government-imposed limits and that apart-
ments are not going to be sold within five years.
The Housing Development Board’s (HDB) public
housing is offered as a 99-year leasehold. These
apartments are not cheap by international stan-
dards, but cost less than Singaporean averages. The
2008 HDB releases were priced at $500,000 for
smaller units. In the private market apartments are
more expensive, normally starting at around $1m.
Corresponding to the healthy economy and a lim-
ited room for development, the real estate market
in Singapore remains healthy. The construction indus-
try is growing by more than 20% per year. Land
remains at a premium and there is little space avail-
able for redevelopment. In the beginning of 2008
prime plots attracted up to $2663 per sq metre. In
total, land sales in the first quarter in 2008 reached
$8.3bn, a slight increase in comparison to $8.17bn
in the last quarter of 2007.
RESIDENTIAL: Market activity in the residential
property sector revived towards the second quarter
of 2008, which was due to the launch of a large
number of projects. The volume of launches increased
by around 35.5% by mid-2008 to an estimated 1820
units from 1343 units in the first quarter of 2008.

Singapore: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 4,401,000 3.16 209,991 46,863 3.99 2,594,000 2.7
2007 4,589,000 4.27 229,548 49,713 3.95 2,751,000 2.1
2008 4,668,000 1.72 248,231 51,829 3.92 2,810,000 2.3
2009 4,750,000 1.76 269,381 54,194 3.88 2,860,000 2.7
2010 4,832,000 1.73 292,703 57,368 3.85 2,890,000 2.5
2011 4,916,000 1.74 317,404 60,869 3.82 2,930,000 2.6
SOURCE: IMF, World Bank

Oxford Business Group

 SINGAPORE 95

The number of new high-end and luxury units

launched in the quarter (measured by units located
in the core central region) increased by 70% by June
as compared to the first quarter. Whereas the mid-
tier category units (measured by units located in
the rest of central region), soared by a massive 182%.
The volume of new mass-market units launched out-
side of the central region actually fell by 26% from
the first quarter of 2008.
In Singapore the pricing of real estate is highly
affected by location. For instance, developments
near Mass Rapid Transit (MRT) stations are more
valuable. Dakota residences are located near the
future Dakota MRT station and are priced at $10,545
per sq metre. Clover by the Park is located near to
the Bishan MRT station and Junction 8 Shopping
Centre and the units are priced attractively at an aver-
age of $8070 per sq metre. There still remains latent
demand for luxury homes. The 100-unit Nassim Park
Residences at Nassim Hill, priced at an average of
$32,280 per sq metre, had 77% of the units, launched
in May 2008, sold within two months. recently issued a directive to government ministries
In 2007 developers resorted to aggressive pric- and statutory boards to review their office space
ing strategies in order to increase sales, which final- needs and look at the possibility of compacting their
ly showed a rise by the second quarter of 2008. Now offices and relocating outside the central business
the developers do not need to resort to any more district. All this will help to further lighten pressure
strategic pricing policies. Such market activity has on supply. This has also helped to ease the average
given way to muted growth in home prices in the sec- combined occupancy rate of grade A and grade B
ond quarter of 2008. The Urban Redevelopment office space, which in turn, helped to keep rental
Authority’s estimates showed that in 2008 the rise growth in check in second quarter of 2008.
in home prices throughout Singapore was 0.4% in Average monthly gross rents of grade A office
the second quarter, which was very low in compar- space in Raffles Place, which is an area just south of
ison to 3.7% in the first quarter. the Singapore river and home to many key commer-
Rents have begun to decrease in spite of a resist- cial buildings, moved up by a modest 1.7% in the
ant behaviour by multinational companies due to the second quarter to $191.74 per sq metre, while aver-
higher costs of living resulting from the rising infla- age monthly gross rents of grade A office space in
tion rate. Due to a slow sales market there is a delay other micromarkets saw moderate increases, rang-
in demolition works of several collective sale sites. ing between 0.6% and 1.3% in the same period.
With many major condominium projects being com- Institutional investors remained interested in
pleted, pressure on the supply in the leasing market acquiring office buildings in the second quarter of
has eased. This resulted in the fall of average month- 2008, even despite concerns over the subprime cri-
ly gross rents of luxury apartments by 6.9% in the sis in the US and the slowing economy in the US and
second quarter of 2008, from $77.68 per sq metre Europe. Altogether, capital values of grade A office
per month in the first quarter down to $72.41 per space have remained flat at $30,280 per sq metre
sq metre per month as of June 2008. on average in second quarter 2008.
Although unfavourable macroeconomic situations, In addition, it is expected that the demand for
like the slowdown in the US economy and rising office space will continue with the current trend
inflation, will continue to depress the residential and remain healthy, with 40% of financial services
property market, recovery in the US economy any- firms indicating intentions to increase staff over the
time in the second half of the year, will lead to a hike
in the home prices. For the year as a whole, the cost
Singapore: retail indicators, 2006-11
of housing could still potentially climb to an overall
Year Population Household consumption Growth rate (%) Inflation (%)
increase between 4% and 8%. expenditure ($m)
OFFICE: Towards the second quarter of 2008 the rap- 2006 4,401,000 53,069 8.4 0.97
id pace of office rental growth since the middle of 2007 4,589,000 56,423 6.3 2.10
2006 finally eased due to reduced pressure on sup- 2008 4,668,000 60,142 6.6 4.70
ply. Firms continued to show an increasing accept- 2009 4,750,000 64,443 7.2 2.47
ance of alternative and non-traditional business 2010 4,832,000 68,817 6.8 2.04
locations such as retrofitted state buildings, transi- 2011 4,916,000 73,672 7.1 1.72
tional offices, high-tech industrial spaces and busi-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
ness parks. Additionally, the Ministry of Finance

THE MARKET Real Estate 2008

96 SINGAPORE

In addition to Orchard Road, which is a retail, enter-

tainment and tourism centre, there are a number of
growing luxury retail outlets and areas in the finan-
cial districts. The Fullerton Hotel at Raffles Place has
created its own luxury retail cluster, turning its under-
utilised conference rooms into some 464.51 sq
metres of retail stores. Retail rents reflected mod-
erate increases during the second quarter of 2008.
Average monthly gross rents of prime retail space
in Orchard Road rose to 1.5% to average at $460 per
sq metre per month. Rents for prime retail space
located at regional centres grew by 1.9% as compared
to the first quarter of $355 per sq metre per month.
Due to sound economic fundamentals and con-
tinued tourists arrivals, retail sales are expected to
remain at healthy levels for the rest of 2008. A num-
ber of upcoming visitor-generating events, includ-
ing the opening of the two integrated resorts, as well
as the hosting of the Youth Olympics in 2010, will
help the demand for retail space remain buoyant.
The retail sector will also greatly benefit from strong
next six months. In the year ahead more multination- growth in intra-regional travel, which has been giv-
al companies can be expected to set up offices or en a considerable boost by continuing expansion of
make plans to use Singapore as their regional cen- road and air routes throughout Asia.
tre, which will potentially also contribute to the The increasing demand implies that retail rents are
demand for office space. going to strengthen further, although the growth in
Looking at the immediate future, the average occu- rents will be moderated due to an increased supply
pancy rate of grade A office space is expected to of units. Rents for prime retail spaces are forecast-
remain above 95% and rents are forecasted to ed to rise 3-5% for the whole of 2008, which will be
increase slightly to a maximum of 2% on an average a fall in growth rate from the annual average of 5.4%
per quarter for the remainder of 2008. achieved for the last two years.
RETAIL: There was an increase in retail sales, exclud- HOSPITALITY: The hospitality sector is considered
ing motor vehicles, by 1.2% as compared to 2009’s to be one of the economic pillars of Singapore. More
5.9% growth. The average 4.1% growth in retail sales than 10m tourists visited Singapore in 2007, bring-
between January and April 2008 was, however, some- ing close to $9.94bn into the country. The govern-
what slower compared to the 7.2% growth for the ment is targeting 17m tourist arrivals and $21.3bn
same period the previous year. in tourist earnings by 2015. The government is pro-
The second quarter of 2008 saw a great deal of moting several key projects, such as the Marina Bay
renovation work for retail malls, as well as the rede- and Sentosa integrated resorts, in addition to focus-
velopment of properties for retail purposes. Frasers ing on meetings, incentives, conferences and exhi-
Centrepoint Trust, which is a developer-sponsored bitions facilitated for business travellers, Formula
real-investment trust specialising in retail, has just One racing and health care tourism to attract a wider
completed the $13m makeover works and the suc- range of visitors and achieve the set targets.
cessful relaunch Anchorpoint. It then announced At the end of 2007 average occupancy stood at
that it would soon start with a $40m expansion of 88%. Average room rates climbed almost 22.8% to
Northpoint, situated in Yishun town centre, which is the end of 2007, reaching $158 per night. By May
due for completion in mid-2009. The combined net 2008 average daily rates for the five-star segment
leasable area (NLA) will be 21,553 sq metres, an had increased by 20%, compared with 2007. The rev-
increase of some 56% over the centre’s current NLA. enue per available room for four- and five-star hotels
in 2007 was the highest for 10 years, with a growth
of 22.4% for four stars and 18.8% for five stars.
Singapore: tourism and hospitality indicators, 2006-11
The sector is optimistic on hotel rates for 2009
Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights and the demand is forecasted to grow 5% and sup-
(4- & 5-star guests) (%) (days)
ply 4% per annum. Since August 2006, 14 sites have
2006 2,087,362 38.6 3.4 7,097,030
been selected for development, and will together
2007 2,052,040 -1.7 3.6 7,387,342
contribute a further 4800 rooms to the market.
2008 2,192,182 6.8 3.6 7,964,484
It is believed that hotels catering to business trav-
2009 2,324,430 6.0 3.7 8,556,036
elers are better positioned to benefit from the
2010 2,453,021 5.5 3.7 9,188,232
tourism boom. There should also be strong demand
2011 2,609,802 6.4 3.8 9,964,670
for serviced and leisure hotels, as more of the abun-
SOURCE: Local statistical authorities, OBG Research
dant future supply would cater to leisure travelers.

Oxford Business Group

 THAILAND 97

Thailand
The country bounces back from a series of challenges
Despite the turmoil that has stricken the economy
over the past decade, such as the 1998/99 Asian
financial crisis, the tsunami in 2004 and the military
issues in 2006, Thailand has managed to maintain a
steady GDP growth over the past few years. The num-
bers stood at 4.8% in 2006 and a slightly lower fig-
ure of 4.5% in 2007. At the end of 2007 GDP per
capita was a healthy $8000, which when compared
to neighbouring Association of Southeast Asian
Nations (ASEAN) countries, ranks the fourth highest
among them. Economic growth in 2008 is estimat-
ed to be about 5.6%, with the increase mainly due to
the recovery in domestic demand.
Inflation was 2.3% in 2007, but it is on the rise in
line with the increase in global food and fuel prices.
Inflation rates are forecasted to rise to 8% by the end
of 2008. Interest rates, however, are likely to remain
stable in support of economic growth. Since 2000
the poverty rate in Thailand has decreased by over
2%, mainly due to the increase in agricultural prices,
and the unemployment rate has also seen a reduc-
tion down to 1.7%. Increases in income were seen most
in families involved in farming but those involved in
non-farming activities were affected badly.
Exports from Thailand account for some 60% of GDP,
making exports one of Thailand’s main economic
drivers. The industry is forecasted to do well in 2008,
with the diversification of Thailand’s export destina-
tions high on the political agenda. Domestic demand
is also expected to recover in 2008 with the newly
restored faith in the political situation.
The new, democratically elected government has
begun to bolster investors’ faith in the market but
many investors are still weary. The government has
announced clearer policy directions, which should give
a considerable boost to investor confidence.
There are, however, other sources of concern. The
Islamic secessionist movement in the southern
provinces of Yala, Pattani and Narathiwat has become
increasingly violent, with a series of coordinated
bombings against tourism targets. Across Thailand
the attitude toward tourism is increasingly ambigu-
ous, with foreign arrivals blamed for negative impacts
on the social structure, and particularly for the spread
of HIV. To combat these attitudes and the interna-
tional opinions towards tourism in the country, the
government has introduced policies designed to fos-
ter a more select, high-end tourist demographic.
Under Thai law foreigners may only hold land if they
have permission from the Interior Ministry or have a
registered business promoted by the Board of Invest-
ment. This directive has traditionally been set aside,
with foreigners able to buy land through shell com-
panies. However, in 2007 foreign buyers were warned
that they would no longer be able to hold real estate
in this manner – something that has become a mat-
ter of great concern for owners of second homes.
The newly elected government, however, has

Thailand: economic and demographic indicators, 2006-11

Population Population GDP ($m GDP per capita Average Labour force Unemployment
growth (%) at current prices) ($ at PPP) household size rate (%)
2006 65,280,000 0.26 206,703 7397 4.27 36,400,000 1.5
2007 65,740,000 0.70 245,659 7900 4.27 36,900,000 1.4
2008 66,398,000 1.00 272,494 8401 4.27 37,250,000 1.2
2009 67,061,000 1.00 294,173 8942 4.27 37,670,000 1.1
2010 67,732,000 1.00 31,933 9550 4.20 38,160,000 1.2
2011 68,409,000 1.00 345,204 10,234 4.16 38,720,000 1.4
SOURCE: IMF, World Bank

THE MARKET Real Estate 2008

98 THAILAND

ation has calmed down, investors are still weary. Take-

up rates are decreasing slowly.
Despite decreasing take-up rates, prices for units
are increasing slightly. At the end of 2007 the aver-
age price per sq metre in Bangkok was $2517. Rentals
also remained stable and are expected to remain sta-
ble throughout 2008. A great many developers have
begun to slow down the launch of new condomini-
um projects in Bangkok, mainly due to the current
market situation of an oversupply of units.
Although overall demand has declined, this is not
so with high-end, luxury apartments. Demand for the
high-end market is still going steady, as buyers and
investors continue to be interested in the unique
developments situated in prime areas. However, due
to increasing cost of living, some high-end buyers are
being slowly pushed into the mid-range market.
Phuket, on the other hand, is receiving increasing
interest from investors, and as more and more tourists
visit Phuket each year, the demand for holiday homes
increases. The biggest market is the condominium
announced that these legislations will be changed market, with almost all completed units taken up and
over the course of 2008. up to 50% sales on projects under construction. Vil-
The newly elected government has also recently las are popular as well, with a higher percentage of
announced its plans to resume public infrastructure marketed villa projects being sold.
projects in 2008 and has set aside a bigger budget Pattaya is receiving increasing interest in the con-
for this purpose and for public investment. do market, with many Bangkok residents buying sec-
Thailand has a population of over 65m people, with ond homes in Pattaya, one of the popular weekend
around 8m of them living in the capital city. The annu- getaway destinations. Pattaya is only a short drive
al population growth rate is currently 0.64%. away from the capital (145 km south).
RESIDENTIAL: At the end of 2007 the condomini- The residential market in resort locations is high-
um supply in downtown Bangkok was just under ly dependent on the tourism industry. In 2005, after
60,000 units. Of these units, 20,000 units were com- the tsunami hit, the residential markets on the coastal
pleted in 2007, sending the market toward an over- regions were affected badly. In Bangkok, however,
supply. Due to a shortage of land in the CBD, most the political situation in early 2007 also affected
condominium projects are developed in suburban investor behaviour, as they chose to wait out the
areas outside the CBD, such as Ratchadapisek and period of unrest and put most transactions on hold.
Ratchayothin, which can still be easily accessed OFFICE: In 2007 the total supply of office space in
through the mass rapid transit trains. According to Bangkok was approximately 4.8m sq metres. Average
Knight Frank research, the number of condominium occupancy rates stood at a strong 91.5%, with occu-
projects launched in 2007 is lower than in 2006, due pancies remaining stable year-on-year (y-o-y), due
to the market slowing down and reaching an over- to investors choosing to wait out the period of unrest.
supply in the second home and upper-class markets. The re-election of a democratic government has sta-
The economic slowdown has also put a damper on bilised the market now and it should see more activ-
the take-up rate of condominiums in Bangkok, with ity in 2008, provided the political situation stabilis-
investors slowing down and being more careful in es. A total of 154,000 sq metres is set to enter the
terms of the purchase of property. This trend is also market by the end of 2008.
due to the political unrest in Thailand, which has Grade A office space in Bangkok is currently 1.38m
made the market slightly volatile. Although the situ- sq metres and the total supply in Bangkok metropol-
itan area is presently 7.49m sq metres.
Rentals in 2007 increased only slightly from 2006
Thailand: retail indicators, 2006-11
and at the end of the year stood at $222 per sq metre
Year Population Household consumption Growth rate (%) Inflation (%)
expenditure ($m)
per annum, showing a 2% y-o-y increase.
2006 65,280,000 115,695 14.9 4.64
Although locally, concerns surrounding the polit-
2007 65,740,000 129,388 11.8 2.23
ical situation had more or less died down for the time
2008 66,398,000 145,250 12.3 3.52
being, investor concerns have now shifted focus to
2009 67,061,000 163,024 12.2 2.46
the current global economic situation and the sub-
2010 67,732,000 182,726 12.1 2.04
prime crisis in the US. According to CB Richard Ellis,
2011 68,409,000 205,877 12.7 1.99
due to the recent hike in construction costs, office
rentals will have to rise from the relatively inexpen-
SOURCE: World Bank, IMF, International Macroeconomic Data Set
sive rates to provide incentives for new development.

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 THAILAND 99

Although rents went up in 2007, the net take-up

rate, like in the residential sector, was slightly less than
the previous year. Demand is expected to rise in 2008
provided that the political situation remains stable,
but vacancy rates could likely increase due to the
high volume of new leasable space that is expected
to be completed by the end of 2008.
RETAIL: The retail consumer market is beginning to
revive, provided the political situation stabilises. Total
stock of retail space in Bangkok at the end of 2007
was 4.93m sq metres, with over 260,000 sq metres
to be completed by the end of 2008.
Vacancy rates decreased in 2007 but by the end
of 2008 conditions were looking up and retailers
were slightly more optimistic. Rentals increased in
2007 due to slightly higher vacancy rates. Early 2008
saw a decrease in vacancy rates of 1%, however, pro-
viding the political situation remains stable.
Current market research estimates are that the
price of rental for retail space will rise by the end of
the year to $512 per sq metre per year.
The retail consumer market has begun to revive tional tourist arrivals in 2007, respectively. The most
itself, and will continue to do so, providing the polit- popular of these resort destinations is Pattaya, with
ical situation in the country remains stable. a total of 6.2m visitor arrivals in total (local and for-
Total retail sales in Thailand are expected to reach eign). Pattaya attracts many visitors because of its
$78bn in 2008, with multinational chains absorbing proximity to Bangkok and is, in fact, a very popular
an increasing share of the market, the retail environ- weekend destination with Bangkok residents, many
ment in Thailand is also under review, with the gov- of whom own holiday homes in the city.
ernment introducing legislation in late 2007, which Phuket is another very popular destination. With
was designed to protect smaller retailers. over 4.7m local and international visitor arrivals. In
Tourism is a rather large and important factor in 2005 visitor arrivals dropped drastically to only 2.4m
retail sales. According to Euromonitor International, arrivals due to the damage inflicted by the tsunami
an independent provider of business intelligence, in 2004. Since then however, the tourism industry has
tourism receipts totalled at a little over $10bn. Prime picked up and the number of visitors has nearly dou-
retail centres in the city centre continue to focus bled. The total stock of high-end hotel rooms in
their marketing attention on attracting tourists. Bangkok is 7991, with that number currently fore-
Locally, however, due to spending behaviour casted to increase by almost 50% by 2010.
changes caused by inflation, the global fuel hike and Samui had just over 1m visitors in 2007. In 2008
the recent increase in food prices, major retailers Thai Airways launched flights to Samui, making it the
are looking at focusing more on building smaller- only airline operator to operate international flights
scale trade centres around Bangkok, which will cater with stopovers in Bangkok to the island. The airport
to different clientele rather than starting construc- is also aiming to become the second international
tion on more large-scale shopping centres in the city. flight centre of Thailand. This is expected to create
HOSPITALITY: In 2007 there were 14.46m interna- more tourism interest in the island and to attract
tional tourist arrivals in Thailand, with over 50% of more visitors to the island in the next few years.
that number coming from Asian countries and 24% Thailand is also promoting itself as a destination
from ASEAN countries. That was a growth of 4.65% for the meetings, incentives, conventions and exhibi-
from the previous year. The average length of stay tions market as an economical alternative to more
for international tourists also increased from 8.62 days expensive cities such as Hong Kong and Singapore.
in 2006 to 9.19 days in the following year.
In Bangkok there is a total supply of 24,080 rooms,
Thailand: tourism and hospitality indicators, 2006-11
with 40% of the supply located in downtown Bangkok.
Some 4000 rooms are expected to be delivered by Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-night
(4- & 5-star guests) (%) (days)
the end of 2008. The occupancy rates for high-end
2006 5,804,400 20.0 8.62 50,033,928
and luxury hotels in the first quarter of 2008 was 76%,
2007 6,062,245 4.4 8.66 52,476,429
which was an increase of 2% from the same period
2008 6,439,045 6.2 8.69 55,946,663
of the previous year. Average room rates in Bangkok
2009 6,990,259 8.6 8.78 61,341,962
increased from $123 in the first quarter of 2007 to
2010 7,458,466 6.7 8.90 66,349,811
$194 in the first quarter of 2008, a 58% increase.
2011 7,965,613 6.8 9.01 71,780,881
Top tourist destinations include Pattaya, Phuket
SOURCE: Local statistical authorities, OBG Research
and Samui, with 4.38m, 3.16m and 897,000 interna-

THE MARKET Real Estate 2008

100 INVESTMENT LAWS

Investment laws
COUNTRY LAW PROVISION FOR REAL ESTATE ACQUISITION

Algeria Foreign Investment Law - Foreign ownership of land is allowed but is subject to authorisation.

- Investors can purchase real estate in specific zones.

- For an investment to be considered foreign, it must meet a minimum threshold level of foreign equity relative to the total

value of the investment.

- For investments less than or equal to $25,000, the threshold is 15%; between $25,000 and $125,000 the threshold is 20%;

and for investment greater than $125,000, the threshold is 30%.

Abu Dhabi Law No. 2 for 2007, - UAE nationals are given the right to own land anywhere in Abu Dhabi. GCC nationals can own land in designated

revising some provisions investment areas and lease land anywhere in Abu Dhabi.

of Law No. 19 for 2005 - Other foreign nationals can acquire land based on usufruct right for up to 99 years (leasehold) or musatawa right

for up to 50 years renewable within the investment areas.

Bahrain Government Decree of 2001 - Foreign land ownership is permitted in selected areas under development.

- Foreign nationals have the right to own property in designated investment areas. Some areas in the capital,

Manama, are open to foreign ownership of residential and commercial buildings of 3, 5 or 10 storeys.

- GCC nationals are given access to all types of real estate ownership in Bahrain.

Dubai Law No. 7 of 2006 - Law No. 7 of 2006 regulates the registration of real property in Dubai. Under this law, UAE nationals (and companies

owned by them) are permitted to own a freehold interest in any land.

- Non-UAE nationals, however, are only permitted to own freehold and leasehold (99 years) in designated areas.

Egypt Investment Incentives and - Non-Egyptians can own land in Egypt. Vacant land is required to be developed within 5 years.

Guarantees Law 8 of 1997: - Property ownership is limited to two properties with an area not exceeding 4000 sq metres each.

Law No. 230 of 1996 Exceptions are subject to Prime Minister's approval. Properties may be sold only after 5 years of ownership.

India Investment Law of 2005 - 100% land ownership is allowed, but developers require 500,000 sq metres minimum built-up area for development

projects and 10 ha minimum land area for plotted developments.

- Foreign ownership of property is allowed only for Persons of Indian Origin or Non-Resident Indians.

- $10m minimum capitalisation is required for wholly owned subsidiaries, and $5m for joint ventures with Indian partners

for real estate projects.

- 100% Foreign Direct Investment (FDI) is permitted through automatic route for setting up of SEZs in the country

(Special Economic Zone Act, 2005)

Indonesia Law 5 of 1960 - Foreigners are not allowed to own land unless they own it though a PMA (Penanaman Modal Asing), which is a

foreign investment company.

- PMAs must have at least 5% Indonesian ownership (Foreign Capital Investment Law No. 1 of 1967, amended by

Law No. 11 of 1970 and the Company Law No.1 of 1995.)

Jordan Investment Promotion - Foreign companies holding a majority share in a Jordanian company, as well as wholly owned subsidiaries,

Law of 2000 obtain right to ownership of land where the company's business objectives require this (e.g., agriculture)

or allow for ownership of land or real estate.

- Foreign nationals and firms are permitted to own or lease property in Jordan for investment purposes and

personal use, provided that their home country permits reciprocal property ownership rights for Jordanians.

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 INVESTMENT LAWS 101

Investment laws
COUNTRY LAW PROVISION FOR REAL ESTATE ACQUISITION

Kuwait Foreign Investment
Law (No. 8/2001)
- Foreign land ownership is permitted only to GCC nationals. Kuwaiti joint-stock companies with foreign equity can own land,
provided it is used for business operations (e.g. office space).
- Real estate investment is not restricted to GCC-nationals. Other foreign investors can subscribe to Kuwaiti shareholding
companies for real estate investment.
- Other foreign nationals are not permitted to own property in Kuwait.
Note: Kuwait is considering permitting foreign ownership of property, which may boost optimism in the market.

Lebanon Law number 296 - Non-Lebanese persons can own real estate in Lebanon.
in 2001 (amendment) - Property taxes and registration fees have been reduced for overseas real estate buyers from 16% to 5%.
- Individual purchasers may not procure more than 3000 sq meters of real estate unless they have
special permission to do so.

Libya Foreign Investment
Law No. 5 of 1997
- Foreign investors are given right to land ownership only for use, rent, or project development. Land ownership for
investment is still unclear.
- Foreign nationals are allowed to own or lease property, but the law does not indicate whether the property can be used as
collateral or can be transferred.
- The minimum capital needed is left to the discretion of the public officials and is not specified by law. The Board often
requires a minimum of €600,000.

Malaysia National Land Code - No capital gains tax on residential property.

- All foreigners except for Israelis and Serbians are allowed to invest in residential property.
- Stamp duty can be up to 4% and up to 0.5%is also payable on loans.

Morocco Investment Charter of 1995 - Residential investment is encouraged by offering fiscal incentives for social housing developments of more than 2500
units over a period of 5 years, with public land granted to developers.
- Privatisation of urban and rural land holdings provides leeway for investors in other residential segments
and developments. Agricultural land can also be purchased provided it will be used for tourism projects.
- Foreign nationals can own property either for residence or investment.
- No minimum capitalisation is required but incentives are applicable to capitalisation of above $21.5m investment.

Nigeria Land Use Decree 1978 - Foreigners can obtain leases from the State for a maximum of 99 years for the use of land.

Northern Localised Property Laws - Freehold property ownership is offered in Ras Al Khaimah, Ajman and to a limited degree in Fujairah.
Emirates - Leasehold properties are available in Sharjah. Property law in Umm Al Quwain limits foreign ownership to property
(not land).

Oman Royal Decree 12/2006 -  Land ownership rights were initially granted to GCC national and corporate entities (wholly owned by GCC nationals).
Ownership rights have since been extended to non-GCC nationals within integrated tourism zones,
either for residential
or investment purposes.
- Foreign nationals can own real estate in designated integrated tourism-related areas.

Pakistan Foreign Private Investment - Foreign entities are permitted to purchase land in Pakistan, but are required to develop within four years on pain of
(Promotion & Protection) forfeiture.
Act of 1976 - Non-resident Pakistani, overseas Pakistani and foreign nationals may also purchase immovable property in Pakistan.
- Minimum foreign equity for investments has been reduced from $500,000 to $300,000.

The Philippines Foreign Investment Act of 1991 - Investment requires 60% equity from either a Filipino national or company.
- Land ownership is limited to 40% equity and can be leased for 50 years, renewable for another 25 years.
- Foreign nationals can purchase condominium units and retail establishments, as well as commercial units.

THE MARKET Real Estate 2008

102 INVESTMENT LAWS

Investment laws
COUNTRY LAW PROVISION FOR REAL ESTATE ACQUISITION

Qatar Law No. 17 of 2004 - 100% foreign land ownership is offered in designated eco-tourism areas.

- Non-Qataris are given the right to usufruct real estate for 99 years (renewable for further similar term in eco-tourism

designated areas) and can own one or more apartment units in multi-storey buildings in residential areas.

- GCC nationals are allowed to purchase properties in wider investment areas.

Saudi Arabia Regulations of Real Estate - Investors can purchase land for real estate development, providing development occurs within 5 years of purchase.

Ownership and Investment by - Non-Saudis enjoying legal residency in Saudi Arabia are permitted to own property in Saudi Arabia for use as a personal

Non-Saudis 17/4/1421 residence, subject to obtaining a permit from the Ministry of Interior.

- Foreign companies are also permitted to acquire residential accommodation, subject to approval of the licensing authority.

- Ownership within Mecca and Medina is restricted to Muslims. Non-Saudi Muslims are permitted to lease property within

the vicinity for a period of two years, renewable for the same term.

- For investment in developments a minimum project cost of SR30m is required.

Singapore Residential Property - Foreign persons (including natural persons, foreign companies and societies) are restricted from purchasing vacant land

Act amended in 2005 and landed residential property, such as bungalows, terrace houses, semi-detached houses; approval will have to be obtained

from the Minister for Law to purchase any of these.

- Foreigners are allowed to lease restricted residential property for a term not exceeding 7 years.

- No restrictions on foreign ownership of industrial and commercial real estate.

Sri Lanka Law No. 4 Board of Investment - 100% foreign investment for construction of residential buildings, tourism and leisure related activities is permitted.

Act As Amended in 1980, 1982, - Private land ownership is limited to 50 acres per person. Land transfers to foreign nationals incur 100% tax.

1992 and 2002 - Foreign nationals can own property subject to 100% tax. Property acquisition on 99 years lease is available and

subject to 7% tax.

- Minimum investment of $5m for construction project is required.

Syria Law No. 10 (Investment Law) - Foreign nationals are allowed to own land.

of 1991; Law No. 17 of 2007 - Foreign nationals can own property up to as much as 2 housing units as provided by Law No. 17 of 2007.

Thailand Thailand Land Code - Thai property law does not allow foreigners to own freehold land in Thailand although they are allowed 100%

ownership in a lease on Thai land.

- Foreigners are allowed to own a limited amount of land based on an investment of 40 million baht for 5 consecutive years,

provided that the land is used for residential purposes (investment promotion act).

Tunisia Law N. 93-120 - Foreign investors can acquire land (except farm land) and buildings for tourism and services projects.

The Investment Code - Foreign ownership of property is permitted.

Turkey Foreign Direct Investment - Foreign ownership of land and property is permitted on reciprocal terms, applicable to foreigners whose country

- Law No. 4875 of 2003; permits Turkish citizens or companies to own property there.

Purchase of Property by - Only foreign commercial companies with a legal entity who operate under special laws (e.g. Tourism Encouragement Law,

Foreigners Law of 2006 Industrial Zones Law, Oil/Petroleum Law etc) are given the right to own property in Turkey.

- In respect to FDI, foreign investors with legal entity established or operating within Turkey can acquire real estate,

provided such acquisition is legal for a Turkish national.

- Turkish nationals and foreigners have equal individual property ownership rights, with the exception of certain

restricted areas.

Yemen Land Code - Investors have the right to ownership of land and buildings.

- To benefit from investment incentives, minimum capital of YR50m is required. Developments must consist of not less

than 50 residential units reserved for home ownership or rentals to a 3rd party, and tourist establishments of not lower

than 3-star category.

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104 CONSULTING SERVICES

OBG Consulting
OBG Consulting is the research and advisory division of Oxford Business Group, a pub-
lishing and research company providing business intelligence on emerging markets
across the Middle East, Asia, Africa, Eastern Europe and the Levant.

OBG’s real estate and consultancy division provides advisory services to some of the
biggest names in international development and contracting. In 2007, the consul-
tancy worked on more than $160bn worth of developments on four continents. By
mid-2008, the real estate and development division participated in projects worth
$120bn throughout the Middle East, North Africa and Asia.

OBG SERVICES

RESEARCH: Research teams based in our regional offices across the world carry out
over 100 interviews in each country every year, allowing OBG to maintain a core data-
base of economic statistics, construction costs and price data on close to 30 emerg-
ing markets.

FEASIBILITY: OBG has helped assess the financial viability of real estate projects on
sites of up to 7m sq metres. Our team specialises in large-scale, mixed-use projects
with wide-ranging applications and unusual risk profiles.

DUE DILIGENCE: We are committed to working with clients to assess projects’ via-
bility for acquisition or sale, helping clients to place developments within market con-
texts and calculating potential for advancement.

VALUATIONS: The valuations team includes surveyors trained in the UK and the Gulf
who work with master developers and private clients to focus on commercial valua-
tions of complex, long-term projects.

Oxford Business Group