Real estate transactions in GCC ‘to eclipse 2019 levels’
GCC real estate transactions are on course to eclipse 2019 levels this year, with new analysis suggesting residential prices have bottomed out from the impact of Covid-19, and the lows of 2020.
Kuwait-based Kamco Invest’s GCC Real Estate Update Aug-2021 shows value transacted in H1-2021 reached $64.9 billion and has approached within 26 per cent and 32pc of the full year figures of 2020 ($90.5bn) and 2019 ($96.5bn) respectively.
The higher transaction activity year-on-year (YoY) in H1-2021 was largely due to opportunistic buying of bargain-priced properties, as property prices reached multi-year lows from the impact of Covid-19 in early 2020.
Moreover, a higher average value per transaction was achieved in H1-2021 for key markets, when compared with pre-pandemic levels of H1-2019, pointing towards the investment appetite for attractively priced real estate.
Even as the H1-2021 estimate already represents strong growth YoY, actual growth is expected to be higher, since an accurate like-for-like analysis was not possible as certain markets were yet to report Q2-2021 and June-2021 transactions.
Rents on the other hand continued to decline in most markets YoY barring Riyadh as of H1-2021, and tenants continue to migrate to more affordable and/or larger residences, while some tenants prefer to negotiate with landlords for lower rents and other incentives.
Based on consultant data, Bahrain (down 12.5pc) and Jeddah (down 10pc) saw the largest declines in rents YoY, while rents in Riyadh remained stable over the same period.
Office space rents witnessed mixed trends across the GCC, but still remain extremely sensitive to incoming supply, finds the Kamco report.
Markets such as Doha, and Bahrain witnessed high single-digit percentage declines YoY in H1-2021, as per consultant data, due to existing oversupply in the market.
Operators continue to optimise their portfolios between traditional and flexible spaces, while occupiers negotiate hard and look for higher quality spaces.
Occupiers are likely to prefer sustainably built environments, as more companies start incorporating environmental, social and corporate governance (ESG) strategies.
Technology, media and telecom (TMT) is another sector that is likely to witness growth in their contribution towards new office space demand.
In the industrial segment, growth in demand from themes such as e-commerce and 3PL logistics witnessed in 2020 should normalise, and focus should return towards more conventional sources of demand such as construction and industrial materials and white goods.
Competition amongst spaces could intensify, and will potentially lead to downward pressure on rents, as landlords look to preserve market share.
Retail rents in the GCC continued to correct between 4pc and 12pc YoY across various markets at the end of H1-2021, as per consultant data.
The trend sustained despite achieving higher Covid-19 vaccination rates, leading to a recovery in fundamental drivers such as footfalls and point of sale transactions.
Retailers persisted with negotiations over restructuring tenancy deals, bargaining for additional rent-free periods.
Separately, the transformation of retail mall spaces deriving a higher footprint from entertainment and F&B tenants is expected continue in 2021.
Event-specific spikes in footfalls and sales conversion from events such as Expo 2020 Dubai should provide temporary respite to mall space owners.
Real estate equity indices in all GCC markets barring Qatar witnessed strong double-digit percentage gains in H1-2021.
The Refinitiv GCC Real Estate Total Return Index gained by 22pc, while the MSCI GCC index moved up by 22.6pc over the same period.
At current market levels (H1-2021), Kamco believes that GCC RE equities prices are not just pricing in a cyclical recovery from Covid-19, but a more broader structural rebound.
The firm’s view is that real estate rents and prices in all sub-segments remain in different stages of recovery, and would need significant growth in fundamental performance indicators from here on to warrant a further rerating in the stock prices of developers and REITs.
Apart from project IRRs and cashflow visibility, developers are seeking portfolio investments into PropTech and property management companies in order to capture more recurring and diversified revenues.
