Kuwait real estate market: Key challenges ahead

Published May 25th, 2010 - 08:32 GMT

DTZ, one of the top global real estate advisory firms, today released its market report on Kuwait for the period Q1 2010, giving detailed insight into the country’s real estate sector across the asset classes.


The report covers the commercial office, retail and residential sector and comments on the effect the economic crisis has had on the Kuwait real estate market. Martin Cooper, Head of Consulting and Research for the Middle East said: “The Kuwait real estate market faces some key challenges. There are substantial volumes of supply in the commercial and residential investment sectors and significant undersupply of private residential housing. In the office sector, demand has been significantly curtailed by the ongoing global economic crisis but also the ongoing disputes between parliament and the government which is restricting Kuwait’s ability to diversify and expand its economy beyond the oil and gas sector.”


The office market

In a stark contrast to the pre-credit crunch period, commercial office supply now outstrips demand. In Kuwait City, rental levels have fallen by as much as 50% from peak headline rents in 2007. With many companies failing or consolidating their operations, demand has flattened whilst office supply has continued to come to the market. This has had a noticeable impact on rents, especially for new build properties, and tenants are putting pressure on landlords to review rents in the context of the current market conditions. DTZ believe there will be a continued pressure on office rents although landlords will seek to stabilise this by offering other forms of incentives to new and existing tenants.


In the last 18 months, more supply has come to the market which has resulted in a broader choice of accommodation for potential tenants and demand has noticeably softened due to a large extent to world economic conditions and continuing domestic politics which are causing the local economy to stagnate. Currently, DTZ estimate there is approximately 184,000 sq m of new office space within 28 buildings in Kuwait City which is either complete or available to rent or is expected to complete in the next 3 months and is currently in the leasing/marketing phase. 


There are also a significant number of projects currently under construction and due for completion between 2010 and 2013. DTZ estimate a further 28 such projects in Kuwait CBD which will add a further 439,000 sq m of new floor space to rent.  In addition, there are at least 9 further schemes which DTZ are aware of at an advanced design/feasibility stage, although no dates have been provided as to when they expect to commence construction. If they are built in their current form, they could provide an additional 291,000 sq m of office space to rent in Kuwait CBD.


Other areas offering commercial office space include; Salmiya where two new developments, Symphony and Olympia, provide approximately 34,000 sq m of office space for rent.  In Hawally, Al Othman Charity Complex, adjacent to the Third Ring Road, recently commenced construction and includes a 20 storey office tower providing approximately 12,000 sq m of office space. More recently, there has been an increase in “speculative” office developments in Kuwait Free Trade Zone offering circa 20,000 sq m of new, modern office space for lease.


DTZ estimates there is between 8,000 sq m to 12,000 sq m of second space currently available to rent in Kuwait City. The consolidation of businesses, together with some companies moving from rented to owner occupied accommodation, is contributing to an increased amount of second hand space in the market. Government organisations have been particularly active in moving from rented space to purpose built accommodation.


The residential market

DTZ’s report sets out 2 clear markets in the residential sector.

The Kuwaiti freehold market (referred to as private residential) which is typically characterised by villa type accommodation. In this sector, there has been recent recovery in land prices after falls of between 25-35% from peak levels in 2008. There has also been significant growth in land rates in new areas where the Kuwait Government has granted construction permits. DTZ believe that the significant housing shortage for the Kuwaiti population will remain until Laws 8 & 9 are further reviewed to extend the amount of land being available to the private sector and extending their involvement in meeting the housing requirements of the Kuwaiti population.


The rental sector (referred to as investment properties) is dominated by expatriates and is typically characterised by apartments. Villa’s are also available (either as a whole or as floors) to rent but these are generally directly from a Kuwaiti individual rather than a real estate company and represent a small proportion of the total rental sector. The investment sector relies heavily on the expatriate population for demand, given that non Kuwaiti’s cannot own a freehold. DTZ believe the increasing supply and impact of the economic crisis, which has seen the number of expatriates falling, will continue to have a negative impact on the sector.


The retail market

According to DTZ’s report, Kuwait has more than 50 covered malls of varying age, scale, quality and tenant mix with leasable floorspace of approximately 675,000 sq m. These malls are predominately located in the City Centre, Hawally, Salmiya and Fahaheel. Jahra, which lies to the west of Kuwait City and is somewhat detached from the main urban area, is also seeing new retail development.


The report outlines that, in general, rents for prime retail locations in established malls range from KD 20 to KD 45 per sq m per month. In many of the secondary locations, prices range from between KD 15 to KD 20 per sq m per month.  


The ongoing economic situation has had a direct impact on retail sales and retail operators are now being more selective on the locations they chose.  DTZ believe The Avenues will continue to be the dominant retail destination in Kuwait for the foreseeable future and will be enhanced by the planned Phase 3 extension. Smaller malls will continue to see rental pressure, with rental growth likely to be limited to established and proven locations.

© 2000 - 2021 Al Bawaba (www.albawaba.com)

You may also like