Colliers International MENA Real Estate Overview Q1 2010

MENA Real Estate Overview

r e s e a r c h | F I r s T Q ua rT e r | 2 0 1 0

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oFFIce | resIdenTIal | reTaIl | hospITalITy

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has over 290 offices in more than 60 countries

spread over six continents covering every major real

estate market.

Colliers International has been supporting client

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since 1996, and has provided strategic advisory,

market research, asset management, agency,

property valuation and capital investment

services throughout the region.

contents

Riyadh Real Estate Market Overview 3

Jeddah Real Estate Market Overview 7

Eastern Province Real Estate Market Overview 11

Abu Dhabi Real Estate Market Overview 15

Dubai Real Estate Market Overview 19

Doha Real Estate Market Overview 23

Amman Real Estate Market Overview 27

Cairo Real Estate Market Overview 31

Tripoli Real Estate Market Overview 35

Damascus Real Estate Market Overview 39

Abu Dhabi Office Market 43

Abu Dhabi Office Occupancy Survey 44

Dubai Office Occupancy Survey 45

Available Market Studies & Contacts 46

collIers InTernaTIonal2

mena real esTaTe overvIew FIrsT QuarTer 2010

Office space grew by over 474,800 m2 between Q1 2009 and Q1 2010.

Demand for office space largely stems from the government sector during the past year

The city’s office stock is expected to grow by over 239,900 m2 of net leasable space by the end of 2010

riyadh cumulative office supply

Riyadh’s office market experienced considerable growth with 474,800 m2 of additional space delivered in the city’s core business artery during 2009 and into Q1 2010; however, the majority of space has been within Grade B whilst demand is primarily for Grade A space.

Demand in the main business district has stemmed from the Government Sector during the past year. Some non-CBD areas and the East Ring Road have witnessed the construction of Government owned purpose built offices and public agencies. In addition, Semi Government agencies have been the largest source of leasing deals within the city with large lettings to among others, the Human Rights Commission and the National Water Company.

New low-rise office buildings are being constructed in the commercial districts of Maather and Malaz to south of the CBD. However, the momentum of the city’s development continues to be to the north, where a number of large new business parks have started construction.

Demand and supply dynamics in Riyadh’s commercial market are set to change as an increasing number of developments in the pipeline adopt the business park concept currently observed in Western countries and also Bahrain and Dubai. Notable examples are King Abdullah Financial District with 750,000 m2 GLA and the King Saudi University Endowment Project with 290,900 m2 GLA. Once delivered, these

key projects are expected to compete with existing supply located in the city’s primary CBD.

Many landlords, supported by recent Government leasing patterns are seeking to lease only to large companies looking for multiple floors. With the shortage of available Grade A space smaller scale tenants are facing difficulties sourcing appropriate accommodation within grade A stock but are reticent about moving to Grade B offices.

On the back of increasing demand and limited supply of Grade A offices, rental rates remained stable at US$ 413 per m2 per annum excluding Kingdom Tower and Al Faisaliah Centre. Meanwhile, rents of grade B office space softened by an average of 15% in Q1 of 2010 compared to the previous year. Vacancy levels increased by 7% reaching 24% while net stock absorption fell by 2% compared to previous year.

Colliers foresees that this is only a short term issue as the volume of new space entering the market will force landlords to change their strategy in the light of new competition. The city’s office stock is expected to grow by over 239,900 m2 of net leasable space by the end of 2010. We anticipate that the office leasing landscape will change during the forthcoming 12 months from a landlord’s market to a tenant’s market with an increase in incentives and a softening of rental rates.

collIers InTernaTIonal�

rIyadh oFFIce FIrsT QuarTer 2010

averaGe neT renT: us$ �10 per m² pa

premIum neT renT: us$ 41� per m² pa

averaGe sales prIce: us$ 2,716 per m²

averaGe yIeld: 11.5%

vacancy raTe: 24%

performaNce iNdicators

�,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

m2 G

la

2008 2009 2010 2011 2012 201�

averaGe reNtals Q1 2010

�50

�00

250

200

150

100

50

0

us$

per

m2 pa

King

Fah

ad

road

al m

aath

er

stre

et

al d

abab

st

reet

olay

a st

reet

existing supply m2 nla

al anoud Tower 10,000

adex Business centre 15,000

radix Tower 20,880

Tatweer Tower 25,000

al Faisaliah centre �5,400

Kingdom centre 42,700

*This table does not constitute an exhaustive list of current supply

Mid-scale and individual developers are currently the most active in terms of construction activity

Increasing construction activities in areas such as Al Yasmin and Al Rabih

riyadh forthcomiNG resideNtial supply

Riyadh’s residential market continues to be marked by an undersupply especially in affordable houses. The Escrow Law has polarised effects on the residential market: although it has induced end-buyer’s confidence, it also inhibited delivery of supply with most master-planned developments put on hold or delayed.

Mid-scale and individual developers are currently the most active in terms of construction activity. These developers focus on mid-scale to high-scale residential developments that are less than 100 units. Low-end villas are at an average sales price of over US$ 490 per m2 and have an average built up area of 300 m2. Riyadh’s median monthly household income stood at US$ 1,602 in 2009 which underscores that affordability remains to be a major challenge. With the cost of land remaining high as a component of the villa development process, plot and end-unit sizes have been reduced in an attempt to bring down the cost of completed units. Conversely, apartments delivered in Q1 2010 have been larger as developers seek to bridge the gap by offering an affordable and desirable alternative to villa accommodation.

With market correction attributed to, among others, the global economic slump, rents and sales prices of residential units dropped at an average of 8% and 22% respectively in 2009. However, increasing demand on the back of limited supply looks to support market recovery. The freehold

market witnessed a 12% YOY price increase in Q1 2010 reaching an average sales price of US$ 755 per m2. The rental market observed a YOY increase of 6% reaching an average rent of US$ 60 per m2 per annum.

Previously, construction of residential projects was concentrated in North Riyadh - the city’s most developed area. However, increases in land prices within these locations have driven development further north to Al Yasmin, Al Rabih, and Al Nafel Districts. We anticipate city peripheral and suburban schemes will continue to attract developers and occupiers alike as they take advantage of lower land purchase entry costs.

There is an increasing number of residential units currently in the pipeline that adopt the semi-gated community and master planned development concepts Blncyah and Dar Al Arkan’s Al Qasr Project being the most visible.

The long overdue Mortgage Law is still under consideration, and its implementation is anticipated by developers and purchasers alike.

averaGe renT: us$ 66 per m² pa

premIum renT: us$ 72 per m² pa

averaGe sales prIce: us$ 7�0 per m²

averaGe yIeld: 7.5%


rIyadh resIdenTIal FIrsT QuarTer 2010

collIers InTernaTIonal 4

2000

1800

1600

1400

1200

1000

800

600

400

200

0

num

ber

of u

nits

Jana 4

averaGe sales price Q1 2010

Riyadh residential market requires an estimated 30,000 units per annum to address demand


80

70

60

50

40

�0

20

10

0

us$

per

m2 pa

villas apartments

al Qasr manazel Qurtoba Burj rafal

790

780

770

760

750

740

7�0

720

710

700

us$

per

m2

vIllas apartments

Although new regulations are aimed to ease loan measures and are expected to stimulate demand, effects are yet to be tested in the market

The retail sector registered its slowest GLA growth rate, amounting to 10% over the previous year.

Hard voids grew by 2.5% while soft voids declined by 1% over the previous year

Riyadh’s retail supply is expected to increase by 19% reaching over 2.3 million m2 of gross lettable area by 2013

Rentals have remained stable for Grade B malls while rents of Grade A malls increased by 7%

riyadh cumulative shoppiNG mall supply

Following a sustained period of economic stability over the past 5 years, Riyadh’s retail market experienced considerable growth, with GLA supply growing by 40% in 2006 while the number of international retailers increased on the back of high levels of consumer spending. However, growth of supply was minimal in the past year compared to recent historical trends with an additional 10% of floor space delivered.

The city’s current leading malls are Riyadh Gallery, Hayat Mall and Granada Mall all with an estimated average daily footfall of 31,000. These malls have differentiated themselves from other existing supply by securing strong anchor stores and by providing a greater variety of entertainment activities that appeal to different age ranges. Retail footfall of these malls grew by 2% in Q1 2010 compared to the previous year while market-wide footfall declined by 1.9% highlighting their differentiation within the market. Overall, the increase in footfall can be attributed to the longer summer vacation which last year also coincided with Ramadan.

Over the past year, Riyadh’s retail market has proven resilient to the on-set of the global economic downturn. Rentals have remained stable while the number of retail voids experienced minimal decline.

Hard voids-units that are empty but available for occupation, grew by 2.5%, attributed partly to the entry of Panorama Mall and other small scale retail supply in early 2010. However, while soft voids,

space which is available but currently trading, declined by 1%. Average retail occupancy in Q1 2010 stood at 89%. Net lettable stock absorption in Q1 2010 has experienced a 2.3% decline compared to the previous year as some major retailers discontinued their agreements with newly delivered and forthcoming malls.

Big Box tenants in Riyadh have an average area size of 18,000 m2 and an average lease rate of US$ 133 per m2 per annum. Due to their positive effect on footfall and the size they occupy, big box tenants have benefitted from reduced service and electricity charges, offered as incentives by landlord. Line shops have an average unit size of 120 m2 and were rented at an average of US$ 640 per m2 per annum exclusive of service and electricity charges.

As retail is one of the few leisure activities in Saudi Arabia where all members of a family can go, recent structures have exhibited a tendency to develop the malls in Riyadh as destination retail venues. Despite improving entertainment provisions, shopping malls in Riyadh are still not on par with regional counterparts or even some of the premier malls in Jeddah.

Riyadh’s retail supply is expected to increase by 19% reaching over 2,300,000 m2 of GLA by 2013. Forthcoming retail development will be located in peripheral areas and around the Ring Roads. Retail space will be opened up for new brands to enter the Kingdom, but older malls require repositioning and revamping in order to stay competitive.


rIyadh reTaIl FIrsT QuarTer 2010

�,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

m2 G

la

2008

exIsTInG supply m² Gla

Khayma mall �6,000

al oThaIm KhuraIs mall 45,000

KhuraIs plaza 59,400

sahara mall 69,500

salaam mall 70,000

hayaT mall 126,400

rIyadh Gallery 1�0,000



700

600

500

400

�00

200

100

0

us$

per

m2 pa

anchor store department store line shop

2009 2010 2011 2012 201�

Rise in corporate activities and Government events resulted to a 5% increase in occupancy levels in Q1 2010 compared to the same quarter in the previous year reaching an average occupancy rate of 79% in the hotel segment.

Average occupancy rate for serviced apartments registered a YOY decrease by 2%.

The city’s room supply is expected to grow by 870 in 2010 and a further 1,034 rooms are expected to enter the market by end of 2011

Compared to the rest of Saudi Arabia, hotel construction in Riyadh has been slow with the city’s hotel supply growing at a CAGR of 6.5% between 2005 and 2008 compared to Al Khobar and Dammam’s 13% YOY growth. Currently room supply is over 8,300 which constitutes only 6.5% of the total hotels in Saudi Arabia. However, despite hotel room undersupply especially in the 5-star segment, Riyadh carries 20% of the Kingdom’s premier hotels. Much of the forthcoming supply of premier hotels in the capital is within mixed use developments reflecting the cities current top offerings which are similarly configured.

Initiatives from the Government and the private sector such as the Global Economic Forum and the Globe Summit seek to reposition Riyadh and consolidate its role as a major business and financial hub as well as a major events tourist destination.

Riyadh’s 5-star and 4-star room supply are concentrated in primary CBD’s and adjoining roads with a concentration in the Central Area constituting 57% of total supply, 32% are located in northern areas while the remaining are dispersed on other major roads.

Corporate demand continues to drive the city’s hospitality sector. Occupancy levels fell by 4.5% in 2009 compared to previous year due to cancellation or postponement of major events planned in the previous year and decline of corporate visitors due to global economic downturn reaching an average occupancy rate of 79% in the hotel segment. Serviced apartments continue as reasonable substitutes for long-

term visitors; however, occupancy levels also declined by 2% in 2009 compared to previous year.

In a clear sign of corporate cost cutting, a number of international and regional companies have limited or shortened visits, resulting in a decline of 1.5 days in length of stay from an average of 2 days in 2009 compared to the previous year’s 3.5 days. Meanwhile VFR (visiting family and relatives) visitors have an average length of stay at 5.5 days-the same as the previous year.

Average room rate remained stable at US$195 per night while RevPAR increased by 2% reaching US$ 144 per available room. F&B and MICE segments’ contribution to the hotel’s accrued revenue which also increased representing an average of 35% of the hospitality sectors total revenue in the past year.

The city’s room supply is expected to grow by 870 in 2010 and a further 1,034 rooms are expected to enter the market by the end of 2011. About 10% of the future hotel supply is in the 5-star category and 30% in the 4-star category. In addition there are currently 6 serviced apartments under construction in the city.

We anticipate a slight drop in occupancy rates once forthcoming supply is delivered; however, Riyadh’s hospitality sector is not widely vulnerable to seasonality unlike markets in Eastern Province, Makkah and Madinah. We therefore expect demand for hotel rooms to increase and for occupancy levels to stabilise in the medium term.

riyadh cumulative hotel room supply

marKeT occupancy: 74%

5-star occupancy: 79%

arr: us$ 195

revpar: us$ 144

market performaNce (y/e 2009)

rIyadh hospITalITy FIrsT QuarTer 2010


10,000

9,000

8,000

7,000

6,000

5,000

4,000

�,000

2,000

1,000

0

num

ber

of r

oom

s

2008 2009 2010 2011 201�2012

averaGe occupaNcy rate

100%90%80%70%60%50%40%�0%20%10%0%

5-star hotels 4-star hotels serviced apartments

averaGe room rate

500450400�50�00250200150100500

us$

5-star 5-star suite

4-star 4-star suite

serviced apartment

Jeddah’s office space grew by over 119,200 m2 between Q1 2009 to Q1 2010

Vacancy levels fell by 2% currently at an average of 5.5% market-wide

Net stock absorption grew modestly by 1% in Q1 2010

jeddah cumulative office supply

Jeddah’s office space grew substantially by over 119,200 m2 between Q1 2009 to Q1 2010. However, with a commercial market marked by limited supply and increasing demand, vacancy levels fell by 1% while modest increase in rents was observed.

Unlike Riyadh, delivery of office space in Jeddah has been scattered with no defined primary CBD. Existing supply is dominated by Grade B comprising approximately 72% of total net stock. Office space demand stems from the trade, tourism, finance, real estate and other business services especially those facilitating imports and exports. Over the proceeding twelve months, there has been a slight increase in the number of domestic and regional companies seeking to establish their presence in Jeddah translating to an increased demand especially for Grade A accommodation. Overall, the quality of office premises within Jeddah is below that of Riyadh’s, leaving a shortfall in international standard or regional standard Grade A office space.

Most of new supply is owner-occupied with Grade A multi-tenant space within mixed-use developments.

Vacancy levels fell by 2% YOY and are currently at an average of 5.5% market-wide. Tahlia district recorded the lowest vacancy rate at 4% while vacancies in other areas reached 7%. Movement of rentals has been varied in different parts of the City. Rentals declined by 3% in other parts of the

city while North, South and Central Jeddah witnessed rental increase by an average of 4% YOY. Average office rents currently stand at US$ 110 per m2 per annum for Grade B offices and US$ 336 per m2 per annum for Grade A space.

Before end of 2010, over 115,400 m2 of office net leasable area is expected to enter the market-in various parts of the City-60% of which is of Grade A quality. A number of office developments that are currently under construction such as The Headquarters, Zahran Building, Lamar Towers and Jeddah Gate will be offered on free-hold. These developments will test the market’s appetite on strata ownership, the demand of which is currently challenging to gauge. Meanwhile, office space is set to grow by 17% by 2013. With a growing business industry, it is expected that forthcoming supply especially those of Grade A offices will be easily absorbed by the market.

A majority of forthcoming supply and those in the pipeline are standalone commercial developments while forthcoming supply located on the Corniche Area are generally part of mixed-use developments.

As the market recovers, demand for office space is set to increase in Jeddah; however, gap in market-wide supply is minimal. Opportunity lies in readdressing the imbalance of supply by developing Grade A offices that can accommodate multi-sized tenants.


Jeddah oFFIce FIrsT QuarTer 2010

900,000

800,000

700,000

600,000

500,000

400,000

�00,000

200,000

100,000

0

m2 G

la

2008

averaGe neT renT: us$ 278 per m² pa

premIum neT renT: us$ �95 per m² pa


averaGe yIeld: 10.5%

vacancy raTe: 5.5%



400

�50

�00

250

200

150

100

50

0

us$

per

m2

King abdulla street al madina street al Tahlia street


al murjan Tower 9,400

Gulf plaza 17,900

saudi Business centre 28,700

Gulf centre ��,600

Jeddah Tower �8,900

Ibn hamran centre 64,800

By end of 2010, over 115,400 m2 of office net leasable area is expected to enter the market

2009 2010 2011 2012 201� 2014

Bandar and Shata’a Al Thahabi Districts are currently witnessing the most active residential construction activities, of which the majority of units are mid-end

jeddah forthcomiNG resideNtial supply

Sustained population growth combined with delayed supply delivery has created an increased demand and supply gap in Jeddah’s residential market. This was further exacerbated by the flash flood that covered some parts of the city in November 2009 which resulted in the destruction of sizeable number of homes.

Newly delivered residential supply is generally larger and has better finishing quality compared to houses in other cities of the Kingdom. Apartments recently delivered are larger in size compared to older stock. This indicates the growing number of Saudis that are relocating to residential apartments as they are currently priced out of a majority of villa supply. Demand for apartments has been sustained whereby a sizeable number of units are of 2-bedroom and 3-bedroom types. Average size of apartment units of one-bedroom structure stands at 86 m2 while four-bedroom units can span at an average of 270 m2.

Drop in plot size and BUA of villa units is indicative of declining household size and developers’ attempts to address affordability. However, high-end residential villas especially those located in the Corniche Areas are bigger in sizes reaching an average of 800 m2 BUA.

Overall the trend reflects that new construction activities in the city are of mid to high-end and more spacious apartment units. Price growth in Q1 2010 compared to previous year is driven by increase in land prices. The freehold market witnessed

a market-wide increase of 16% reaching an average of US$ 780 per m2 in Q1 2010 compared to previous year. The rental market observed a YOY increase of 7% and reaching 15% in some parts of the city increased due to the Jeddah floods.

Bandar and Shata’a Al Thahabi in South Ubhour District are currently the most active in residential construction with the majority of units of mid-range constructed by mid-scale developers. With limited available financing schemes and a median monthly household income of US$ 1,614, affordability remains a major constraint in supply absorption.

According to a strategic plan by the Jeddah Municipality, the city needs more than 570,000 housing units over the next 20 years. Jeddah municipality’s plan is based on present shortages and future requirements. Currently there is a shortage of 283,000 housing units, including 80,000 in the low-income group with the Government actively calling for the development of 151,600 residential units to accommodate residents in underdeveloped areas especially those affected by the flood, and a further 51,500 units to meet rising demand.



averaGe sales prIce: us$ 850 per m²

averaGe yIeld: 9.5%


Jeddah resIdenTIal FIrsT QuarTer 2010


4,500

4,000

�,500

�,000

2,500

2,000

1,500

1,000

500

0

num

ber

of u

nits

royal escan


900

850

800

750

700

650

600

us$

per

m2

vIllas apartments

Due to the Jeddah flood, rents in some parts of the city increased by almost 15%

With an average household income of US$ 1,614, the major challenge lies in affordability


90

80

70

60

50

40

�0

20

10

0

us$

per

m2 pa

vIllas apartments

Jeddah Gate lamar Towers Burj al masarat

Shopping mall supply grew by 16% in 2009.

Average retail occupancy in Q1 2010 stands at 86% while net lettable stock absorption declined by 3%.

Jeddah’s shopping mall stock is expected to grow by 351,000 m2 by 2014.

jeddah cumulative shoppiNG mall supply

Jeddah’s retail sector has been performing robustly in recent years, despite considerable increases in available retail gross lettable area. However, the volume of lettable space to be delivered into the market, even when combined with the under construction and planning total, is notably smaller than that which has been delivered and absorbed by the market in the last three years - indicating that Jeddahs retail supply has reached a plateau. Jeddah’s shopping mall gross lettable area grew by 16% over the past year compared to a 51% growth in 2008.

The city’s current four leading malls are Mall of Arabia, Red Sea Mall, Al Andalus Mall and Serafi Mega Mall all with an average daily footfall of 34,250. These malls lead the market in terms of gross lettable area, tenant mix and available food and entertainment centres (FEC). Jeddah’s malls are the most developed in the Kingdoms in terms of entertainment activities available. It is usual to find two entertainment centres inside a mall that appeal to different age ranges.

Market-wide footfall grew by 3% in Q1 2010 compared to the previous year due to a longer summer vacation which coincided with Ramadan and Jeddah witnessing the benefits of increased domestic tourism.

Hard voids-units that are empty but available for occupation, grew by 4% with the entry of Danube Mall and other retail supply in early 2010, while soft voids-those available but currently trading, declined by 2%. Average retail occupancy in Q1 2010 stood at 86% while net lettable stock absorption in Q1 2010 registered a 3% decline compared to previous year.

With a minor overall decline in retail voids, rentals have remained relatively stable. We foresee the decline in overall occupancy levels to be relatively short term. As the world’s markets recover, Jeddah’s previous large influx of new retail floor space is expected to be absorbed.

Big Box tenants in Jeddah with an average area size of 18,000 m2 GLA currently lease at an average of US$ 147 per m2 per annum, line shops with an average unit size of 140 m2 are currently achieving an average of US$ 667 per m2 per annum.

Jeddah’s shopping mall stock is expected to grow by 351,000 m2 GLA by 2014. A sizeable portion of forthcoming malls are part of mixed-use and masterplanned developments. Retail remains one of the few available recreational activities in Jeddah where a whole family can go, suggesting that the market may support a higher GLA per capita and higher average spend requirement than might otherwise be the case.

As Jeddah gears itself as a prime business tourism destination in the Middle East with the help of the General Commission of Tourism and Antiquities, more competition in Jeddah’s retail sector is set to accelerate as investors will try to attract consumers with high-end retail shops coupled with international brands that appeal to the general public. This competition will result in the construction of improved quality retail offering with added features that will attract various types of consumers. Older malls are expected to lose footfall and tenant base to newer malls which will necessitate revamps in facilities in order to remain competitive.


Jeddah reTaIl FIrsT QuarTer 2010

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

m2 G

la

2008


herra mall 61,600

al andalus mall 79,900

seraFI meGa mall 90,�00

azIz mall 99,100

red sea mall 1��,200

mall oF araBIa 1�9,800



800

700

600

500

400

�00

200

100

0

us$

per

m2 pa


2009 2010 2011 2012 201� 2014

Occupancy levels declined by 1.5% during the past year due to a drop in corporate tourism

Average room rate remained stable as hoteliers expect decline in occupancy only in the short term

The city’s existing room stock is expected to increase by over 800 rooms in the coming two years

Jeddah’s hospitality sector has been marked by an undersupply especially in the 5-star segment. As of 2009, the 5-star market comprised a total of 2,996 rooms, spread over 14 hotels. Only 3 hotels of the city’s current stock are of international 5-star quality whilst others, although classified as 5-star and 4-star hotels are generally old and have reached their prime income generating tenure.

The Government has recently taken steps to spur growth by issuing a study which calls for reclassification of the Kingdom’s hotels in lieu of international classification standards to boost hotel occupancy. The study also recommends measures such as easing regulations in obtaining building permits to encourage investors, extension of lease periods for tourism developments and the provision of training to Saudis to stimulate participation in the hotel industry. The study also aims to streamline hotel developments in Saudi Arabia into proper star classification.

Jeddah’s hospitality sector is not vulnerable to seasonality as other hotel markets in Saudi Arabia and enjoys sustained robust occupancy rates for most part of the year. However, occupancy levels declined by 1.5% during the past year due to drop in corporate tourism.

Serviced apartments continue to dominate the domestic tourist catchment market. Jeddah’s numerous festivals have attracted an increasing number of domestic tourists over the recent past with a notable increase in tourism visitation during the past year

due to the extended summer holidays that coincided with Ramadan. Although the quality of existing stock is poor both by national and regional standards, occupancy levels increased by 5% in Q1 2010 compared to previous year. This is a dual effect of increased domestic tourism and the aftermath of the Jeddah floods that occurred in November 2009.

Another factor in the success of the serviced apartment market is the minimal difference between the city’s 4-star room ARR and the average rate of a serviced apartment when considering the general poor quality of 4-star hotels. Average room rate stands at US$ 32 per night during shoulder season, US$ 21 per night for non-season while quality two-bedroom serviced apartment rates reache US$ 172 per night during high season.

As the region’s business sector recovers, growth of occupancy levels is expected to be sustained. Average RevPAR (revenue per available room) in the 5-star market increased from US$ 178 in Q1 2008 to US$ 186 in Q1 2010.

The city’s existing room stock is to increase by over 800 rooms in the coming two years; however, the growing number of domestic and inbound visitors is expected to buoy the hospitality sector in the short term. The city’s hotel supply is expected to increase by another 5,000 rooms by 2014. This is expected to result to drop in occupancy once forthcoming supply is delivered.

jeddah cumulative hotel room supply


5-sTar occupancy: 75%

arr: us$ 195

revpar: us$ 1�9


Jeddah hospITalITy FIrsT QuarTer 2010


12,000

10,000

8,000

6,000

4,000

2,000

0

num

ber

of r

oom

s

2008 2009 2010 2011 201�

averaGe room rate

600

500

400

�00

200

100

0

us$

5-star 5-star suite 4-star 4-star suite service apartments


90%

80%

70%

60%

50%

40%

�0%

20%

10%

0%5-star hotels 4-star hotels serviced

apartments

2012

Construction activity increased in Dammam-Al Khobar Highway, comprising approximately 57% of total forthcoming supply

easterN proviNce cumulative office supply

Eastern Province’s commercial market was historically marked by slow growth with net stock CAGR increase of 7.4% between 2003 and 2007. However, increased business activity and demand for office space in 2007 and 2008 had promoted the development of new office space by developers.

Construction activity increased in Dammam-Al Khobar Highway and the Corniche areas which comprise approximately 57% of total forthcoming supply in Dammam and Al Khobar. Demand stems from Energy Sector related industries with ARAMCO expanding its operational activities with alliances. Further growth in demand is supported by general trading businesses and the logistics sector with increased import and export activities over the past year.

A majority of available office space is of Grade B quality consisting 78% of total supply and is predominantly owner occupied. Unlike other leading cities in the Kingdom, demand for Grade B office space is more dominant than demand for Grade A office space. We continue to foresee this to remain the case in the short to medium term due to the nature of the province’s business and industry. However, demand for Grade A office is also increasing at a modest rate. The demand profile from occupants is, in the main business districts, for larger floor plates although there has been a noticeable increase in the demand for smaller offices, predominately from the banking sector.

Al Hugayet Tower is currently the tallest iconic tower in the province and the market leader in terms of floorplate size and facilities offered. Meanwhile, Dammam Municipality recently revised its building code permitting commercial developments with greater permissible heights. This encouraged a number of high rise office developments currently under construction particularly along the Dammam-Al Khobar

Highway where some office buildings have heights of over forty-stories.

Net stock growth by over 166,300 m2 in 2009 on the back of the economic crisis resulted in the softening of rents and sluggish absorption of new supply. Vacancies increased by 2.5% compared to the previous quarter with a current market-wide vacancy rate of 14%. Average occupancy rate of old stock Grade A offices stood at 94.5% in Q1 2010 while old stock Grade B offices observed an average occupancy rate of 82.5% during the same period. These occupancy levels do not include recently completed properties. Concurrently, net stock absorption of new supply had become sluggish with an absorption rate of new supply at 30%.

Rents also dropped by an average of 10% in Q1 2010 compared to previous year. Current average rents of Grade A office space ranges from US$ 200 to US$ 320 per m2 per annum while average rents for Grade B office space ranges from US$ 113 to US$ 147 per m2 per annum.

Al Khobar and Dammam’s office supply is expected to increase by over 196,900 m2 of NLA in 2010, followed by an additional increase of 261,000 m2 in 2011. Whilst a majority of the forthcoming supply will be single-use office developments, one forthcoming development, Al Turki Business Park which is set for completion in Q2 2010, is a mixed-use development. Once completed, it will offer over 12,400 m2 of NLA. Although demand is increasing, supply will continue to outstrip demand in the medium term. Rents are expected to further soften when new supply enters the market as landlords will be forced to revisit their rents to attract tenants. Due to the nature of the province’s business sector, we expect demand for Grade B office space to still dominate the market with minimal growth in Grade A office space demand.


easTern provInce oFFIce FIrsT QuarTer 2010

averaGe neT renT: us$ 120 per m² pa

premIum neT renT: us$ 216 per m² pa


averaGe yIeld: 11%

vacancy raTe: 11.5%


1,400,000

1,200,000

1,000,000

800.000

600,000

400,000

200,000

0

m2 n

la

2008 2009 2010 2011 2012 201�


al subaiei Building 1,900

adil Kashoggi Tower 10,490

al mohammadiah Tower 10,220

novotel Business park �0,000

al rashid Tower 24,�00

al hugayet Tower �8,400



�00

250

200

150

100

50

0

us$

per

m2 pa

mou

sa Ib

n a

l nas

eer

stre

etK

ing

Faha

d r

oad

9th

stre

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A majority of available office space is of grade B quality, amounting to 78% of total supply

Al Khobar and Dammam’s office supply is expected to increase by over 184,800 m2 of NLA in 2010, followed by an additional increase of 257,200 m2 in 2011

Affordability remains a challenge resulting to 13% vacancy rate despite increasing demand

easterN proviNce forthcomiNG resideNtial supply

Eastern Province’s overall residential unit demand has not been met on the supply side whilst conversely mid-range developers indicate that about 13% of current supply is unoccupied. We attribute this to the continued bias of developers on developing mid-end and high-end residential units while pent up demand for affordable accommodation climbs. Delays in residential unit delivery has further aggravated rising demand.

Currently, there is a good supply of low-end leasehold residential villas and apartments in the province while existing freehold supply are within the mid to high-end ranges. New units under construction tend to be of higher quality than those seen in other Saudi cities, although not on par with those in Jeddah. Unit sizes of new residential units in both Dammam and Al Khobar are relatively bigger than those in Riyadh with an average sizes of 175 m2 and 200 m2 for two and three bedroom apartments respectively. However, newer units delivered to the market are slightly smaller than previously delivered. To some extent, this reflects declining household size and the market requirement for affordable property aimed at low to middle-income occupiers.

We find that almost 62% of residential units have a plot size between 300 m2 and 450 m2 with either three-bedroom or four-bedroom units. To put into perspective, Al Khobar’s and Dammam’s household size stood at 6.0 and 6.2 respectively, according to a Colliers commissioned consumer survey conducted in 2009. Eastern Province’s median monthly household income stood at US$ 1,497 in 2009 according to a recent Colliers commissioned consumer survey

which underscores that current price levels have priced out a majority of the province’s residents.

Overall Sales prices dropped by an average of 13% YOY from Q3 2008 to Q3 2009, with rents softened by an average of 4% in the same period. However, rents and sales prices in prime residential areas remained stable due to high demand. Land prices in prime areas increased by an average of 5% to 10% in Q3 2009 as compared to last year.

Sustained demand from the end of Q3 2009 has resulted in a nominal increase in freehold prices at 2% on average in Q1 2010 reaching an average of US$ 870. Rents reached an average of US$ 57 per m2 per annum. We expect rental and sales prices to further increase as the economy recovers and as pent up demand continues to grow.

Previous trends indicate that a majority of residential units delivered were concentrated in Khobar, which is the Eastern Province’s most developed area. Similarly, most residential units presently under construction are also located in Khobar. However, trends indicate that a majority of announced planned residential projects are located in Dammam and Dhahran.

The effects of the Mortgage Law are expected not to be felt in Eastern Province’s residential market in the medium term until new regulations are tested. However, as the population continues to grow, demand for residential units will also increase. The challenge therefore lies in developing units that will be financially within reach of the province’s residents.




averaGe yIeld: 9.5%


easTern provInce resIdenTIal FIrsT QuarTer 2010


�50

�00

250

200

150

100

50

0

num

ber

of u

nits

al Fahad residential

Towers


70

60

50

40

�0

20

10

0

us$

per

m2 pa

villas apartments


900

890

880

870

860

850

840

8�0

820

810

us$

per

m2

vIllas apartments

Average monthly household income stood at US$ 1,497 in 2009

Residential freehold market registered an average increase of 2% in Q1 2010

saraya al waha

al andalusiat

project

al sweilam village

al Ghadeer village

meda � abraj al yasmeen

muhandseen

Retail GLA supply grew by over 614,000 m2 in the past two years

Market wide occupancy rate of shopping malls in the province stood at 94% in Q1 of 2010, a 2% decline over the previous year

Average rent of line shop tenants stands at US$ 644 per m2 per annum excluding service charges, equating 7% YOY increase

easterN proviNce cumulative shoppiNG mall supply

Limited shopping mall gross leasable area (GLA) per capita in Dammam and Al Khobar in the past had resulted to a historical robust occupancy levels. However, with huge additional stock of over 614,000 m2 entering the market in the previous two years, tenants started abandoning older malls in favour of new ones which prompted owners to revamp their properties. One notable addition in supply is the Mall of Dhahran which was originally completed in 2005. The mall since then had undergone expansion in 2009 increasing its gross lettable area to over 150,500 m2 and created increase in retail hard voids. The mall had secured covenants with strong tenants; however, when one of its major anchor tenants pulled out, occupancy levels dipped while some of the additional space has yet to be absorbed.

Al Rashid Mall and Mall of Dhahran currently dominate the retail segment in Al Khobar and Dammam. Although new centres currently under construction are on par in terms of size, their strong reputations will help to ensure ongoing competitiveness.

Retail footfall declined by 1.3% with less leisure visitors coming in from neighbouring Bahrain while footfall of premier malls increased by 3% in Q1 2010 compared to last year. Market wide occupancy rate of shopping malls in the province stood at 94% in Q1 of 2010, a 2% decline over the previous year. This is due to a number of international line shop brands that stopped operation in Saudi Arabia in lieu of international market conditions and newly added supply entering the market.

Hard voids - units that are empty but available for occupation, grew by 2.5% with the entry of Dhahran Mall extension and other retail supply in early 2010, while soft voids - those available

but currently trading declined by 1%. Average retail occupancy in Q1 2010 stands at 89%. Net lettable stock absorption in Q1 2010 has experienced a 1% decline compared to previous year.

Meanwhile, big box tenants have an average area size of 16,500 m2 and an average lease rate of US$ 121 per m2 per annum. Average rent of line shop tenants stands at US$ 644 per m2 per annum excluding service charge.

Mall operators have attempted to diversify their malls by including bigger spaces for food courts and entertainment centres. These facilities have proven to increase footfall and dwell time at malls. One notable forthcoming supply that follows this scheme is Al Othaim Mall Dammam. Once delivered, it will be the first Al Othaim mall to operate in Dammam and will have the biggest indoor entertainment centre in the area at 12,500 m2.

Although recently delivered supply have more entertainment facilities, the number of centres offering destination retail opportunities, with shopping, entertainment and family food and beverage outlets under the same roof remains a relatively untapped territory.

The general trend towards larger retail properties, as witnessed elsewhere in the GCC, is expected to continue in Dammam and Al Khobar as further new properties are completed. The largest of these properties under construction, Al Shubaily Grand Mall, will deliver an additional 191,000 m2 of leasable area to the market. When complete, Al Shubaily Grand Mall will be the largest single mall in the area. However, construction completion of the mall has been delayed due to financing issues. The mall is expected to open before end of 2010.

collIers InTernaTIonal1�

easTern provInce reTaIl FIrsT QuarTer 2010

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

m2 G

la

2008


mall oF dhahran 150,600

al rashId mall 150,000

IBn al Khaldoun mall 20,500

al shaTea mall 40,100

marIna mall 44,200

Fouad cenTre 24,000*This table does not constitute an exhaustive list of current supply


700

600

500

400

�00

200

100

0

us$

per

m2 pa


2009 2010 2011 2012

Hotel room supply grew by 7% while growth of the serviced apartment is estimated at 20% over the past two years

Average occupancy of the 5-star segment in Q4 of 2009 stood at 67% with a 5% decline on average compared to the same quarter in the previous year

Hospitality demand continues to largely stem from corporate tourism and domestic visitation in Eastern Province. Previously characterised by limited supply, the growth of room stock in Dammam and Al Khobar has been significant especially in serviced apartments over the previous two years. Hotel room supply grew by 7% while growth of the serviced apartment is estimated at 20%. Delivery of additional stock resulted to drop in occupancy levels and a softening of observed average daily rates.

A majority of Dammam and Al Khobar’s 5-star and 4-star stock is located along major roads while the rest are located in the Corniche areas. The number of 5-star hotels in Dammam and Al Khobar is limited while quality is not on par with those found in Riyadh. However, this is largely a reflection of demand which is highly business-oriented. Luxury hotels therefore are not feasible in the province as it is in the Kingdom’s other leading cities.

Average occupancy of the 5-star segment in 2009 stood at 68% with a 5% decline on average compared to previous year. Drop in occupancy rates is attributable to decline in the number of corporate tourism in addition to the large number of 4-star hotel room supply that entered the market this year reaching 301 rooms. Nonetheless, the 5-star segment continues to be driven by corporate tourism with corporate guests representing 79% of the total number of 5-star hotel guests in the province. This does not take into account Le Meridien Hotel’s observed occupancy which stood at around 80%. The hotel continues to lead the 5-star segment while Park Inn Al Khobar is the market leader in terms of occupancy and observed average

daily rate in the 4-star segment. As the first value hotel in Eastern Province, Park Inn enjoyed a robust occupancy in Q1 2010 at an average of 60% compared to its soft opening occupancy of 40% last year. Observed ARR of the hotel segment declined by an average of 8% while average room rates of serviced apartments remained stable.

Average occupancy of the 4-star segment declined by 9% reaching 62% compared to previous year. Although a large proportion of 4-star hotel guests belong to the corporate segment which currently represents 66% of total number of guests, a number of 4-star hotels in the province have started offering suites and duplex units to capture the domestic tourism market. Currently, the 5-star and 4-star hotel segments cater to 5% of the domestic tourism market share.

There are a total of 1,086 hotel rooms currently in the pipeline with the delivery of Novotel and Sofitel delayed to end of 2010. Delivery of these rooms in tandem with a sizeable number of rooms that entered the market this year is expected to create a market dilution in the short to medium term. However, as the economy picks up, inbound and domestic tourism in the province is expected to sustain the market. The key is to define where opportunity lies. With corporate tourism and domestic tourism clearly playing major roles in the performance of the hospitality sector, potential remains to hotels which are affordable and business-friendly.

easterN proviNce cumulative hotel room supply



arr: us$ 150 revpar: us$ 98


easTern provInce hospITalITy FIrsT QuarTer 2010


6,000

5,000

4,000

�,000

2,000

1,000

0

num

ber

of r

oom

s

2008 2009 2010 2011 201�2012


767472706866646260

perc

enta

ge

5-star 4-star serviced apartments

averaGe room rate

400�50�00250200150100500

us$

5-star 5-star suite

4-star 4-star suite

serviced apartment

existing supply rooms

al Khobar Intercontinental hotel 120al nimran hotel 12�carlton al moaibed hotel 12�coral International hotel al Khobar 1�1moevenpick hotels & resorts al Khobar 14�sheraton dammam hotels & Towers 274 le meridien al Khobar ��0*This table does not constitute an exhaustive list of current supply

High occupancy rate, currently standing at 99%, reflects the level of unsatisfied demand for office accommodation

abu dhabi cumulative office supply

Average asking rental rate has decreased by 38% between Q1 2009 and Q1 2010

Average sales price, specifically office space on Al Reem Island, has decreased by 14% between Q1 2009 and Q1 2010

Despite 186,000m2 NLA of office supply currently scaled back due to either development cancellation or construction delays, the market may still anticipate the beginning of an oversupplied office market by late 2010 / early 2011




averaGe yIeld: 11%

vacancy raTe: 1%



aBu dhaBI oFFIce FIrsT QuarTer 2010

Office space in Abu Dhabi is fragmented from both a location and tenant profile perspective. The majority of Abu Dhabi’s marginal primary grade office space is dispersed between buildings on the Corniche, Salam Street, Hamdan and Khalifa Street, and a number of buildings in the Tourist Club Area, including the East and West Towers of the Abu Dhabi Mall. Secondary and tertiary grade office space is located within the adjoining districts of Khalidiyah and Tourist Club Areas on either side of Al Markaziyah. This includes dedicated buildings with moderate quality finishing and limited dedicated parking facilities, mixed-use buildings with office components in high density districts of the city, and residential villas converted into office space in the low density districts. Despite numerous cancellations and delays, additional planned office stock scheduled to enter the market this year constitutes of approximately 434,000m² NLA, leading to a cumulative supply of approximately 2.0 million m² NLA by the end of 2010.

Post the global economic downturn, the office sector in Abu Dhabi has registered significant decreases in rental rates, sales prices and absorption rates, despite limited supply of vacant office space. The compounded average growth rate (CAGR) of 40% achieved for rental rates between 2004 and 2008 was followed by a Y-O-Y decrease of 11% in 2009, with current average rental rates at US$ 505 per m2. Average asking sales price is currently US$ 4,490 per m2, representing a Y-O-Y decrease of 13%. This is despite the high occupancy rate of 99% across the market. The primary reason for this decline in prices can be attributed to the large decreases in rental rates and sales prices in Dubai and higher

price sensitivity in Abu Dhabi. There is also the threat of an oversupply of office space looming and the market is adjusting for this.

Colliers has qualified the provision of a total of 1.2 million m2 NLA of office space to be delivered between 2010 and 2013, leading to cumulative office supply of 2.8 million m2 in 2013. The largest forthcoming office stock is scheduled to enter the market in 2010, amounting to approximately 434,000 m² NLA, a Y-O-Y increase of 27%. For the purposes of the forthcoming supply study, Colliers has only included developments that have ‘broken ground’ and verified all completion estimates with concerned developers. Forthcoming office supply over the next three years will be concentrated within the existing city. According to the Abu Dhabi Plan 2030, the Urban Planning Council envisages the consolidation of office space into two main areas, the financial services oriented Al Suwwah Island, and the Capital District, the complementary counterpart to Al Suwwah, providing medical centers, higher education facilities and government buildings.

The currently undersupplied office market is expected to reach market equilibrium during 2010, and an oversupply by end of 2010, provided scheduled timelines are met. Due to a lower demand rate than a forthcoming supply rate, a continuous oversupplied office market throughout end of 2010 to 2013 is anticipated. Consequently, the average occupancy rate is likely to follow the same downward trend reaching levels of 90% within the next three years. Due to the expected outcome, the oversupplied market is likely to translate into decreasing rental rates, as supply outstrips demand.

�,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0m

2 nla

2007 201�20112009


1200

1000

800

600

400

200

0

air

port

str

eet

us$

per

m2 pa

ham

dan

stre

et

cor

nich

e

Tour

ist

clu

b a

rea

elec

tra

stre

et

Kha

lifa

stre

et

liw

a st

reet

Q1 2009 Q1 2010

2008 2010 2012

As of end of 2010 Abu Dhabi residential sector will consist of approximately 198,000 units, an increase by 7% over 2009

abu dhabi cumulative resideNtial supply

As of end of 2009, an estimated total of 185,000 residential units exist within the city of Abu Dhabi. A supply survey, conducted by Colliers International, shows that 48% of the existing stock is high-end residential units while the remaining comprises of middle-income housing. Residential locations with a greater proportion of high income apartments include Corniche, Khalifa Street, Electra Street, sections of Khalidiya and Hamdan Street, and Salam Street close to the Sheraton Corniche. Middle income housing units are mainly located on Deffance, Khalidiyah, Najda Street, Airport Road, Muroor Street and Al Falah Street. The middle-income category has been undersupplied for many years and the demand for affordable housing has increased significantly since mortgage lending was curtailed in the UAE. Currently there are two freehold affordable housing projects; Al Reef and Hydra Village, developed by Manazel and Hydra Properties respectively.

Following the global economic downturn and a decreasing demand for residential units in Abu Dhabi, caused by the low rental rates in Dubai, aggregated market rent demonstrated a decline of 19% between Q1 2009 and Q1 2010, while dropping 38% from 2008. Residential sales prices in Abu Dhabi have decreased by 42% from the peak in Q4 2008 to a current rate of US$ 3,675 per m2. Current occupancy rates continue to remain close to 100% whilst rental yields have fallen from 9% in 2009 to 8.5% in Q1 2010. Asking prices have turned into an inaccurate measurement tool of price levels in the market, with buyers and researchers reporting a possible discount of about 15% of asking prices.

Colliers expect the supply of residential units to increase to approximately 209,000 by 2013 with primary tier developers such as Aldar, Sorouh, Tamouh and Reem Investments controlling the majority of forthcoming supply. The largest stock of residential units is expected to be delivered in 2010, amounting to 46% of total forthcoming supply between 2010 and 2013. As a considerable amount of additional supply enters the market in the medium term it is likely that there will be a shift in lease terms in favour of tenants as landlords become increasingly competitive. Initial estimations regarding forthcoming supply, in freehold developments, between 2009 and 2013 were expected to amount to 29,370 units, however the amount has been scaled back by 52% due to development delays and projects put on hold due to the financial downturn.

Based on Colliers’ projections, an estimated 251,000 units will be required in Abu Dhabi by the end of 2013. As mentioned, a cumulative supply of 209,000 units is to be expected, indicating a possible undersupply of 42,000 units. This will manifest itself in a softening of rental values for existing developments that have enjoyed sustained value appreciations due to a market undersupply rather than a superior product offering. However, due to a significant undersupplied market, an economic recovery in Abu Dhabi will most probably lead to an increase in rental rates and sales prices, provided the number of newly established companies increase, resulting in a higher inflow of expatriates, and thus an increasing population.

averaGe renT: us$ �50 per m² pa


averaGe sales prIce: us$ �,675 per m²

averaGe yIeld: 8.5%

vacancy raTe: �%


Similar to the office sector, developments offered for freehold ownership will start to enter the market this year, assuming no further development delays

Despite an undersupplied residential sector in Abu Dhabi, average rental rate has decreased by 9% between Q1 2009 and Q1 2010

Average sales price for Al Reem Island decreased by 14% between Q1 2009 and Q1 2010

aBu dhaBI resIdenTIal FIrsT QuarTer 2010


250.000

200.000

150.000

100.000

50.000

0

num

ber

of u

nits

2007 201�20112009


�50

�00

250

200

150

100

50

0

us$

per

m2 pa

1Br � Br2 Br

2008 2010 2012

Despite large discounts, retailers are still recording a drop in sale

As of end of 2010 Abu Dhabi’s retail sector will consist of approximately 739,500 m² of GLA, an increase by 85% over 2009

Line store retail rents for established and successful shopping malls remain high at US$ 864 per m2 pa, while units in newer shopping malls are offered at US$ 580 per m², a decrease of 32%

year m² Gla

1985 - 1999 58,�5�

2000 8,129

2001 187,195

2006 5,574

2007 115,960

2009 2�,600

ToTal �98,811

shoppiNG mall supply GroWth

abu dhabi cumulative shoppiNG mall supply

Shopping being a major leisure activity in the UAE, is also one of the most popular attractions for tourists visiting the country. Historically, Abu Dhabi’s retail offering was limited to ‘high-street’ facing outlets and a number of secondary facilities spread across the city, with Gross Leasable Areas (GLA) ranging between 1,500m2 and 8,000m². Over the past seven years, Abu Dhabi has seen a marked change to its retail landscape, moving from a market with no major retail malls to one with considerable, and successful, primary grade retail space. The current supply of shopping mall space in the city reached over 398,800 m² GLA, with a 95% occupancy rate across market, and full occupancy in new generation shopping malls incorporating leisure amenities.

Whilst global market conditions at present are expected to impact negatively on spending power and consumer confidence, the extent of the retailer cash-flow crunch is expected to be less marked than in neighbouring Dubai, primarily due to a retail market driven by UAE National spending power rather than tourism inflows and expatriate spending, making it less susceptible to the current economic downturn and fickle consumer behaviour. The rapid success enjoyed by retail malls in Abu Dhabi is reflected in the relatively high rental levels commanded by recently completed malls. Annual rents for large anchor tenants average US$ 176 per m², whilst average rates for line stores are almost US$ 845 per m² per annum. Despite the high rental rates, line rentals in Abu

Dhabi are around 53% lower than of those paid by line outlets in Dubai.

The leasable area in the Emirate of Abu Dhabi is set to increase from over 398,800 m² at the beginning of 2010 to 1.4 million m² by 2012, representing a 253% increase and a projected 0.9 m² of GLA per capita. Danet Abu Dhabi Mall, 4,820 m² GLA, scheduled for completion in 2011 and Yas Mall, 296,000 m² GLA, scheduled for completion in 2012 are the two largest forthcoming malls. Current retail GLA per capita in the city is just 0.5 m2, while retail GLA per capita in the neighbouring emirate, Dubai, exceeds 1m2. Based on these figures, it is likely that latent retail demand remains in Abu Dhabi.

Analysis conducted by Colliers International suggests that retail spending per m2 will begin to decline significantly in 2010, mainly due to the 70% increase in retail space. Provided scheduled construction targets are met and keeping the total income of Abu Dhabi residents as a constant throughout the next three years, retailers can expect lower revenue per m2 of retail space. However, keeping in-line with standards set by the International Council of Shopping Centres (ICSC) and government population estimates outlined in the Abu Dhabi 2030 plan, Abu Dhabi’s retail market remains undersupplied. Despite immediate concerns of low footfall levels in smaller shopping centres and current economic conditions, we remain bullish on the Abu Dhabi retail market over the long term.


1000

900

800

700

600

500

400

�00

200

100

0

established and successful new release


aBu dhaBI reTaIl FIrsT QuarTer 2010

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

m2 G

la

2009 2010 2011 2012

line store anchor store

us$

per

m2 pa

Abu Dhabi’s focus on business visitors might reduce the anticipated long-term effect of the crisis

Abu Dhabi Tourism Authority (ADTA) indicates, that of the 13,000 hotel rooms they plan to license by 2012, approximately 58% will be in the 5-star category, highlighting considerable oversupply risks in this segment over the longer term

The majority of hotels, until recently, are located at the northern end of the island, as well as the Western Corniche, Eastern Commercial District (Salam Street), and Eastern Corniche (Tourist Club Area). The Eastern Commercial District and Eastern Corniche areas currently have the highest concentration of hotels. This is primarily due to their proximity to the main commercial areas of the city. Abu Dhabi is also served by approximately 3,300 serviced apartments, in many cases forming part of a 4-star or 5-star hotel.

Demand for hotel accommodation in the city is driven predominantly by corporate tourism, accounting for 85% of overall hospitality market demand. According to the most recent figures released by ADTA, approximately 1.5 million guests stayed in hotels throughout the emirate in 2009, a 2% rise from 2008. Given the present market conditions, however, Middle East hospitality is facing two major challenges. Firstly, the global economic downturn has led to a decline in bookings from Europe and other regions to the Middle East. Secondly, being pegged to the appreciating dollar has become more expensive for travellers from the UK, leading to a choice of alternative holiday destinations.

Colliers’ survey of hotels in Abu Dhabi suggests that occupancy levels increased steadily from 2003 to 2005. Despite an average occupancy rate of 80% between 2006 and 2009, average occupancy rate across all hotel categories dropped to 75% by the end of 2009. Average occupancy levels experienced by 5-star hotels were

slightly higher at 78%. RevPAR for 2009 reached US$ 215, accounting for a 1.7% Y-O-Y decrease, while ARR increased by 4.7% during the same period. Despite the decrease in occupancy rate, an increase in average room rate ensured the capital city’s RevPAR 74% higher than the regional average. However in Q1 2010, hotel revenues have more than halved with RevPAR dropping to US$ 142 compared to US$ 300 durig the same period last year. Occupancy rates in Q1 2010 also declined significantly to 56% compared to 81% achieved during the corresponding period in 2009.

The major growth areas for hotel developments in the immediate term are the Airport Road and Bain el Jesrain (Between the Bridges). Over the longer term, the focus of hotel development will be on leisure facilities on the Al Yas, Saadiyat and Lulu Islands, in line with the ADTA’s objective of increasing the overall leisure market share to 40% by 2015. Based on our 2009 Hotel Survey, coupled with the qualification of hospitality components within forthcoming master-planned developments, we expect hotel supply to increase by 133% between 2009 and 2013 from approximately 10,700 in 2009 to 24,900 in 2013. The largest increase in hotel room supply is expected between 2011 and 2012, amounting to 43% of forthcoming supply. Given the fact that most of the city’s existing hotels are functionally full at present, there is potential for the market to absorb a fairly large number of additional rooms while remaining profitable. Nevertheless, a supply increase of this scale is highly likely to have a considerable dampening effect on both occupancy rates and ARRs in the medium term.

abu dhabi cumulative hotel room supply


5-star occupancy: 78%

arr: us$ 286

revpar: us$ 215

performaNce iNdicators (y/e 2009)

Abu Dhabi’s top 3 source markets for international hotel guests are the UK, USA and India

aBu dhaBI hospITalITy FIrsT QuarTer 2010


�0,000

25,000

20,000

15,000

10,000

5,000

0

num

ber

of r

oom

s

2009 2010 2011 2012

hospitality sector: occupaNcy treNd

90%

80%

70%

60%

50%

40%

�0%

20%

10%

02000 01 200902 0� 04 05 06 07 08

201�


A decreasing demand for office space, leading to a decline in occupancy levels, have changed the demand-supply dynamics in favour of the tenant.

The supply of office space in Dubai rose to approximately 3.6 million m2 by the end of 2009, an increase of 20% over the previous year. Demand remained weak and showed no signs of recovery, as companies continue to downsize and implement cost cutting measures. Overall office occupacy rates in Dubai average 71%. Occupancy rates in old Dubai (Deira, Bur Dubai and Sheilh Zayed Road) average 90% while occupancy rate in new office district is 42%.

Because of the oversupply, owners of newly completed buildings must attract tenants and are doing so by offering rent free fit-out periods, flexible rental structures and favourable lease terms. This greater availability of space in new buildings coupled with low rental rates appears to be driving a trend whereby tenants are relocating from established buildings to newly completed buildings. Whilst there is therefore a movement of tenants, it is between established buildings and newly completed buildings, and nothing that will ultimately improve average occupancy levels in the city.

Dubai remains the principal centre of business in the region and houses the regional headquarters of most of the multinational corporations operating in the Middle East and North Africa. For companies that are planning to expand into the region, Dubai remains an attractive choice for the establishment of a regional office, supported by its advanced infrastructure and, particularly now, its greater affordability.

Dubai’s new central business district, comprising the Sheikh Zayed Road, Dubai International Financial Centre (DIFC) and Downtown Dubai precincts, is currently achieving the highest occupancy levels in the city. Following the inauguration of Burj Khalifa, occupancy levels in Downtown Dubai have increased, having

suffered a decrease in Q3 2009. Its location and overall quality of the developments together with the supporting residential and retail amenities are all factors contributing to the attractiveness and sustainability of the new CBD.

Dubai office sales prices have continued to decline, decreasing by 27% over the last 12 months. No price increases were recorded in any of the office projects in Dubai during this period. Before the global financial crisis hit Dubai demand for both office and residential properties had been driven mainly by speculative transactions. This increased prices with little, if any underlying appreciation in value. When the global credit crisis and economic downturn hit Dubai markets in Q3 2008, speculative demand dried up. This resulted in a sharp and severe correction of market prices.

Since then, corporate downsizing and business closures, coupled with new buildings being released onto the market have further reduced demand for and increased supply of office space. These have driven office prices and rentals down even further and are expected to continue into the immediate future.

Despite the various announcements about project cancellations and delays, the supply of office space currently under construction in Dubai is expected to increase by more than double by 2012. With no anticipated increase in demand, this huge increase in supply will further exacerbate the existing oversupplied position in the market. It is accordingly expected that both rental rates and selling prices will continue to decline for the foreseeable future. Recovery of the economy should lead to corporate expansion and stimulate demand for office space.

dubai cumulative office supply

averaGe renT: us$ 415 per m2 pa

premIum renT: us$ 860 per m2 pa

sales prIce: us$ 4,870 per m2

averaGe yIeld: 8.5%

vacancy raTe: 10%* (established buildings) & 58% (newly completed buildings)

* This does not include recently completed office buildings, which are currently recording an average occupancy rate of 41%


duBaI oFFIce FIrsT QuarTer 2010

asking rent achieved rent

Average sales prices decreased by 27% between Q1 2009 and Q1 2010

Despite project cancellations and delays, office supply is expected to double in the next two years.

7,000,000

6,000,000

5,000,000

4,000,000

�,000,000

2,000,000

1,000,000

0

m2 n

la

2011201020092008

Average asking rental rate has decreased by 28% between Q3 2009 and Q1 2010

2012


1,200,00

1,000,00

800,00

600,00

400,00

200,00

0

us$

per

m2 pa

JlT

dso sz

r

do

z

Burj

dub

ai

dIp

dT

Ja

al B

arsh

a

Teco

m c

Teco

m a

dIF

c

Busi

ness

Bay

At the end of the third quarter of 2009, residential sales prices started to increase.

The total supply of residential space in Dubai exceeded 330,000 units at the end of 2009 and despite project cancelations and delays, is expected to increase by more than 12% to 371,000 units by the end of 2010, Occupancy levels currently stand at 80% which means the market is oversupplied by around 65,000 units with a further 37,000 due to enter the market by the end of this year.

Prior to the downturn at the end of 2008, the residential property market, just like the office market, had to the largest extent been driven by speculator demand. Other factors that underpinned demand were the buoyant economy and rapidly growing population. The credit crisis and downturn in the economy however eliminated speculative demand, whilst at the same time forcing companies to downsize their operations. This led to large scale redundancies and thousands of expatriate workers returning to their countries of origin. Demand for residential property slumped and led to the precipitous declines in rental rates as well as selling prices. The impact of this is still felt in the current market where rental rates and selling prices have continued to decline.

Rental rates declined by 25% in the period between Q2 2009 and Q1 2010, but over the past two quarters certain select developments have indicated that rentals have started to stabilise and in certain instances have staged a marginal recovery. A full recovery of the residential rental market will however depend upon an increase in population, which can only occur on the back of a recovered economy creating employment opportunities to draw expatriate workers back into the country.

Residential property prices in Dubai dropped by almost 50% during the first half of 2009, reflecting the erosion of demand through the non-

availability of mortgage finance and the economic downturn. It was not, however, a gradual or even decline. Prices dropped very sharply during Q1 2009 but the rate of decline eased during Q2 2009. In Q3 2009 prices appeared to bottom out and the Colliers House Price Index (HPI) indicated 7% growth over average prices for Q2 2009. This trend continued during Q4 2009 as the HPI registered further growth of almost 1% over Q3.

What became clear from the HPI results for Q3 and Q4 2009 was that prospective purchasers were being very selective in the properties they bought. The properties that enjoyed favour with the market were properties in large community developments where the developers are known entities with proven track records. These developments would also generally offer additional value in the form of amenities such as sport and leisure facilities, convenience retail, proximity to schools, landscaped gardens and public spaces.

Significantly, because these developments enjoyed greater demand, financial institutions were also more inclined to provide funding for properties in these developments. The prospect of purchasers being able to get loan finance in those developments further stimulated demand.

At the other end of the spectrum are developments that don’t offer the additional value or the comfort of a branded, known developer. Such developments generally enjoy less favour in the market. The result is that, because of reduced demand, banks are very reluctant to lend on such developments which further stifles demand. Inevitably, prices in such developments have continued to decline.

It must therefore be concluded that whilst certain areas of the market have shown growth over the past six to nine month period, there remains downward potential in respect of others.

dubai cumulative resideNtial supply




averaGe yIeld: 7.8%

vacancy raTe: 20%


The oversupply in the market has caused rental rates to decline by 25% between Q2 2009 and Q1 2010

The rate of decline in rental rates has slowed down in Q1 2010.

duBaI resIdenTIal FIrsT QuarTer 2010


Construction of more than 80,000 residential units scheduled for completion between 2009 and 2012, have been put on hold.

450,000

400,000

�50,000

�00,000

250,000

200,000

150,000

100,000

50,000

0

num

ber

of u

nits

2008 2009 2010 2012 201�2011

averaGe apartmeNt reNtal rate Q1 2010

400

�50

�00

250

200

150

100

50

0studio 1Br 2Br �Br

Q2 2008 Q4 2009 Q1 2010

us$

per

m2 pa

Shopping mall space is set to increase by 9% between 2009 and 2010, increasing the total supply to 2.4 million m2 GLA

The majority of shopping malls still continue to maintain high occupancy levels

The effects of the global economic downturn that impacted the retail industry in Dubai were primarily the following:

• A reduction in the number of tourist arrivals during the first half of 2009, although this was reversed during the second half of the year, when tourist numbers increased again, According to tourism authorities the total number of tourists during 2009, recorded at 6.9 million, equalled that of tourist arrivals in 2008.

• Consumer insecurity flowing from widespread redundancies and job losses as well as the recession in general. Anecdotal evidence suggests that spending patterns became more reserved and that a greater percentage of income was being saved in case the breadwinner lost his/her job.

• Decline in population numbers as unemployed expatriates returned to their country of origin. Although no official statistics are available in this regard, reports of major job losses, coupled with increased residential and office vacancies, and reduced foot traffic in shopping malls support this contention.

Throughout the first half of 2009, retailers reported that there had been a decline in transaction volumes and basket sizes, downgrading by consumers from more expensive brands to less expensive brands of the same item, a sharp decline in non-discretionary spend by consumers particularly on luxury goods and, also a drop in tourist sales because of fewer tourists with reduced budgets. Trading densities (turnover per square metre of shop space) declined and turnovers suffered.

The second half of 2009 however was characterised by improved consumer

confidence evidenced by increased residential property transaction volumes, and a return of tourist arrivals to pre-downturn levels.

Whilst rentals payable under new leases negotiated during 2009 showed a decline of around 18%, average rentals in formal shopping mall space have remained relatively stable. Current line shop rentals in shopping malls are approximately US$ 1,310 per m² with large space occupiers (anchor tenants and department stores) at approximately US$ 210 per m².

Average occupancy levels in malls remained high at 99% during 2009, and mall owners advise that there continues to be a healthy interest in available mall space. Developers of new shopping malls have however noted a slow-down in the take-up (absorption) rate of space in malls currently under construction, although this might be attributed as much to shortcomings in the developments themselves as to prevailing economic conditions.

The total supply of shopping mall retail space in Dubai stood at 2.2 million m² at the end of 2009. Forthcoming supply due to enter the market by the end of 2010 should increase the total to 2.4 million m², an increase of 9%. A further 400,000 m² is schedule for release between 2011 and 2013.

Using the International Council of Shopping Centres (ICSC) supply yardstick of 1.1 m² of mall space per member of population and Dubai Government population projections of around 1.7 million people at the end of 2009, the Dubai population could absorb approximately 1.9 million m² of retail space. However, taking into account Dubai’s transient tourist population of around 7.0 million people per year, many of whom come to Dubai with the express purpose of shopping, it will be fair to conclude that Dubai is by no means oversupplied in terms of retail space.

dubai cumulative retail supply


duBaI reTaIl FIrsT QuarTer 2010

proJecT year m² Gla

Bay avenue 2010 18,000

sunseT mall 2010 10,68�

mIrdIFF cITy cenTer 2010 180,000

* This table does not constitute an exhaustive list of forthcoming supply

NeW shoppiNG mall supply*

�,500,000

�,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

m2 G

la

2008


1,400

1,200

1,000

800

600

400

200

0

us$

per

m2 pa

line store anchor store

Rental rates in shopping malls have remained relatively stable between Q3 2009 and Q1 2010

201�2012201120102009

Revenue per available room (RevPAR) has declined as a result of an 8% drop in occupancy as well as room rates

The number of hotel rooms is expected to increase by 12% by end of 2010.

Despite the global downturn tourism inflows for 2009 remained unchanged compared to 2008. According to official figures, Dubai received 6.9 million tourists in 2009, which is the same number of tourists that was recorded in 2008. Whilst tourist inflows from Europe and other Western countries showed a decline, Dubai was able to attract tourists from new markets, mainly from other GCC countries and the MENA (Middle East and North Africa) region.

Nonetheless, industry performance indicators, such as occupancy rates and RevPAR (Revenue per Available Room), have shown a decline. This could be attributed mainly to the additional new room supply which entered the market. To counteract the increase in supply, hotels lowered room rates in an attempt to increase occupancy rates. This however had a negative impact on RevPAR.

In the 4 and 5-star hotel categories, occupancy levels dropped to 69% compared to 77% in 2008, simply because of the availability of a greater number of rooms for the same number of tourists. In order to boost occupancy rates, hotels started to offer reduced room rates. The average room rates (ARR) dropped by 24% to US$235, compared to US$309 in 2008. The decline in occupancy rates and the ARR compressed the RevPAR, which is the main indicator of hotel performance. The RevPAR declined by 31% to US$162, compared to US$237 in 2008. However in Q1 2010 indicators have shown a considerable improvement in hotel performance. Occupancy rate increased to 79% and average room rate reached US$ 252, which consequently led to an increase in RevPAR to US$ 199.

The supply of hotel rooms increased by 3% in 2009 and is expected to increase by a further 12% by the end of 2010. This will increase

the cumulative stock of 4 and 5-star hotel rooms in Dubai to 31,586. The number of beach hotels is also set to increase with the opening of three new hotels in Jumeirah Beach Residence.

In terms of tourist attractions, the opening of Burj Khalifa, the tallest tower in the world, with its supporting retail and leisure amenities is expected to be a major drawcard for tourists. Another great attraction is the Meydan Racecourse, a state of the art horse racecourse, which recently opened. Meydan will be the venue for the Dubai World Cup, the most expensive horse race in the world. Dubai furthermore remains a major destination for shoppers from around the world. The MICE and trade tourism market is also expected to remain buoyant as Dubai is home to many major exhibitions and conferences in the region.

Apart from the tourist attractions, prices of goods in Dubai have not increased as is evident from the decline in the consumer price index. Coupled with the decline in the cost of hotel accommodation Dubai is set to be positioned as a more affordable tourism destination. Greater affordability might increase the average length of stay of tourists and increase the average expenditure per tourists which will benefit retail sector and the economy as whole.

However, the sector still faces many challenges. The current global economic conditions are expected to affect the global tourism market for years to come as individuals are cut spending and increase savings. Another challenge facing the market is the expected future supply. Unless this supply is met with increasing number of tourists and, therefore, increased occupancy rates, the hotel market in the city will become oversupplied.

dubai cumulative hotel room supply


arr: us$ 2�5

revpar: us$ 164


duBaI hospITalITy FIrsT QuarTer 2010


31% decrease in RevPAR in 2009, attributable to a 23% decline in ARR and a 69% drop in occupancy level

Despite the global recession, tourist arrivals in 2009 has remained the same as in 2008, namely 6.9 million.

40,000

�5,000

�0,000

25,000

20,000

15,000

10,000

5,000

0

num

ber

of r

oom

s

2008 2009 2010 2011

existiNG beach hotel vs. city hotel

�0,000

25,000

20,000

15,000

10,000

5,000

02008

num

ber

of r

oom

s

2009 2010 2011 2012

Beach hotel city hotel

collIers InTernaTIonal2�

Existing supply amounts to 1.06 million m2 of NLA, of which 70% is located in West Bay

The majority of Doha’s grade A office space is located in West Bay and along Grand Hamad Avenue. The remaining office stock in Doha is generally of sub-standard quality and in need of upgrading. Colliers estimates the current total supply of A and B grade office space in Doha to be approximately 1.06 million m2 NLA, which includes secondary space in locations such as the A, B, C and D Ring Roads and Grand Hamad Avenue.

Demand for office space in the West Bay area has to a large extent been driven by the relocation of many government departments to the area. This created a need amongst large corporations who deal with the government on a frequent basis to establish themselves in West Bay as well. With so many government departments and large corporations basing themselves in West Bay, major banks and financial institutions also opened offices and branches in West Bay to service the banking requirements of major clients.

The strong demand for office space in West Bay drove rentals to amongst the highest in the city, at around US$ 595 per m² per annum. The global economic downturn in 2009 however caused average rental rates to decline by approximately 20% to US$ 495 per m². In the rest of the city, Grand Hamad Avenue and the C Ring Road areas saw rental rates drop by approximately 25%, whereas the A and B Ring Road areas, because rental rates were already lower than those in other parts of the city, saw a more modest decline of only 7%.

Over the same period office space sales prices dropped by around 15% YOY to approximately US$ 4,670 per m². Although sales prices and rental rates have dropped, a compressed interest yield indicates that the office market is maturing. Furthermore, a decrease in sales prices will entice potential investors to acquire office space at a reduced rate. Currently the Doha office market is witnessing a 90% occupancy rate, which indicates that the market is not oversupplied and that a healthy appetite for office space exist as local business continue to grow and international businesses expand their operations in Qatar.

Projects currently underway and scheduled for completion during 2010 should see additional office space of approximately 335,600 m² being released into the market. This represents a 32% increase over existing supply, taking total office space supply to approximately 1.4 million m² by the end of 2010. This number is forecast to increase to around 1.65 million m² by 2012, representing a total increase of 55% over the preceding three year period.

Demand for office space is currently 1.68 million m2. Despite the increase in supply by end of 2010, the office sector will continue being undersupplied by approximately 284,000 m2 of NLA. Whilst the office market is currently still undersupplied, the additional supply is likely to lead to a excess of supply over demand, resulting in a more competitive market position with rental rates softening and landlords having to offer a variety of incentives to attract tenants.

doha cumulative office supply

averaGe renT: us$ 500 per m2 pa

premIum renT: us$ 595 per m2 pa

averaGe sales prIce: us$ 4,670 per m2

averaGe yIeld: 11%

vacancy raTe: 10%


doha oFFIce FIrsT QuarTer 2010

Average sales price has registered a YOY decrease by 15%

Cumulative supply to reach 1.65 million m2 of NLA by 2012, an increase by 55% over existing supply

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

m2 n

la

2011201020092008

Average annual rental rate decreased by 20% between Q1 2009 and Q1 2010

2012


800700600500400�00200100

0

us$

per

m2 pa

a &

B

rin

g r

oads

d r

ing

roa

d

c r

ing

roa

d

Gra

nd

ham

ad a

ve

wes

t Ba

y

2006 2007 2008 2009 Q1 2010

Existing residential supply comprises approximately of 102,500 apartment and villa units

Historically , the city centre was the most sought after location for housing in Doha. However, as the city grew and spread away from the centre, areas around the C, D and E Ring Roads grew in popularity. The West Bay CBD, in addition to its commercial demand, has also become a sought after high-end residential area. These changes in residential trends came about largely because of the suburban quality of the outlying areas as well as the reduced traffic congestion on improved road systems.

Doha’s residential sector has been plagued over the past three years by an acute housing shortage due to increasing demand not being met with adequate increases in supply. Although the position has eased somewhat most of the new supply is still under construction.

The current population of Doha stands at around 841,000 people and with an average household size of 5.9 people, this translates into an overall demand of 142,600 housing units. With existing supply at around 102,600 units, the market is significantly undersupplied by around 40,000 residential units.

Demand for additional housing is not just confined to the immediate Doha area but includes the population of the Al Rayyan area, which makes up greater Doha.

The type of housing needed to meet this additional demand will vary depending on nationality, income, and household size. For Qataris, villas will form the bulk of required accommodation, whereas for expatriates the provision will mainly consist of family housing and apartments ranging from low to high-end, depending on their skill base and income bracket.

Despite the global economic downturn, rental rates in Doha have continued an upward trend reaching a level of US$ 415 per m2 per annum, which translates into a 68% increase over Q1 2009. Three bedroom apartments are currently achieving the highest rental rate at US$ 515 per m2 per annum, while rental rates for one and two bedroom apartments are below market average. Premium rental rates are attained in the Pearl at US$ 590 per m2 per annum, 42% above market average. Unlike rental rates, the economic downturn has however had an effect on sales prices, which have declined by 9% over Q1 2009, and is currently US$ 4,130 per m2. Viva Baharia is selling at a premium of US$ 6,320 per m2. The large increase in average rental rate and the decrease in average sales price led to average investment yield to change from 6% in Q1 2009 to 10% in Q1 2010.

Provided scheduled completion dates are met, Doha residential supply is expected to increase by 6% in 2010, leading to a total supply of around 108,200 residential units. The supply is forecasted to continue to increase and reach a total of 117,600 units in 2012, an increase of 15% over the preceding three years.

The projected growth in supply of residential accommodation between now and 2012 will not satisfy even current demand. This position is likely to deteriorate further as the population grows on the back of projected economic growth in Qatar. The Doha residential market may therefore be expected to remain in a strongly undersupplied position for the foreseeable future.

doha cumulative resideNtial supply



averaGe sales prIce: us$ 4,1�0 per m²

averaGe yIeld: 10%

vacancy raTe: 10%


Whilst sales prices decreased by 9% YOY, rental rates increased by 68% over the same period, leading to an increase in cap rates

doha resIdenTIal FIrsT QuarTer 2010


Provided completion dates are met, supply is expected to grow by 15% between 2009 and 2012


7,000

6,000

5,000

4,000

�,000

2,000

1,000

0

us$

per

m2

lusail porto arabia

viva Baharia

west Bay

averaGe aNNual apartmeNt reNt Q1 2010

900

800

700

600

500

400

�00

200

100

0old

airportal saad west

Baylagoon plaza

us$

per

m2 pa

west Bay

1 Br 2 Br � Br

120,000

115,000

110,000

105,000

100,000

95,000

90,000

85,000

num

ber

of u

nits

2011201020092008 2012

Doha currently has approximately 444,500 m² of GLA comprising shopping centres spread across the capital city, which is expected to double by 2012

Rental rates in shopping malls currently averages US$ 677 per m2 pa, with premium rent at US$ 785 per m2 pa being achieved by Doha City Centre

Doha currently has a total supply of formal retail space of around 444,500 m² GLA (Gross Leasable Area). Historically the market has been undersupplied and despite extensions by a number of existing shopping centres in recent times, demand continues to exceed supply. This is supported by the high absorption rates experienced by developments such as the Villagio Mall and the Pearl.

The global economic downturn in 2009 had a very limited effect on the Qatar economy and the country has continued to experience strong economic growth. Per capita GDP, which for some years has been the highest in the world, grew from US$ 80,000 to US$ 86,000 between Q1 2009 and Q1 2010. This translates into high discretionary disposable incomes and a strong purchasing power for Qatari residents.

Retail rental rates in Doha are currently amongst the highest in the Gulf region. Average rental rates for line shops currently stand at around US$ 677/m² per annum, which represents a 17% increase over Q1 2009. The highest rental rates are currently being achieved by the Doha City Centre, which is a reflection of the popularity and therefore the commercial strength of the centre.

There are however a number of large retail developments currently under construction in Doha, such as the Barwa Commercial Avenue, that have the potential of bringing about a change in the current supply/demand fundamentals in the market. Colliers research indicates that around 175,000 m² GLA is expected to be delivered to the market in

2010 (provided scheduled completion dates are met), which represents a 39% increase in supply. By 2012 total supply is expected to exceed 826,000 m² GLA, which is a 94% increase on existing supply.

As new supply is delivered, market conditions are likely to become more competitive and absorption rates along with rental rates are expected to drop. With most of the forthcoming supply aimed at the upper end of the market the impact of the additional supply will be greater in this sector.

As retail markets grow so does the demand for new brands in the new developments. Better marketing and management strategies will be critical if the older centres are to continue to offer competition to new developments. Diversification is the most obvious way in which retailers are seeking to minimize the risk of potential over-supply. Management teams from Grade B developments are turning towards markets traditionally under-catered for and attempting to create a new breed of mall aimed at Qatari nationals at the lower and medium end of the market. The trend towards diversification can also be seen in the new development of shopping centres in regions outside Doha. One of these new projects, the Al Khor Mall by EMKE Group, will cater to the Al Khor municipality and other northern municipalities.

doha cumulative shoppiNG mall supply


doha reTaIl FIrsT QuarTer 2010

shopping mall m² Gla number of units

doha city centre �0�,000 �80

villagio 140,000 200

porto arabia 90,000 �50

landmark shopping mall 58,000 120

existiNG supply sNapshot

Barwa Commercial Avenue is expected to add 100,000 m2 GLA to current supply by 2012


900

800

700

600

500

400

�00

200

100

0

us$

per

m2 pa

city

cen

ter

doh

a

hya

tt p

laza

roy

al p

laza

The

mal

l sho

ppin

g c

ompl

ex

land

mar

k sh

oppi

ng m

all

vIll

agio

al a

smak

h c

ente

r po

int

1,000,000

900,000

800,000

700,000

600,000

500,000

400,000

�00,000

200,000

100,000

0

m2 G

la

2009 201220112010

Over 2,100 hotel rooms to be added to the market by end of 2010, provided no delays occur

Hotel room supply expected to increase by 64%, spread over five years

Demand for hotel rooms in Doha is driven by the key factors of economic and population growth, and is underpinned by a range of government-implemented initiatives aimed at attracting investment and creating demand. Building on an estimated influx of 962,000 tourists in 2006, the tourism authority in Qatar has defined objectives which include the development of the Meetings, Incentives, Conferences and Exhibitions (MICE) market in particular, given that 95% of current visits to Qatar are believed to be at least partially business linked.

The Doha hospitality sector is changing significantly. Doha currently has approximately 9,000 hotel rooms in the 5-star and 4-star categories. With almost 6,500 hotel rooms, 5-star hotels have a clear majority of existing hotel rooms in the two mentioned categories.

Except for 2008, average room rate in Doha has witnessed a continuous increase post 2004, amounting to a CAGR of 18% between 2004 and 2009. ARR increased by 20% between 2008 and 2009 and is currently at US$ 327. Although ARR witnessed an intensifying trend, occupancy rate has registered a more volatile trend. Doha average occupancy rate registered its highest decrease in 2009 over 2008, amounting to 30% and leading to current rate at 50%. A clear indication to the high decrease in occupancy rate, which has put the occupancy at the lowest rate in 6 years, is the decrease in inflow of tourists from approximately 960,000 in 2008 to 800,000 tourists in 2009 and the high increase in ARR. Despite the increase in ARR, the large decrease in occupancy rate led to 16% decrease in RevPAR, which currently stands at US$ 164.

The number of hotel rooms in Doha is expected to increase to almost 13,000 rooms by 2012, representing an increase of approximately 3,930 rooms, or an increase of 43%. Additional supply is scheduled for completion post 2012, amounting to 1,880 hotel rooms and 64% increase over the next five years. Total forthcoming supply by 2014 is expected to reach approximately 5,600 rooms of which 74% is within the 5-star category, leading to a cumulative supply of over 14,800 hotel rooms by 2014. Note that forthcoming supply included in the hospitality sector only denotes 4 and 5-star hotels.

Qatar Tourism Authority had initially forecasted 1.5 million visitors in 2010. Due to decrease in number of tourists in 2009 by 160,000 visitors, the forecasted goal is unlikely to be achieved. Planned forthcoming hotel supply is thus based on an unsustainable goal, which will most likely lead to an oversupply in the hospitality sector in the short term. The risk for oversupply is significantly higher within the 5-star category due to the large share of existing supply and the share of forthcoming supply, which amounts to 74% of forthcoming supply.

doha cumulative hotel room supply


arr: us$ �27

revpar: us$ 164


doha hospITalITy FIrsT QuarTer 2010


Despite 20% increase in ARR, revPAR declined by 16% due to 30% decrease in occupancy rate

16,000

14,000

12,000

10,000

8,000

6,000

4,000

2,000

0

num

ber

of r

oom

s

2009 2011 201� 2014

treNd hotel performaNce

�50

�00

250

200

150

100

50

0

us$

2004 2005 2006 2007 2008 2009

arr revpar

2010 2012

90%80%70%60%50%40%�0%20%10%0%

occupancy rate

Despite an undersupplied office sector and an increase occupancy rate of 95%, uptake of new office space post Q1 2009 is slow.

ammaN forthcomiNG office supply

An increase by 19% in average asking rental rates between Q2 2009 and Q1 2010

A decrease by 5% in average asking rental rates between Q2 2009 and Q1 2010




averaGe yIeld: 10%

vacancy raTe: 9.9%



amman oFFIce FIrsT QuarTer 2010

Absorption rates for newly completed office buildings in Amman are reported to be slowing down. Owners of completed dedicated office buildings located in areas such as Tlaa Al Ali indicated to Colliers International research staff that they have been fully leased within three months of completion; although this was prior to the financial crisis. Market levels at the time, for dedicated office buildings, reported average occupancy rates of 95%. In Q4 2009 Colliers International research staff witnessed several office buildings in Amman to be partially vacant, an indication that occupancy rates are closer to 90% and will continue to drop in the first quarter of 2010 as new supply is released onto the market.

The majority of primary grade office space that currently exists in the market is owner-occupied, meaning that the rental and sale values of office space analysed in this section do not necessarily reflect potential capitalisation rates for leaseable, primary grade office space delivered to the market in future.

Over the last two quarters there has been decrease in asking sales prices due the economic and financial crisis resulting in a slowdown in real estate investments, particularly in the office sector. This has ultimately led to a slowdown in the construction sector resulting in completion delays, thus pushing back forthcoming supply. However, the market is experiencing an increase in rental rates confirming that the office market as a whole (Grade A, B, and C) is undersupplied and will continue to be undersupplied for the short to medium term.

Colliers International expect over 376,000m² NLA of primary grade office space to enter the market between Q1 2008 and the end of 2011, 250,000m² NLA of which will be provided by developments within the Abdali master-plan scheme. This figure however, does not include proposed office space within Sector 7 of Phase I. There are also numerous individual office developments underway on the Wadi Saqqra and Airport Road corridors, and these will be primarily owner-occupied and targeted towards secondary grade markets respectively.

Due to weak economic indicators of market conditions it is difficult to quantify the supply demand balance in Amman’s office sector. Reported absorption rates of new dedicated office buildings pre Q1 2009 was high. However, current occupancy rates within newly completed, dedicated office buildings is low. Rents have decreased since their peak in Q4 2008 therefore it is reasonable to suggest that the city is slightly over supplied with formal, grade A dedicated office accommodation for the short to medium term. As and when new supply enters the market and rents stabilize, occupiers of outdated office space will be enticed to move into Grade A dedicated office space thus alleviating the low occupancy rates plaguing the prime office sector.

Therefore Collier’s long term outlook for office space, supported by demand assumptions made by the GAM, looks positive especially for developers/investors planning for future office provision.


200

180

160

140

120

100

80

60

40

20

0

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us$

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shm

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2500

2000

1500

1000

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�00,000

250,000

200,000

150,000

100,000

50,000

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m2 n

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abdalicommerce oneliving wallJordan Gate

Organic demand growth aimed at low to middle income housing. Total current housing supply stands at around 560,000 units

ammaN cumulative resideNtial supply

Current demand for housing units stands at approximately 490,000 units and the Greater Amman Municipality estimates that around 30,000 additional housing units are required annually in order to meet the city’s demand growth.

Residential villas account for around 26% of overall residential stock in Amman. The villa segment has traditionally been a relatively safe investment, and yields across this part of the residential market are low. It should be noted that the rental market for residential villas is dominated by smaller unit sizes, with the vast majority of five and six bedrooms being owner-occupied. Residential apartments constitute the majority of residential units in Amman, predominantly within 7 storey apartment buildings or less.

High end apartment units are currently dispersed around the core commercial hubs of Shmeisani and Sweifiyah. Villa units targeting the high income segment are located primarily in Abdoun, around the 1st Circle, and around Dabuq to the north-west of the city – a high growth location that is emerging as a core retail and leisure hub targeting high-income and visitors segments. Key attractions in close proximity include the King Hussein Mosque, the Children and Aviation museums and the City Mall.

With the exception of one bedroom apartments in Abdoun, apartments in Amman attract lower prices per unit area than villas. One bedroom apartments carry the highest prices per unit area across apartment sizes. Rental and sales prices for two bedroom properties per m² are markedly lower than prices for one bedroom properties, with the notable exceptions of properties in

Umm Uthaina and Sweifiyah. The rental and sales prices of three bedroom apartments in Amman broadly follow those of the two bedroom segment. Yields are therefore largely similar to those found in the two bedroom segment as well. Purchase prices per unit area of four bedroom apartments are slightly more expensive than those of two and three bedroom properties, although rents are broadly similar. Hence, yields are lower in this sub-section of the residential apartment segment. In part this reflects the lower availability of these properties. It is also due in part to the relative price increase of villa properties, which have driven some occupiers away from villas and into the large apartment market.

Three bedroom villas constitute the largest sub-section of the overall villa market by number of units. Rental rates and sales prices of both three and four bedroom properties are among the highest in the city. Rental properties in the five bedroom segment are scarce in a number of the city’s areas. To some extent this is due to the smaller overall number of units available in this segment, but it also reflects a greater tendency towards owner occupation in these areas than elsewhere. Colliers International research suggests that six bedroom villas available for rent are extremely rare and therefore calculating yields for these properties is not possible.

With 560,000 units currently in Amman and with a population of approximately 2.46 million people with an average household size of 5 persons per household (pph) the average occupancy rate is around 88%. However, we believe the bulk of the vacancy is due to units being owned by expatriate Jordanians who do not permanently reside in Amman.



averaGe yIeld: 9.4%

vacancy raTe: 17%


The residential sector in Amman is oversupplied evidenced by the 60% decrease in average rental rate and sales price since Q4 2008.

amman resIdenTIal FIrsT QuarTer 2010


580,000

560,000

540,000

520,000

500,000

480,000

460,000

440,000

num

ber

of u

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2004 2010200820062005 2007 2009


�0000

25000

20000

15000

10000

5000

0

us$

per

m2 pa

Q4 2008 Q1 2020


1400

1200

1000

800

600

400

200

0

us$

per

m2

Q4 2008 Q1 2020

Existing supply amounts to 216,500m² GLA of retail mall space

Current average rental rate is approximately US$ 418 per m2 which is a decrease of 5% over the previous year.

ammaN cumulative retail supply

The retail sector in Amman has traditionally been dominated by independent, street facing retail units. The retail landscape has gradually shifted towards shopping malls since the beginning of this decade, driven primarily by a liberalised trade regime and the emergence of regional retail groups expanding beyond home markets in the GCC. Shopping mall supply is concentrated primarily in Amman’s high-income districts of Abdoun, Sweifiyah and Tlaa Al Aall (comprising the City Mall and Mecca Mall), located in West Amman.

Nevertheless, street facing retail units remain an important and popular segment of the city’s overall retail provision, given a favourable climate and weaker spending power when compared to GCC markets. The concept of a shopping mall as an entertainment destination in itself is therefore yet to be established in Amman, and forthcoming shopping mall supply will also compete with retail supply integrated within mixed-use developments. An Example of this is the Abdali Boulevard – a 180 unit shopping arcade targeting high-income markets and incorporating both shopping mall and high street characteristics.

With the recent opening of the Baraka Mall in Sweifiyah, total supply of shopping mall space in the city has reached approximately 216,500m². Although the weather in Jordan doesn’t render climate controlled shopping environments essential in the way that they are in other regional markets, the concept has been welcomed by consumers. This is in part due to the arrival of major international brands that have provided an impetus to the sector.

These brands range from major big box anchor stores such as Carrefour through to well known international consumer brands such as Calvin Klein.

According to a national income survey recently carried out by Ipsos, 47.4% of Jordanian households earn US$285 – $560 per month, with only 1.6% earning more than US$2,800. According to Colliers GDP Per Capita estimates, household incomes in Amman increase to an average of US$966 per month against a national average of US$440. The focus of forthcoming retail supply is therefore on the capital city, given higher disposable incomes and the opportunity to capture tourism markets. In contrast to the tourism marketing drive of regional destinations such as Dubai, however, Jordan is not positioned as a shopping hub given that the country is visited primarily by Arab, Jordanian expatriate and European tourists whose shopping needs are amply serviced by their home countries. The core demand base of Jordan’s retail sector therefore remains internal.

There is a considerable amount of retail mall space under construction in Amman, and even more under planning. Although the GLA volume is still low on a per capita basis, there are signs that the market may be reaching saturation. City Mall has only recently achieved full occupancy after a year of operation. Baraka Mall’s leasing programme has taken longer than expected and remains incomplete. Problems are being experienced by Beitna Mega Mall in finding tenants, compounded by the mall’s location in the low-income east of Amman.


amman reTaIl FIrsT QuarTer 2010


800

700

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180,000

160,000

140,000

120,000

100,000

80,000

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mihrath project abdoun mega mall

abdali Boulevard

Beitna mega mall

Jordan Gate

mall Total units m2 Gla Footfall(per day)

mecca mall �50 110,000 80,000

aBdoun mall 70 12,000 7,500

cITy mall 60 55,000 4�,000

amman mall 50 12,000 �,000

zara cenTre 45 11,500 1,000

BaraKa mall 90 17,000 �,250

us$

per

m2 pa

A significant number of hotels are reported to be at the planning stages in Amman. In general terms, the Abdali project is expected to offer between four and eight hotels additional to the Rotana that is already under construction. Abdali Boulevard, developed by Abdali Investment Company, will offer several serviced apartments.

Kurdi Group have also indicated that Mecca Mall Phase III will include a hotel that will begin the process of converting the mall into a mixed use centre. The Royal Village Project also reportedly includes provision for a hotel, although details remain limited. The Grand Amman Financial Complex is planned to include a 5-star hotel. A 450 room hotel is also planned for the Mihrath Project. Nevertheless, these proposed hotels all remain in the early stages of planning, and there is no confirmation that these will be developed as proposed.

Occupancy rates only recovered in 2007 and this resurgence led to an average occupancy of 61% in 2008, which was expected to continue assuming that the impact of external shocks was constrained and corporate and leisure tourism continued to grow. However, with the economic crisis in late 2008 caused occupancy rates to drop to around 54% in 2009.

Although the amount of tourist arrivals is increasing, the occupancy rate for 5-star hotels is around less than what it was for 2008, and with the forthcoming supply, predominantly in the 5-star category, it is expected that occupancy levels will decline over the next three years, to 47%, indicating an oversupply in the market.

Amman derives its hospitality sector demand from a number of sources. As is the case in the city’s other real estate sectors, demand related to the security situation in Iraq has bolstered the market. In the hospitality sector additional demand related to Iraq has mainly been the result of Amman’s position as a primary access point to the country. Non Governmental Organisations, contractors and journalists commonly pass through Jordan as a result. The US military maintains a rolling

contract with the Marriott Amman, for example, to provide rooms for transiting service personnel and ancillary staff.

A second major source of demand for hotel accommodation in Amman is Jordan’s popularity as a Meetings Incentives Conferences and Exhibitions (MICE) destination. Whilst the bulk of conferences and exhibition facilities are located on the Dead Sea and near to Petra, hotels in the city report that the majority of delegates will spend at least one night in a hotel in Amman during their visit. These guests complement the number of business travellers visiting Amman as their primary destination.

The third primary source of demand for hotel rooms in Amman is leisure tourists. In a similar manner to MICE visitors, a significant number of these visitors pass through Amman’s hotels for between one and three nights as one of the destinations on their tour of Jordan. While it remains highly unlikely that leisure tourists will ever have long durations of stay in the capital, they do provide a valuable additional source of demand to the city’s hospitality sector.

The fourth, and largest, source of demand for Amman’s hotels is business travellers. The bulk of the city’s premium hospitality stock is business oriented, and this remains unlikely to change for the foreseeable future.

Although of lesser impact than the above factors, Jordan also attracts a considerable number of airport transit visitors. A significant proportion of these transit visitors are of relatively low net worth. The Queen Alia International Airport Hotel currently attracts a considerable proportion of its demand from this visitor segment. This is largely due to the favourable agreement that it enjoys with Jordanian Immigration allowing transit passengers to leave the airport itself and visit the hotel without officially entering Jordan. Although this generates a sizeable volume of demand for the hotel, the low spending of these visitors means that they do not provide a compelling revenue source for sustainable future growth.

ammaN forthcomiNG hotel room supply

An increase by 25% in number of hotel rooms was registered between 2008 and 2009

amman hospITalITy FIrsT QuarTer 2010

collIers InTernaTIonal �0

700

600

500

400

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200

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0

num

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5-sTar arr: us$ 207

revpar: us$ 1�5


treNd iN occupaNcy rate

80%

70%

60%

50%

40%

�0%

20%

10%

0%2004 2005 2006 2007 2008

amman rotana hilton w-hotel

Hotels in Amman witnessed a 13% decrease in occupancy rates from the previous year

2009

Continuously increasing office demand remains unsatisfied

cairo cumulative office supply

Average rental rate increased by 8% between 2008 and 2009, followed by 1% decrease in 2010

Provided scheduled completion dates are met, cumulative primary grade office supply is expected to increase to approximately 3.7 million m2 by 2013




averaGe yIeld: 8.8%

vacancy raTe: 1%


collIers InTernaTIonal�1

carIo oFFIce FIrsT QuarTer 2010

Despite a decline in growth rate in GDP from an estimated 6-8% per annum to 4.7% in 2009 over 2008 and a decrease in FDI inflows from US$ 13.2bn in 2007/2008 to US$ 9.5bn in 2009, the entry of new multinational organisations and the expansion of local business has continued to increase, leading to an increased demand for office space, particularly primary grade office space.

The volume of foreign direct investments registered by the creation of new establishments and expansions of businesses peaked in 2007/2008. The growth in the number of new establishments and expansions in 2007/2008 had exceeded earlier forecasts, which had been projected to grow at a lower rate. In 2008/2009 the number of new establishments and expansions decreased by 21% over 2007/2008. The continuous growth in new companies has intensified the chronic shortage of suitable office space.

Private and public investments have increased at a CAGR of 20% between 2002 and 2009 and the expansion by companies has continued to increase. Private investment as a share of of GDP grew to 15% in 2008 followed by a decline in 2009 to 8.8% of GDP. Despite the decrease, private and public investments remain an important source of income to the country.

Cairo office market is significantly undersupplied in terms of primary grade office buildings as well as dedicated office buildings. Existing supply consists of residential units that are converted into offices due to very limited number of dedicated office buildings in the Capital.

Occupancy rates of almost 100% in Cairo’s limited Class A office stock have prompted

the conversion of ground floor residential units into office space as a short-term measure which has led to a fragmentation of the office market. The market is expected to fragment further as private sector developers rush to meet unsatisfied demand for office space. Given land availability constraints in central Cairo and the focus of development activity in the new communities, New Cairo and 6th October will house the vast majority of forthcoming office space.

Whilst other office sectors in the Middle East have witnessed large decreases in average rental rates between 2008 and 2009, Cairo office sector registered continuous increases over the same period. Whilst apartment and villa rents between decreased 2008 and 2009 followed by an increase between 2009 and Q1 2010, office rental rates increased by 8% in 2008/2009 followed by 2% decrease between 2009/Q1 2010. Although a majority of primary grade office buildings registered an increase in rental rates, the global economic downturn led to a diminishing growth rate. Average rental rates are currently US$ 260 per m², with premium rental rates reaching US$ 750 per m².

Due to the insufficient supply and continuously increasing demand, the gap between demand and supply is expected to widen. Colliers International therefore remains bullish on the market’s prospects due to extensive pent-up demand for high quality space, intensified by new demand created out of strong economic growth. Demand is expected to continue to outstrip supply over the next three years, provided no new major projects are announced. The likelihood of development delays is expected to reinforce our anticipated demand-supply dynamic.

NeW establishmeNts aNd eNterprises

9,000

8,000

7,000

6,000

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4,000

�,000

2,000

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200�

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900

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700

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2,500,000

2,000,000

1,500,000

1,000,000

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2010 20122011 201�

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Dominant demand for housing units in the lower income segmentAverage apartment sales price has registered 29% increase between 2009 and Q1 2010, while average villa sales price has decreased by 8% over the same time period

cairo cumulative resideNtial supply

averaGe renT: us$ 100 per m² pa premIum renT: us$ 140 per m² paaveraGe sales prIce: us$ 1420 per m²averaGe yIeld: 7%vacancy raTe: 5%


caIro resIdenTIal FIrsT QuarTer 2010


400,000

�50,000

�00,000

250,000

200,000

150,000

100,000

50,000

0

num

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2009 2015201�20112010 2012 2014

averaGe apartmeNt sales price

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

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2008 2009 Q1 2010

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25% increase in supply between 2010 and 2013, provided scheduled completion dates are met


160

140

120

100

80

60

40

20

0

us$

per

m2 p

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2008 2009 Q12010

maa

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6th

oct

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Whilst USAID is forecasting a total demand of 2.1 million housing units, the Ministry of Planning is forecasting demand for housing units at 5.3 million units between 2007 and 2017, which denotes 152% difference. Although both sources indicate the same ranking in demand, in terms of low income witnessing highest demand followed by middle income, USAID is forecasting approximately 51,000 housing units in demand in the higher income category while Ministry of Planning is forecasting 128,800 units in the same income category.

The problem is therefore not one of supply but rather the affordability constraints (low income levels and a poorly developed mortgage market) that prevent a large segment of the population from purchasing or renting new homes. The problem is compounded by a reluctance on the part of landlords to enter into tenancy agreements with low-income tenants because of historic difficulties in evicting tenants.

Current supply amounts to 281,070 villa and apartment units. Four out of five major villa areas registered an aggregate increase of 31% in rental rates between 2009 and Q1 2010. The largest increase was registered in New Cairo, at 48.5%, followed by 48% in Zamalek.

Whilst average rental rates declined by 14% across the capital between 2008 and 2009, the apartment rental market witnessed a recovery of 44% between 2009 and Q1 2010. Average rental rates for apartment and villa units in these areas are currently US$ 87 per m² and US$ 119 per m² respectively.

The change in average apartment sales price followed the same trend as rental rates, witnessing a 29% decrease between 2008 and 2009, followed by 29% increase between 2009 and Q1 2010. Despite the economic downturn and the negative effects thereof

on real estate performance, property prices in Zamalek continued to increase throughout the economic downturn. Nasr City and Heliopolis witnessed a continuous decrease in prices between 2008 and 2009, but the largest decrease was recorded in New Cairo, which amounted to 78% between 2008 and 2009. Aggregated sales price for apartment units is currently US$ 926 per m², which equates to a 9.4% investment yield.

Research conducted by Colliers International shows that approximately 72,000 high end residential units will be delivered to the market between 2009 and 2015, provided scheduled completion dates are met. Current supply of approximately 281,000 units is set to increase by 27% over the next six years.

Economic growth, increased capital inflows, occupancy saturation in central Cairo and population growth trends all point to demand outstripping supply over the next three years. Colliers estimates existing pent-up demand within the high-income demographic at approximately 35,000 units, based on this segment’s 5.2% share of overall demand. Considering additional demand estimated at 12,800 units per year between now and 2015, Colliers expect moderate levels of price appreciation in the new communities over the next six years. Colliers also anticipate owner-occupier demand within the high income segment to increase as the new communities become more developed. This is demonstrated by the current premium enjoyed by Kattameya Heights and Palm Hills in New Cairo and 6th October respectively.

Retailers have witnessed a decrease in sales volume despite an increasing footfallt

cairo cumulative shoppiNG mall supply

The entry of the City Stars mall in the Cairo retail sector has successfully attracted international brands to the city, meeting demand from wealthy Egyptians, and offering a shopping experience closer to international retailing standards with anchor tenants, a professionally compiled tenant mix, food courts, and entertainment facilities.

City Stars is the largest existing mall in terms of number of units and size. Although Hyper One is the second smallest mall in terms of m² GLA, it has the largest average unit size at 741 m² per unit, followed by 419 m² per unit in Maadi City Centre. City Stars has the smallest average unit size at 224 m², which explains its high average rental rate of US$ 900 per m².

Average rental rate has registered 12% decrease between 2009 and Q1 2010 from US$ 720 per m² to US$ 630 per m² per annum. Nile City Towers Mall recorded the largest decrease at 34% from US$ 1,000 per m² to US$ 662 per m². Despite an average rental decrease across retail sector, shopping malls such as Hyper One and Rehab Mall 2 witnessed increases by 3% and 29% respectively. Current average sales price ranges between US$ 4,140-5,520 per m², leading to an average investment yield of 17%.

Although the effect of the global economic downturn in Egypt was not severe, compared to other countries in the Middle East, many retailers have registered a decrease in sales volumes despite an increase in footfalls. Despite a registered success of shopping malls, street facing retail units still remain more popular and more profitable due to the lower rental rates and absence of service charges which lead to higher margins.

By end of 2010, Cairo retail supply will

consist of 644,742 m² GLA and by 2013, provided scheduled completion dates are met, approximately 1.18 million m² GLA, an increase by 83% over three years and a CAGR of 22%. Mall of Arabia is currently the largest planned mall in Cairo, amounting to approximately 176,000 m² GLA, followed by Cairo Festival City at 154,000 m² GLA. Sun City Mall with its 275 retail units, located in Heliopolis, is scheduled for completion in late 2010 and has successfully pre leased 50% of the retail units. The majority of forthcoming shopping malls are developed in large residential communities and as part of master plan developments, mainly located in New Cairo and 6th October. The exception is Emaar Misr’s Uptown Cairo Mall, which will be located in Moqattam. The capital has also seen an increasing retail supply in office buildings where the ground floor and mezzanine floor is dedicated to retail, such as in Katameya Downtown, developed by Katameya for Real Estate Investments.

Despite reported increases in foot traffic in shopping malls, retailers are suggesting that turnovers are declining. The increase in retail space supply should therefore lead to increased competition in the retail sector and create difficulties for many retailers to remain profitable. Rental rates and services charges will have a crucial role in the development and outcome of the retail sector in Cairo. As mentioned earlier, street facing retail units are performing better than shopping malls and with increases in supply of both retail space categories, forthcoming shopping malls will need to increase the incentives for retailers to select them over street facing retail units. Colliers International remains bullish in the short to medium term.

collIers InTernaTIonal��

caIro reTaIl FIrsT QuarTer 2010

1,400,000

1,200,000

1,000,000

800,000

600,000

400,000

200,000

0

m2 G

la

2009


1200

1000

800

600

400

200

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2009 Q1 2010

Rent for high-end retail malls averages US$630 per m² pa, a decrease by 12% between Q1 2009 and Q1 2010

Current average sales price at US$ 4,830 per m²

Cumulative shopping mall supply is expected to reach approximately 1.2 million m2 by 2013

2010 2011 2012 201�

promiNeNt forthcomiNG retail supply

200,000

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

m2 G

la

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Tourist inflows into Egypt in 2009 totalled 12.5 million visitors, representing a decrease of 2% over 2008. Despite the decrease between 2008 and 2009, the CAGR for tourist arrivals between 2000 to 2009 remains strong at 10%. This translated into a room night demand of over 126 million room nights in Cairo last year, with an average stay of 10.6 nights. Daily tourists spend reached a peak in 2001at US$ 132 with a total annual tourist spend of US$ 4 billion. Whilst average spend levels have declined by 36% to US$ 85 since the peak in 2001, growth in tourist numbers have increased total tourist spend to US$ 10.8 billion in 2009.

The entry of luxury hotel brands such as the Four Seasons and Fairmont over the past few years, prompting a recovery in high-income cultural tourism markets, following perceived downturn in the quality offering of the Egyptian tourism market. This is being reinforced by the renovation and refurbishment of existing hotels which had previously claimed 5-star status due to a lack of alternatives rather than quality of product. Several operating contracts are running out in the near future, prompting the entry of new operators into the market. The improved level of service set by new operators may prompt surviving incumbents to renovate their hotels, providing a much needed boost to overall service quality.

Average room rates increased by 3% between 2007 and 2008, followed by 6% decrease between 2008 and 2009. Average occupancy rate continued a downward trend post 2007, amounting to a total decrease of 21% between 2007 and 2009, consequently leading to a decrease in revPAR by 22%

over the same period. The decrease in average room rate between 2008 and 2009 and the decrease in occupancy rate by 8% over the same period led to a decrease in RevPAR by 12%.

Looking forward, the focus of new hotel supply in central Cairo l be on the redevelopment of existing sites, the regeneration of urbanised areas (such as Islamic Cairo or Giza) and the transfer of existing hotels to new operators, as happened the case of the Ramses Hilton’s transfer to the Ritz-Carlton group. The concentration of future hotel development will otherwise be in the new communities of 6th October and New Cairo, together with selected locations in Moqattam and possibly New Maadi, mainly integrated within major master plan developments. Existing supply is expected to increase by 2,270 rooms.

At the micro-level, high quality hotels located on the Nile are expected to maintain a market premium despite the delivery of new supply, with marginal impact on performance expected. The real question concerning the development of hotels in the new communities will be the tourism market they intend to attract. Whilst the Smart Village hotel can benefit from the immediate catchment area of large Egyptian and multinational companies within the Business Park, and Cairo Festival City will seek to establish itself as a retail-driven leisure destination in its own right, traditional corporate and leisure tourism markets are more likely to prefer hotels located in central Cairo. The diversification of Egypt’s tourism offering will be central to achieving this.

cairo cumulative hotel room supply

Cairo has currently a total of 175 hotels, combining 14,600 hotel rooms

caIro hospITalITy FIrsT QuarTer 2010


17,000

16,500

16,000

15,500

15,000

14,500

14,000

1�,500

num

ber

of r

oom

s



5-sTar arr: us$ 118

revpar: us$ 75


occupaNcy rate

90%

80%

70%

60%

50%

40%

�0%

20%

10%

0%2007 2008 2009

2008

averaGe tourist daily speNdiNG

140

120

100

80

60

40

20

02000 01 200902 0� 04 05 06 07 08

m2 G

la

Market occupancy rate has decreased from an average of 83% YTD 2007 to 75% YTD 2008, followed by 62% YTD 2009

6% decrease in ARR and 21% decrease in occupancy rate between 2008 and 2009 led to 22% decrease in RevPAR over the same period

2009 2010 2011

Given the current economic and political climate, it is likely that this demand growth for primary grade accommodation will continue throughout the short and medium term.

tripoli forthcomiNG office supply

Average asking rental rate has decreased by 20% - 25% compared to over 2009.

Expected forthcoming supply to enter the market by 2012 amount to 45,490 m2 of NLA


premIum renT: us$ 8�5 per m² pa

vacancy raTe: 5%



TrIpolI oFFIce FIrsT QuarTer 2010

The Tripoli office market is highly diversified. It varies from state owned multi-storey towers to privately owned low-rise office buildings and villas and apartments converted into offices. The lease terms and conditions, the amenities and the tenant mix also vary considerably. The demand for high quality office accommodation is derived primarily from oil companies, airlines, government departments and embassies.

There are several projects that will deliver primary grade office space to the Tripoli market over the coming three to five years. Demand for such space is high, and a large proportion of the tenants of existing office facilities could possibly relocate should this higher quality space become available. Furthermore, growing foreign investment into Libya is expected to drive demand in the sector, indicating that market performance of high grade properties is likely to remain strong for the foreseeable future.

The formal supply of what passes for grade A office space in Tripoli is dominated by two office complexes, namely the Burj Al Fateh and the Dhat Al Emad. Both these complexes are state owned and the rentals are determined by the state. The Burj Al Fateh offers furnished accommodation of moderate quality. The Dhat Al Emad, on the other hand, leases space only on a fitted office space. Tenants may lease accommodation in units of half or full floors.

The only genuinely considered international standard office space available in the market is the Corinthia Business Centre, which is an office wing attached to the

Corinthia Hotel. Apart from these three office complexes, there are around five to six storey office buildings in the Dhahra and Downtown Areas. These are of similar or lower quality to the Burj al Fateh office tower.

The market for converted villas is expanding as a result of limited supply of formal office space. A considerable number of government offices and embassies have been forced to use this alternative. For example, the property formerly used as the prince’s palace is being refurbished for use as the American Embassy. The rental rates and lease terms for commercial villas are similar to those of residential villas.

It was expected the delivery of 249,400 m2 NLA of grade A stock by 2013, based on coverage of forthcoming supply. However, 53% of the development is currently on-hold. Although these forthcoming properties will deliver a significant amount of stock given the city’s current supply, there appears to be little risk of an oversupply. Even if the existing tenants of the Burj Al Fateh and the Dhat Al Emad relocate to higher grade accommodation en masse when new stock is delivered, there is a long waiting list of prospective tenants willing to move in. Oil companies and embassies are in serious need of Primary Grade office accommodation with security and controlled access, sufficient parking provision, broadband internet connections and regular maintenance. In addition, economic growth and increased openness is bringing new international investors, and hence, office occupiers, to the Tripoli market.

m2 n

la

90,000

80,000

70,000

60,000

50,000

40,000

�0,000

20,000

10,000

0Beroco office

BuildingTripoli centre

al waha complex

Tripolis Tower complex

al Gaddafi Tower


1,000

900

800

700

600

500

400

�00

200

100

0

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ia B

usin

ess

cen

tre

Bulie

la T

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s

al F

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us$

per

m2 pa

Approximately 55% of developments initially scheduled for completion are currently put on hold

tripoli forthcomiNG resideNtial supply

averaGe renT: us$ 95 per m² pa premIum renT: us$ 125 per m² paaveraGe sales prIce: us$ 8�0 per m²averaGe yIeld: 11%vacancy raTe: 7.5%


TrIpolI resIdenTIal FIrsT QuarTer 2010


7,000

6,000

5,000

4,000

�,000

2,000

1,000

0

num

ber

of u

nits

The provision of adequate housing for Libya’s population is a necessity for the government. The previous regime gave commitments to build 100,000 units in order to meet the housing shortage, but following cost and implementation problems the programme was abandoned in 1969. At that time, a major housing survey found that 150,000 families lacked a domicile of acceptable quality, and placed the overall housing shortfall at over 180,000 units (including allowances for over-occupancy of existing units). By the 1970’s both the public and private sectors were involved in housing construction. Towards the end of the decade, the housing blocks surrounding Benghazi and Tripoli had begun to give way to more modern apartment blocks with electricity and running water. Up until 1986, the government invested around US$2.2 million (LD2.8 million) in housing, which resulted in the construction of 277,500 housing units.

Soon after, budget allocations for housing fell short. This shortfall in new construction raised the prospect of overcrowding and the creation of slums as the country’s population expanded. There have been ongoing government-sponsored building projects since 1954, but the housing deficit remains. Low-income families were allowed to buy houses from the state at 10% of cost or to build their own homes with interest-free loans. As of 2003, the last period for which housing information is published, total housing units numbered 829,723 with 6.8 people per dwelling. Real estate was the main area of private investment until 1978. However, investment was stifled by the introduction of new property ownership laws in the same year which limited each family’s property ownership rights to a single dwelling. Free market trade of property was limited to

the sale of residential properties only. It was illegal for individuals to lease residential property and collect rent on the grounds that it would be exploitative.

In the mid 1990s, when the country started to experience the effects of the UN sanctions, these rules were gradually relaxed. The government needed to satisfy a growing housing shortage while also providing accommodation for a growing population of expatriate workers from countries such as Egypt and Sudan. However, this relaxation of regulations has not yet stimulated large scale private investment in residential apartments. Currently existing high rise apartment buildings in the city are under state ownership. The various projects under planning or construction will largely target a high-income bracket, primarily expatriate population.

At present villa owners continue to prefer to rent to commercial tenants on long term leases, even though the rental prices commanded are relatively similar to those of primary grade residential use rentals. In the case of units let for residential purposes, the lease period is generally 1-2 years. While villas are more expensive than apartments on an absolute basis, evidence supplied to Colliers staff by local brokers suggests that, with a small number of exceptions, rental prices are similar on a unit area basis to those of apartments. Comparing rentals across the city, we’ve witness a decline of up to 36% in certain areas since last year. This is due to the gradual flow of residential supply entering the market.

Average rental rates increased by 4% between Q4 2009 and Q1 2010

Average sales rates increased by 27% between Q4 2009 and Q1 2010

2010 2012 201�


118

116

114

112

110

108

106

1042 Br

us$

per

m2 pa

� Br 4 Br

averaGe sales prices Q1 2010

1,120

1,100

1,080

1,060

1,040

1,0202 Br

us$

per

m2

� Br 4 Br

Retail sector characterized by high occupancy rates derived by into high demand.

Existing supply of shopping malls as of Q1 2010 is in excess of 200,000 m2 GLA

tripoli forthcomiNG shoppiNG mall supply

In the past, retail in Tripoli has been dominated by street facing retail units in areas such as Gargaresh Road, Rashid Street and Bin Ashour Street. The city had only a few small shopping centres, such as Zarqa Al Yamama.

The retail market has undergone considerable growth in the last few years with the opening of high end malls, albeit small, like the Oasis Centre and the Al Mahary Supermarket. Government owned retail units have also been taken over by private individuals/firms. Since then, few international brands had entered the market – Benetton, Damas and Armani being among them.

Following the revolution in 1969, the government forced the closure of all private retail operations. State run department stores were opened across the city, and until the late 1980s these were the only retail facilities available. In an effort to create jobs and stimulate the economy, private retailing was again permitted in 1988. However, rebuilding of confidence in retail investment was slow, and it is only in recent years that the industry has seen meaningful growth. Retailers in Tripoli have slowly begun to adopt international retail industry standards in terms of store design, layout, merchandising, store lighting and other presentation features.

A number of new shopping centres have started operations in the last two years. The demand for higher quality retail environments and products is evident from the success that the new shopping centres have achieved. However, the majority of Libyans do not

have an expandable income; currently Libya has a per capita income of $ 13,450. This limits the potential constituency for expanded retail provision. Nevertheless, the recent substantial salary increments in the public sector are expected to increase overall purchasing power. Foreign brands are already popular within higher income groups. In principal, they are likely to be successful when they enter the broader market.

The demand for retail comes not only from Libyan nationals, but also from the increasing expatriate population associated with oil companies. There are also a smaller number of Tunisians and Algerians who travel approximately160-200 kilometres over the weekends to shop in Tripoli.

There is a strong demand for good quality retail space in Tripoli. This is demonstrated by the high occupancy rates enjoyed by most retail properties in the city, Oasis Centre being an exception due to its positioning. Retail market demand arises not only from Libyans and expatriates working in Libya, but also from residents of neighbouring countries. There is a moderate volume of additional stock being added to the market, although total GLA per capita still remain small by regional standards. In addition, it is expected that when Majid Al Futtaim Group deliver their retail property, the majority of existing facilities will suffer a fall in footfalls and rental rates. This is simply a reflection of the group’s strength and track record in delivering best in class facilities in cities across the region.


TrIpolI reTaIl FIrsT QuarTer 2010

m2 G

la

Line store retail rents for established and successful shopping malls are US$ 440 per m2 pa

Street facing retail units are offered at US$ 795 per m² pa

oas

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us

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800

700

600

500

400

�00

200

100

0

us$

per

m2 pa

120,000

100,000

80,000

60,000

40,000

20,000

0Bab Tripoli andalus

centre mallal waha

complex mall

The Libyan hospitality market is currently in relative infancy. There are approximately 13,638 existing hotel rooms in Libya across market and star stage rating. The government expects considerable expansion of Libya’s tourist arrivals in the short to medium term. As a result, the government has entered into a programme of promoting hotel construction. This programme includes granting permission for resort projects to be developed by international companies, construction of tourism hotels near local attractions such as the Leptis Magna, and the renovation of government owned hotels in Tripoli. Demand is expected to increase mostly in the 4 and 5-star segments.

The current supply of 4 and 5-star hotels (as locally classified) in Tripoli is around 1,950 rooms. It is expected that a further 2,664 international standard 4 and 5-star rooms will be delivered by the end of 2013 (with the bulk of this supply being added during the course of 2012). This delivery schedule is, as always, subject to the possibility of construction delays and project release timings. As new stock is added, a de facto downwards reclassification of properties currently listed as 4 or 5-star is likely to occur, and the likelihood of moderate customer movement away from the existing 3-star sector (currently supported by a lack of supply at the upper quality levels), is likely to support the absorption of new stock.

A number of international hotel chains such as Intercontinental and the Marriott have entered the Libyan market. The only previously existing international hotel, the Corinthia, is now operating at an average occupancy of between 75% and 80%. The government owned and Radisson operated property, Al

Mahary Radisson Blue Hotel, is operating at around 50% occupancy. Along with these internationally operated hotels, there are a large number of small, locally operated hotels which are enjoying healthy occupancy rates because of more competitive room rates and the fact that many travellers are simply unable to find any availability in one of the higher grade properties. However, it is likely that much of the forthcoming hospitality stock in the market will be absorbed before the internationally operated segment starts to experience a decline in occupancy rates. Currently, newly renovated or recently constructed hotels such as the Al Waddan Hotel are experiencing occupancy rates of around 60%.

There are significant numbers of 5-star hotel rooms under development in Tripoli, which will end the functionally monopolistic position enjoyed by the Corinthia at present. These developments will satisfy the existing latent demand for 5-star hotel accommodation within the city, as well as causing a downwards reclassification of nominally 5-star government run hotels. As this occurs, it is likely that a proportion of the demand currently satisfied by government run hotels will be relocated to new hotels under development. However, it is likely that this additional supply will result in a moderate reduction in occupancy rates.

tripoli cumulative hotel room supply

Existing hotel room supply in Libya amount to 13,638.

TrIpolI hospITalITy FIrsT QuarTer 2010


16500

16000

15500

15000

14500

14000

1�500

num

ber

of r

oom

s



5-sTar arr: us$ 455

5-sTar revpar: us$ 275


2011 2012 201�

After experience lack of existing supply and heavily unsatisfied demand; now a number of international hotel chains have now entered the Libyan market

averaGe room rate

500

450

400

�50

�00

250

200

150

100

50

0

us$

4-star 5-star

Supply of 4-star and 5-star hotel rooms will increase from 905 in 2011 to around 2,664 rooms by the end of 2013

Average sales price has remained stable in the last 12 months at US$5,430

Average annual rental rates showedan increase of 24% between Q3 2008 and Q3 2009 but remained level between Q3 2009 and Q1 2010

averaGe office sales price Q1 2010

Damascus office market is immature and fragmented, with high sales prices driven by demand regardless of quality of product

Colliers anticipates delivery of 86,000 m2 NLA to enter the market between 2010 and 2012



averaGe sales prIce: us$ 5,4�0 per m²

averaGe yIeld: 6.8%

vacancy raTe: 10%



damascus oFFIce FIrsT QuarTer 2010

Office supply in the traditional Central Business District (CBD) of Damsascus is a microcosm of the country’s historic business environment: predominantly outdated buildings developed in the late 1960s to early 1980s to house state-owned enterprises and professional clusters including lawyers, engineers and doctors. The previously fragmented office space and CBD in Damascus has become more formalised with the establishment of privately-owned banks and insurance companies in the wake of the sector’s liberalisation. This process was driven further by the entry of multinational companies and more recently, financial brokerage firms into the city’s business arena, which has also sustained demand for office space.

Colliers International conducted a survey of designated office buildings in Damascus, which comprised seven buildings with a total Net Leasable Area (NLA) of 61,205 m². Office space within existing mixed-use developments, most notably the Queen Centre in Mezzeh and the Damascus Boulevard attached to the Four Seasons Hotel, amounts to an additional NLA of 2,640m². Collective office space in the city is still less than total NLA within the free zone located in Baramkeh, estimated at 65,550m². Existing office supply is allocated in the following areas; the business area of Downtown Damascus, the Mezzeh district, which has emerged as a secondary business area with the development of two office buildings, and the adjoining districts of Kafr Soussa, Abu Roumana, Rawdah, and

Salhiyeh, which comprises the majority of the capital’s converted office space and the free zone area in Baramkeh.

Average rental rates recorded a large increase of 28% between Q3 2007 and Q3 2008. Rates increased by a further 24%, between Q3 2008 and Q3 2009. Sales prices followed the same upward trend between Q3 2007 and Q3 2008, increasing by 4%, followed by a larger increase between Q3 2008 and Q3 2009 from US$ 2,550 per m2 and US$ 3,561 per m2, amounting to 40%. In Q1 2010, sales transactions slowed, down causing prices and rental rates to level out.

Colliers expects the supply of dedicated office space to increase by 66% between 2010 and 2012, concentrated mainly in Yafour. The combination of rising demand and inadequate supply, compounded by the supply constraints and costs involved in converting residential space into office units, have led to a steady rise in office sales prices. The potential increases in investment yields has renewed investor interest in the development of office space, though this has yet to manifest itself into further supply. Demand is expected to further increase when the free trade agreement between Syria and the EU is finalized during the course of 2010. This agreement is expected to remove all trade barriers, albeit gradually, between Syria and the EU and it will allow European companies to enter the Syrian market. This should increase demand for office space as European companies seek to open new offices to start operations in Damascus.

us$

per

m2


700

600

500

400

�00

200

100

0

dam

ascu

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(dow

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us$

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m2 pa

5,000

4,500

4,000

�,500

�,000

2,500

2,000

1,500

1,000

500

0damascus Tower

(downtown)al Faiha Tower (downtown)

victoria Building (downtown)

wahet al Fardos Tower (salhiyeh)

engineers Buinding a (salhiyeh)

Queen centre (mezzeh)

chaNGe iN the averaGe sales

6,000

5,000

4,000

�,000

2,000

1,000

020102009

us$

per

m2

Following high increases of 30% between 2008 and 2009, rental rates and sales prices remained stable in Q1 2010 compared to 2009

averaGe resideNtial sales price Q1 2010

averaGe renT: us$ 210 per m² pa premIum renT: us$ �4� per m² paaveraGe sales prIce: us$ 4,160 per m²averaGe yIeld: 5%vacancy raTe: 10%


damascus resIdenTIal FIrsT QuarTer 2010


10,000

9,000

8,000

7,000

6,000

5,000

4,000

�,000

2,000

1,000

0

Colliers expects over 3,000 units to be delivered to the market over the next three yearsBased on estimated demand and forthcoming supply, it is expected that a shortfall of approximately 106,339 units will arise, likely to leave the market undersupplied for the next five years

Current trends in the residential market have coincided with increased investment activity at the macroeconomic level, and sectoral developments in real estate and tourism. This has improved investor confidence and stimulated appetites for the acquisition of residential real estate assets. Demand on the part of owner-occupiers has also been generated out of the liberalization of the banking sector, and the expected improvement in the competitiveness of mortgage financing offerings, the scope for which has been boosted by the draft mortgage and financing law. Demand generated by investor appetite together with demand driven by the growth in population are expected to give rise to an undersupply in residential property.

Current residential supply is estimated at 877,323 units. The Housing Authority itself has only developed 40,000 units over the last 50 years, meeting only 20% of actual demand. The housing shortage currently experienced has been exacerbated by tenants vacating long-term rented accommodation. Demand for housing is mainly concentrated in middle and lower-income segments, given that salaries in the city centre average US$ 200 a month. Demand for upper-middle and high income housing, driven by the entry of more foreign companies into the Syrian market will further increase the supply shortage in this segment of the market.

Rental rates increased by 4% between Q3 2007 and Q3 2008, followed by a larger increase of 36% between Q3 2008 and Q3

2009. During the period between Q3 2009 and Q1 2010 however rental rates remained stable at US$ 210 per m² per annum. Sales prices followed the same growth pattern between 2007 and Q3 2009 and remained unchanged in Q1 2010, stabilizing at US$ 4,160 per m². Due to a larger increase in sales price, the rental yield decreased from 6% in Q3 2008 to 5% in Q3 2009. Rental yields showed little movement between Q3 2009 and Q1 2010 due to the levelling of both rental rates and sales prices.

Forthcoming supply, amounting to approximately 3,000 residential units, will be concentrated primarily in western Damascus, and the western outskirts of the city, in line with urban expansion trends, government planning and investor activity. A number of major developments are currently under construction in urban and rural Damascus, carried out by private, public and cooperative developers.

Based on Colliers’ analysis, total demand in 2012 is forecasted to exceed supply by 10.5%. Applying this to existing units and confirmed forthcoming supply in 2012 (assuming that the government succeeds in building 96,600 low cost housing units in rural Damascus), results in a shortfall of approximately 106,339 units, indicating that the market will remain undersupplied for the next five years.

Rental yield decreased from 6% in Q3 2008 to 5% in Q3 2009, due to a larger increase in sales price

chaNGe iN the averaGe sales

4,500

4,000

�,500

�,000

2,500

2,000

1,500

1,000

500

020102009


400

�50

�00

250

200

150

100

50

0

abu

rom

ana

mal

ki

us$

per

m2 pa

wes

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alki

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sah

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(vill

as)

east

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(Tow

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Kaf

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usse

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dum

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abu romana

malki west malki

maisat rukn

(villas)

east mezzeh (villas)

east mezzeh (Towers)

Kafr sousseh

dummar

us$

per

m2

us$

per

m2

Damascus is registering an increase in consumer purchasing power driven by the entry of expatriates, repatriated Syrians, and the growth of the private sector

Average annual rent in shopping malls is currently US$ 840 per m2

damascus forthcomiNG shoppiNG mall supply

Whilst retail in Old Damascus is underpinned by international tourists and low to middle income shoppers from all over the city and the rural outskirts, international brands in Shalaan’s retail outlets started to attract the Syrian high-income segment, who had previously done most of their clothes shopping whilst on holiday abroad. The new clothing lines also attracted visitors from Lebanon, Jordan and to a lesser extent the GCC. This process saw the emergence of single-brand outlets in the Shalaan area and the establishment of retail outlets in the neighbouring high-income area of Abu Roumana. Existing shopping mall supply amounts to 86,600 m2 of GLA.

One of the major shifts in the Damascus retail market was initiated with the introduction of shopping malls, providing a new retail experience for customers. Although the first mall to be established in the capital was technically the City Mall, part of the mixed-use Rotana Queen Centre in Mezzeh, the concept did not really take off until the completion of the Town Center Mall in 2004, the first and largest standalone retail development in Syria. The mall concept has been taken further with the completion of the Cham City Center in Kafr Soussa in February 2007, the completion of the Skiland shopping mall off the Airport Road at the end of June 2007 and the opening of the biggest mall in Syria, Damasquino, located next to Cham City Centre in Kafr Sousa area. The mall is targeting middle to high income citizens and has attracted new international brands to Syria such as Nike and Lacoste.

A young population, the successful adoption of the mall concept both as a shopping and leisure destination, increases in consumer spending power, sustained and rising demand on the part of expatriates living in Syria and increases in tourism inflows represent compelling fundamentals driving the development of shopping malls both in the city and in the emerging new Damascus.

The city has seen an increase in consumer purchasing power driven by the entry of expatriates, repatriated Syrians, and the growth of the private sector in response to improvements in the business environment. Shopping mall supply is expected to double over the next five years, indicating investor confidence in the popularity of malls in Syria. The volume of forthcoming supply, however, does raise concerns as to the strength of demand required to absorb future development. Based on Colliers International analysis of existing shopping mall supply, current GLA per capita in Metropolitan Damascus is 0.02, compared to 1.3 in Dubai or 0.53 in Doha. This is expected to increase to more than 0.07 by 2013, based on forthcoming supply and population growth estimates. The introduction of new leisure facilities and the encouragement of transport facilities to and from the destination at hotels, tourism centres, universities and selected residential areas, are all optimal means of reducing market oversupply risk.


damascus reTaIl FIrsT QuarTer 2010

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

0

m2 G

la

sabboura project

Reduction of import restrictions on internationally branded clothing, supported by the GAFTA, Syria-Turkey and tentative Syria-EU Free Trade Agreements

Shopping mall supply is expected to increase by 256% over the next five years

averaGe sales price

60,000

50,000

40,000

�0,000

20,000

10,000

0

us$

per

m2

al s

haal

an

al h

amra

st

reet

ham

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a

abu

r

uman

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salh

iya


1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

us$

per

m2 pa

city

mal

l

Tow

n c

ente

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skila

nd

dam

ascu

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dam

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mal

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cha

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ity

cen

ter

eight Gate salaam mall syria Towers mall

Increasing demand, generated by higher visitors inflows, has urged the government to attract greater tourism investments and develop the required infrastructure and facilities. Demand increased as a result of growth in corporate tourism in line with economic development and increased business opportunities. In addition to a recovery in the number of Lebanese visitors and international tourists. An expected doubling of religious tourism by 2010, and an expected surge in the number of Turkish tourist will potentially increase demand.

Whilst rural areas of Damascus have been designated as strategic areas for the development of the capital’s tourism offering in the longer term, the immediate focus is on hotel provision within the city itself due to an existing shortage of hotel rooms in proportion to demand, causing high occupancy levels and inflated average room rates on the basis of supply shortfalls, rather than the quality of rooms and services available. The shortage is particularly acute in the four and five star hotel segments in Damascus, which hosts the majority of regional and international tourism inflows.

Arab tourists represent the largest market for hotels in both urban and rural Damascus. Arab tourists staying in urban Damascus are more likely to visit a 5-star rather than 4-star hotels. Syrians represent the second largest market for hotels in Damascus, however they tend to stay in lower rating hotels, such as 4-star and lower. International tourists staying in urban Damascus are slightly more likely to visit a 5-star rather than 4-star hotels.

Hotel performance has followed an upward trend, where average room rate increased to US$110 in 2009 and market occupancy rate increased from 70% to 72% over the same period. The increases in occupancy rate and average room rate led to an increase in RevPAR, reaching US$79.

Forthcoming supply of 4 and 5-star hotels, scheduled for completion by 2013, is estimated to increase existing supply by 31%. The development of the forthcoming Intercontinental on a site adjoined to the Sheraton is representative of the future challenge to incumbent hotels that have enjoyed a monopoly over the 5-star market, up until the completion of the Four Seasons last year. The proposed operator transfer of the older hotels will serve to reduce the risk of a decline in occupancy levels, providing them with a chance to upgrade their business, leisure and F&B amenities to compete with forthcoming supply.

To achieve demand supply equilibrium by 2015, the supply of hotel rooms should increase by 90%. On the other hand, the confirmed hotel forthcoming supply will only increase by 70%, therefore the hotel market in Damascus will remain undersupplied in the short to medium term, inflating room rates and occupancy levels on the bases of supply shortage rather than the quality, services and amenities offered by the hotels. However, as more internationally branded hotels enter the market, such as the Kempenski and Movenpick hotels, the quality of hotel services and amenities in Damascus will therefore improve, providing larger array of selections to hotel guests.

damascus cumulative hotel room supply

A recovery in the number of Lebanese visitors and international tourists, and a significant increase in the number of Turkish tourists is expected in 2010

The number of tourists visiting Syria has increased by 12% in 2009 over 2008.

damascus hospITalITy FIrsT QuarTer 2010


7,000

6,000

5,000

4,000

�,000

2,000

1,000

0

num

ber

of r

oom

s



arr: us$ 110

revpar: us$ 79


2009

An increase in occupancy levels have supported an increase in RevPAR

Average occupancy rate for 5-star hotels has decreased from 89% in 2008 to 77% in 2009

We expect the delivery of over 2,396 hotel rooms between 2009 and 2013

�00

250

200

150

110

50

0dedeman

hotelsheraton cham

palaceFour

seasor

us$

5-star averaGe room rate

2010 2011 2012 201� 2014 2015

collIers InTernaTIonal 4�


Colliers International, with an established presence in the Abu Dhabi market of over 14 years, has looked closely at the potential changes affecting the office leasing sector – and how these changes would impact the Abu Dhabi market.

In two parts Colliers looked at first the changing nature of the occupational market and then at potential impact of possible legal changes on the supply and demand dynamic.

Occupiers – Present and FutureWith a large volume of space due to enter the market Colliers conducted a survey of 15 existing office buildings in Abu Dhabi to establish current and forthcoming occupancy profiles.

abu dhabi office market - rumour calculations and preparing For change

Colliers then looked at both current requirements in the market place and existing tenants currently occupying office space. It was here that the changes to occupiers profile are apparent. 50% of tenants surveyed indicated requirements for space of less than 300 m2. 30% of the tenants are seeking office space between 301 m2 and 500 m2, while only 20% are looking for office space exceeding 500 m2.

Potential New DemandThere has been discussion and rumour within the Abu Dhabi market of the Municipality looking to end the long standing practice of allowing residential villas to be used for commercial office premises. What was a practical response to a clear undersupply, Colliers examined this possible domestic source of demand and what impact it may have in minimizing future oversupply in Abu Dhabi.

Colliers research has established that there are approximately 600 villas currently registered with commercial uses.

commercial villas

Of the total amount approximately 83% are used as offices, while the remainder comprised uses such as nurseries, schools, pharmacies, medical centres, fashion and beauty centres etc.

Colliers estimates that a potential domestic demand of up to 125,000 m2 of office space could be generated from the “commercial villa sector”. The likely impact on the market is subject to a number of key underlying assumptions, foremost of which are;

• Abu Dhabi Municipality is indeed considering removing commercial uses on residential villas.

• Should the change of use (back to residential only) come into effect by the end of 2010 - tenants in the commercial villas will be given until end of 2011 (a 1 year period) to vacate.

Given this scenario, Colliers anticipates this additional demand accounting to 125,000 m2 will be then absorbed into the existing supply in 2012, thereby minimizing oversupply of commercial space in the Emirate.

commercial villas

�,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

m2 G

la

2008 2009 2010 2011 2012 201�2007

demand (excluding villas)

demand (including villas)

supply

curreNt occupier space profiles

less than �00m2

20%

exceeds 500m2

55% Between �01-500m2

25%

occupier space reQuiremeNts

less than �00m2

50%Between �01-500m2

�0%

exceeds 500m2

20%

8�% office

17% others

In conclusion, whilst it will be good news for purpose built offices the effect will not be a cure all to the market place, forthcoming oversupply and landlords will need to remain competitive in their terms to attract tenants. Further, developers and landlords need to start planning for sub division of floor space to match supply with market demands.


Office occupancy rates are a key indicator of a city’s economic vitality. This is certainly the case in Abu Dhabi, where commercial office space enjoyed 100% occupancy in a historically undersupplied market. However, following the global economic downturn and falling real estate prices, Colliers instigated a market watch last year, focusing on a sample of office buildings in the emirate – the intention being to monitor the performance of these buildings in the light of global conditions. The initial survey was

conducted in Q4 2009 and was tracked again in Q1 2010.

The average occupancy currently stands at 99%, dropping a marginal 1% from a fully occupied market in Q4 2009. The results from the occupancy survey show Khalifa, Liwa and Salam Street consistently achieving 100% occupancy while Hamdan Street consistently achieved 99% occupancy during Q4 2009 and Q1 2010. The high occupancy rates in these


100%

90%

80%

70%

60%

50%

40%

�0%

20%

10%

0%hamdan street

abu dhabi office occupancy survey – Q1 2010

averaGe occupaNcy survey Q1 2010

areas reflect an undersupplied market. Najda Street witnessed a 5% drop in occupancy rates from 100% occupancy in Q4 2009. Office space surveyed in Najda Street includes primary grade office space, which contrary to market conditions, failed to witness a decline in rental rates between Q4 2009 and Q1 2010. The drop in occupancy levels in this area is likely to be attributed to existing tenants either downsizing their current operations or relocating to less expensive commercial space available in the Emirate.

The overall results exemplify the present undersupplied market for office space in Abu Dhabi. Despite high occupancy levels across the market, and a current supply of approximately 1.6 million m2 of NLA, the office market is expected to reach equilibrium during 2010 with an oversupply by the end of the year, due to a lower demand rate than a forthcoming supply rate. The outlined oversupplied market condition, however, is only possible provided construction timelines are met.

Khalifa street liwa street najda street salam street

Q4 2009 Q1 2010

Average rental rate, covering the surveyed areas currently stands at US$ 465 per m2 per annum, a 5% drop from Q4 2009. Declining rental rates in Abu Dhabi are due to, among other reasons, the Emirate’s price sensitivity towards falling prices in neighboring Dubai. The largest decrease in rental rates was registered in Salaam Street, which dropped by 19%, from Q4 2009 to Q1 2010 and is currently standing at US$ 460 per m2 per annum. Najda Street was the only

area failing to witness a decline in rental rates. Khalifa Street and Hamdaan Street witnessed a 4% and 9% decline in annual rents respectively. Annual rents in Hamdan Street remained the highest at US$ 570 per m2 per annum. While primary grade office space witnessed a decline of 9% between Q4 2009 and Q1 2010, secondary grade office space dropped a marginal 2% during the same period.

Despite the limited availably of commercial office space in the capital, changes in the global economic climate and falling real estate prices in Dubai are forcing landlords to lower their asking prices in Abu Dhabi, in order to retain existing tenants. With an expected forthcoming supply of approximately 435,000 m2 of NLA scheduled to be released this year, rental rates in the capital are anticipated to decline further.

averaGe reNtal rates

Q4 2009 Q1 2010

700

600

500

400

�00

200

100

0

hamdan street Khalifa street najda street salam street

us$

per

m2 pa



A market watch instigated by Colliers in 2009, focused on recently delivered office space in Dubai with the intention to monitor the effect and performance in the light of global conditions. The initial survey conducted in Q1 2009, was reviewed in Q3 2009 and again in Q1 2010.

Colliers followed occupancy rates, fit-out levels and rental rate trends for specific buildings in new commercial districts, such as Jumeirah Lake Towers (JLT), Dubai Silicon Oasis (DSO), Dubai Investment Park (DIP), Jebel Ali, Dubai Outsource Zone (DOZ), Al Barsha, TECOM A and C, and Dubai International Finance Centre (DIFC). The survey limited new office space in TECOM and DIFC to commercial buildings delivered by private developers.

The average occupancy rate, in new commercial districts reached 32% in Q1 2009, 23% in Q3 2009, followed by 42% in Q1 2010.

The survey for new office space showed the highest average occupancy rate consistently achieved in TECOM A, which currently stands at 40%. Other free zone areas such as JLT, DSO and TECOM C saw Y-O-Y increases of 10%, 7% and 1% respectively. Downtown Jebel Ali (DTJA) witnessed the highest YOY increase from 15% in Q1 2009 to 73% in Q1 2010. TECOM C continues to witness comparatively lower occupancy rates, which among other reasons is likely due to a majority of buildings under construction in the area discouraging potential tenants occupying vacant space. Average occupancy levels in older, more established

50%

45%

40%

�5%

�0%

25%

20%

15%

10%

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dubai office occupancy survey – Q1 2010

NeW commercial districts: averaGe occupaNcy

commercial districts such as Bur Dubai, Deira, SZR and Downtown Dubai dropped from highs of 97% in Q1 2009 to 90% in Q1 2010. Deira and Bur Dubai witnessed the highest occupancy rates of 93% and 91% respectively. Downtown Dubai witnessed a 5% decline in occupancy rates between Q3 2009 and Q1 2010, while increasing a marginal 1% Y-O-Y. Occupancy levels in Sheikh Zayed Road witnessed a 3% drop from Q1 2009 to Q1 2010, but increased 2% from Q3 2009 to Q1 2010.

Colliers International observed an overall 10% YOY increase in occupancy levels across new commercial districts, while occupancy levels in the older, more established districts dropped by 7% during the same period. The movement of commercial tenants is believed to be a direct result of the lower rental rates and other incentives, such as rent-free fit-out periods offered by landlords in the newer commercial districts, in order to magnetize tenants from older, established office space in an already oversupplied office market.

Average occupancy levels across Dubai, covering both new and established commercial office space, reached 71% in Q1 2010. The overall occupancy rate was calculated by collating occupancy rates of each commercial district in Dubai with its corresponding NLA, and calculating the weighted average in accordance to each districts’ contribution to the total NLA of office supply available in Dubai.

dso Tecom c Tecom a

Average rental rate in new commercial districts currently stands at US$ 265 per m2 per annum. The largest decrease in rental rates was registered in DSO, dropping 61% between Q1 2009 and Q1 2010, and 42% between Q3 2009 and Q1 2010. TECOM A held strongest amidst declining rentals, dropping 28% between Q1

2009 and Q1 2010. Average rental rates in JLT witnessed a YOY drop of 59% and fell a marginal 8% from Q3 2009 to Q1 2010.

Current average rental rate in more established commercial districts stands at US$ 407 per m2 per annum, 35% higher than rental rates

NeW commercial districts: averaGe reNtal rates

700

600

500

400

�00

200

100

0

us$

per

m2 pa

Q1 2009 Q� 2009 Q1 2010

in newer areas. The largest decrease in rental rates was registered in Bur Dubai, dropping by 55% between Q1 2009 and Q1 2010. Deira and Downtown Dubai dropped by 52% and 47% respectively. SZR held strongest amidst declining rentals, dropping 32% between Q1 2009 and Q1 2010, primarily due to its close proximity to the Dubai International Finance Centre (DIFC).

The already oversupplied office market, which currently constitutes of 3.7 million m2 of NLA, is expected to increase by 46% by the end of 2010. The Dubai office sector is currently oversupplied by 1.3 million m² of NLA. This requires an increase in the workforce by 125,800 white collar workers to obtain market equilibrium. Provided demand remains unchanged and supply timelines are met, rental rates and occupancy levels in Dubai are anticipated to decline further.

JlT dso Tecom c Tecom a

Q1 2009 Q� 2009 Q1 2010

Colliers International is a global real estate consultancy company providing a comprehensive range of property services to a broad range of clients on an international basis. Core services include property and asset management; leasing; development consultancy & strategic advisory; property valuations and international property investment services.


This regional overview is extracted from a series of comprehensive real estate market studies which are constantly updated and immediately available from Colliers International MENA for purchase

over 260 oFFIces more Than 60 counTrIes6 conTInenTs

emea 85americas 129asia pacific 52

us$ 2bn in revenues868 million ft2 under managementover 11,000 professionals

dubai, uae

abu dhabi, uae

doha, Qatar

riyadh, Ksa

Jeddah, Ksa

eastern province, Ksa

mecca and medina, Ksa

muscat, oman

cairo, egypt

amman, Jordan

damascus, syria

Tripoli, libya

Khartoum, sudan

© colliers International Fz llc

reproduction of the contents of this publication is prohibited without gaining prior permission from colliers International.

The contents of this report is for information only and should not be relied upon as a substitute for professional advice, which should be sought from colliers International prior to acting in reliance upon any such information. The opinions, estimates and information provided herein are made by colliers International and affiliated companies in its best judgment, in good faith and based as far as possible on sources deemed reliable. notwithstanding, colliers International and affiliated companies do not provide warranty to the accuracy of, and disclaim any liability for errors and omissions made in respect of providing such information. This report does not constitute and should not be treated as investment advice.

colliers International Fz llc is part of a worldwide affiliation of independently owned and operated companies with over 260 offices throughout more than 50 countries worldwide.

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duBaI colliers International mena headquarters

colliers International Fz llc

po Box 71591

dubai, uae

Tel: +971 4 42� 4910

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Ian albert, regional director

Jp Grobbelaar, director

Gary Brown, director

narmin abugalala, manager

[email protected]

aBu dhaBI

po Box 94�48

abu dhabi, uae

Tel: +971 2 445 9898

Fax: +971 2 44� �9�2

Ian albert, regional director

Gary Brown, director

[email protected]

rIyadh

p.o. Box ��1

riyadh 11471, Ksa

Tel: +966 1 466 1517

Fax: +966 1 464 71�4

emad damrah, country director

[email protected]

www.colliers-me.com

Documents

Colliers International MENA Real Estate Overview Q1 2010