The Market 2008

THE MARKETReal Estate 2008

ABU DHABI DUBAI N. EMIRATES BAHRAINKUWAIT OMAN QATAR SAUDI ARABIAJORDAN LEBANON SYRIA TURKEYYEMEN ALGERIA EGYPT LIBYA MO-ROCCO TUNISIA NIGERIA INDIASRI LANKA PAKISTAN INDONESIA MALAYSIATHE PHILIPPINES SINGAPORE THAILAND

CONTENTS THE MARKET 2008

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GOING FROM STRENGTH TO STRENGTHNew developments and opportunities haveabounded in 2008. OBG’s geographical cover-age has risen to encompass 24 countries,including Indonesia, a new arrival this year. Fur-thermore, a number of new partnerships withsuch prestigious real estate services and con-sultancy firms as CB Richard Ellis and Pak REallow us to look forward to expanding our oper-ations even further in the future.

GLOBAL CAPITAL FLOWSWhile property markets across Europe and theUS continue to slow with the current economicdownturn, the Middle East in general and theGulf region in particular have managed to buckthe trend. The UAE has been especially success-ful, sending large amounts of capital abroad andenjoying the protection offered by oil revenues,which reached record levels in 2008.

REAL ESTATE RANKINGS 2008Focusing on some of the world’s most promisingemerging markets, OBG has ranked the residen-tial, commercial, retail and hospitality markets inorder of their appeal to potential developers,taking into account supply and demand, poten-tial returns and the current investment climate.In 2008 India continues to lead the field, fol-lowed by Malaysia and Indonesia.

METHODOLOGYThe OBG emerging market rankings combineincome statistics, economic data, political, eco-nomic and sovereign risk, supply and demand,market development and capacity, and a seriesof specific indicators showing market potential ineach sector. Here we explain our methodologyfor gathering accurate, sector-specific informa-tion in countries for which data is often scarce.

UNITED ARAB EMIRATESUAE introduction: Price stabilisation seen butforecasts differ on timingLife on the islands: Expanding coastlinespresent both opportunities and challengesAbu Dhabi residential market: Strategies areimplemented to avoid a housing crisisAbu Dhabi office space: Moving from high-riseto high standard in provisionAbu Dhabi retail: The emirate boasts an impressive amount of mall spaceAbu Dhabi hospitality: Visitor numbers grow asAbu Dhabi's tourism strategy pays offDubai master plan: Paving the way for expansionand diversificationDubai residential: New developments help easedemand for housingDubai office space: Premium commercialproperty entices businesses to the emirateDubai retail: Developers differentiate newproducts with clever add-ons

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Dubai hospitality: Catering to a wide range ofinterests – from business to sportNorthern Emirates: Making the most of theirlocation and space

GULF COOPERATION COUNCILBahrain: Development takes off as the countryopens up to foreign investorsKuwait: Domestic demand fuels real estate andconstruction growthOman: The country bounces back after a massivehurricaneQatar: Increasing population spurs growth in allsectorsSaudi Arabia: Looking beyond oil, the economyoffers more stable investments

MIDDLE EASTJordan: Great potential for further developmentremains in certain areasLebanon: The real estate sector is making up forlost timeSyria: Gradual and steady growthTurkey: A growing economy and population offergreat opportunitiesYemen: Immense potential waiting to be tapped

AFRICAAlgeria: Employment rates are rising along withtourism investmentsEgypt: Construction and real estate scramble tokeep up with demandLibya: Real estate tops the list of lucrativeinvestment opportunitiesMorocco: Seeking more stable growth sourcesthrough diversificationTunisia: High demand and an expandingeconomy drive growthNigeria: A diversifying economy spells a brightfuture

ASIA & FAR EASTIndia: A very large market continues to expandSri Lanka: Despite considerable challenges, realestate continues to grow steadilyPakistan: Momentum returns to the marketIndonesia: Strong fundamentals override worriesMalaysia: Steadily growing and rapidlydiversifyingThe Philippines: Remittances and IT services arekeySingapore: A healthy economy, but still room fordevelopmentThailand: The country bounces back from aseries of challenges

INVESTMENT LAWSLaws governing investment in construction, retailor hospitality developments vary from region toregion, but in most countries the process of eco-nomic liberalisation continues to ease the move-ment of foreign capital into national markets.

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INTRODUCTION

OBG is pleased to introduce the 2008 edition of TheMarket, OBG Consulting’s comprehensive annual roundup and ranking of real estate markets in the Gulf,North Africa, Asia and the Levant.

After a 2007 launch at Cityscape Dubai, the first printrun of The Market lasted less than a week. FollowingCityscape Dubai, requests for copies of the book keptour support staff busy for weeks. We didn’t expect tobe fielding requests for copies of The Market fromMoscow or the Americas or to be responding to queriesfrom law firms, banks, investment firms, retailers anddevelopers. Findings from the 2007 edition of The Mar-ket were published in more than 20 countries.

With our office based in the UAE, we knew thatreliable information on the Gulf Cooperation Coun-cil (GCC) markets is always at a premium. The amountof interest that OBG received on emerging marketsin North Africa and the Levant did, however, comeas something of a surprise.

Throughout 2008 our consulting offices have beeninvited to new market after new market, exploringareas beyond our usual territory and taking on proj-ects in Asia and West Africa. Consulting staff have car-ried out projects in 22 countries this year, working onfeasibility studies for mixed-use projects, retail devel-opments, resorts, free zones and funds.

However, expansion can mean more than coverageof new geographical markets and we have worked hardin 2008 not just to build our regional database butalso to increase the range of services and the tech-nical services offered to clients.

In order to do this, OBG Consulting has formaliseda number of historic partnerships.

Firstly, Cityscape Intelligence (CI) is an invaluableonline information resource intended for use byinvestors, developers and real estate professionalsworking in emerging markets. OBG is proud to havepartnered with CI in 2008 to provide real estate infor-mation on the countries covered on the site. CI allowsits clients to view information concerning supply and

demand, prices and yields from 18 countries through-out the Middle East, North Africa and Asia.

With Asia increasingly important for Gulf develop-ers, OBG has also cemented our relationship with PakReal Estate, the largest consulting and brokerage firmin Pakistan. Pak Real Estate staff have expertise notjust in their home markets but throughout Iran andCentral Asia. The partnership allows our clients toaccess Pak Real Estate’s unparalleled database, par-ticularly important as Pakistan remains one of themost popular markets with Gulf developers.

Finally, in 2008 OBG has also entered into an alliancethat we anticipate will have a significant impact notjust for our clients but also for the standard of researchacross the Gulf and beyond.

CB Richard Ellis (CBRE) is the world’s leading com-mercial real estate services company with more than300 offices in 55 different countries. In 2007 CBREstaff worked on more than 50,000 projects acrossthe world. In the Middle East CBRE offers valuation,consultancy, leasing and market research.

CBRE and OBG have worked together on some ofthe region’s biggest projects. From mid-2008 thisalliance will be formalised, with OBG acting as CBRE’sresearch partner throughout the Middle East andNorth Africa. OBG will provide market research sup-port for CBRE valuations and feasibility studies, whileCBRE will in turn benefit from OBG’s network ofoffices across the region.

CBRE’s expert technical staff will work in partner-ship with OBG researchers and consultants to createa joint research brand with unmatched geographicalcoverage and regional knowledge.

We intend to share some of this knowledge in aseries of publications planned for 2008 and 2009, andfor that matter, through OBG Consulting’s new ded-icated real estate website. If our experience last yearprovides any guide, the 2008 edition of The Marketwill leave OBG staff answering questions for months.

We look forward to it.

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Oxford Business Group

Going from strength to strength Andrew Jeffreys, Senior Consultant, Oxford Business Group (OBG)

INTRODUCTION

With international property markets experiencing dif-ficulties, the Middle East has emerged as a cash-richand confident exception. Global capital flows are expect-ed to decline in 2008. International real estate flowsincreased by just under 10% in 2007 and are expect-ed to decline by more than 30% in 2008. CB RichardEllis (CBRE) research shows that the value of real estatetransactions has declined significantly during the yearleading up to mid-2008. Investment activity in the USstood at $148bn in the first quarter of 2007, $125bnin the fourth quarter and $29bn in the first quarter of2008. Results from the first half of 2007 were boost-ed by government sales of assets, but early results from2008 are indicative.

Europe is experiencing a similar decline, with a fallin investment activity noticeable across most markets.Sellers are reluctant to add in the depressed marketand are choosing to wait out the darkest hour. Withhigh occupancies and generous rents achieved since2006, building owners are holding on and bunkeringdown, and there has been no significant decline incommercial prices. Indeed, CBRE economists believe thatthis downturn will be relatively mild compared to pre-vious cycles in 2001 and the beginning of the 1990s.

As with most macroeconomic data, the picture alsochanges on the regional level. Established markets con-tinue to attract the greatest share of funds, with theleading five markets of the US, Germany, the UK, Japanand France together attracting more than 80% of inter-regional purchases. Difficulties have also been con-centrated in these markets, with the US and NorthernEuropean markets slowing considerably.

In 2008 oil export revenues from the UAE are expect-ed to exceed $100bn for the first time, rendering anyconcerns about the local impacts of the credit crunchacademic. Gulf investors have once again been activeand high profile investors, acquiring the Chrysler Build-ing and Barneys in New York and ExCeL in London.

It is estimated that sovereign funds and Gulf bankswill acquire $400bn of foreign assets in 2008. Local

investment and sovereign funds are looking at under-valued real estate assets globally. In 2008 funds fromDubai and Abu Dhabi have been invested in real estatein Australia, New Zealand, London and the US.

Markets in North Africa and Asia also continue to per-form strongly. The Institute of International Financefound that foreign direct investment to emerging mar-kets rose from $119bn to $256bn in 2007. Despite theglobal dearth of credit this is expected to furtherincrease to $286bn in 2008. The IMF has calculated thatChina is largely responsible for driving or inhibitingglobal growth, while large credit surpluses maintainedby emerging markets rich in natural resources providethe best protection against international recession.

Turning to the more localised domain of property,CBRE suggests that 40% of retailers interviewed in2007 expect that emerging markets will be their pri-mary source of growth in the next five years. Hoteliersagree. The 2007 UNWTO World Tourism Barometerfound that tourism continues to climb internationally,but that the Middle East witnessed the strongest region-al performance with an increase of 13% year-on-year.Asia Pacific ranked next with a 10% increase, whileAfrica stood third with an 8% increase.

Equally, global housing and commercial demand isnow concentrated in Asia and Africa, with Russia, Cen-tral Asia, South-east Asia, and North and East Africa allstanding out as highly attractive markets for the future.

The Gulf region is perhaps the most visible excep-tion to the idea that difficulties in property markets area global rather than regional phenomenon. There is moreintra-regional interest than ever in real estate in theUAE and across the Middle East and North Africa; inter-est, though not a great deal of knowledge.

With this in mind, CBRE is pleased to announce ourpartnership with OBG in the Middle East and North Africaregion. An appetite for detailed research exists whichno one company can meet alone in a region of 1.5bnpeople. Jointly, we look forward to highlighting the con-tinuing strength and growth of real estate in the region.

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THE MARKET Real Estate 2008

Global capital flowsNicholas Maclean, Managing Director, CB Richard Ellis

RANKINGS

As part of the inaugural launch of The Market series in2007 and in order to celebrate OBG’s links with emerg-ing markets, OBG developed a series of real estate andinvestment rankings highlighting the attractions of theresidential, commercial, retail and hospitality sectors ina number of emerging economies. A total compoundscore has also been produced, in which India has onceagain ranked first, followed by Malaysia and Indonesia.

The rankings are restricted to emerging markets inline with OBG’s long-standing tradition of working withdevelopers and investors in parts of the world thatmany other research organisations sometimes hesi-tate to enter. Working in countries such as Algeria,Libya, Indonesia, the Philippines and the Gulf, it is impos-sible to miss the rate at which changes to the econom-ic and investment environment are taking place. Thisis highlighted in greater detail in the country sectionslater in this book, which cover all the countries takeninto consideration in the rankings and a few more ofOBG’s most closely monitored markets in the Gulf.

In Dubai, the amount of available office space couldincrease by 800% in the near future. In Abu Dhabi 80,000luxury units are due to be added in the coming 10years. The 40,000 sq metres of retail space now avail-able in climate-controlled centres in Damascus couldbe 440,000 by 2012, while in Morocco no sooner hadthe first sizeable international standard mall beenannounced than another four were under active devel-opment. In 2007 alone tourism revenues in Indiaincreased by more than 30%. It is estimated that as manyas 100,000 hotel rooms could be completed by 2010.

In 2008 we have added a further five countries toour emerging markets rankings. These include Lebanon,where the political situation is stabilising and the realestate markets are finally recovering, and Nigeria, amarket attracting increased interest from private equi-ty firms from across Europe. New Asian countries, suchas Malaysia, Singapore and Thailand, have also beenadded as a result of the increasing interest in Asianemerging markets shown by Gulf developers in 2008.

The intention is to add other Asian countries as OBGopens more offices throughout the region. For themeantime, we will include only countries where OBGhas a full-time research presence, allowing us to cre-ate a ranking methodology based on regular and reli-able research updates from the ground.

Where other rankings may stress macroeconomicgrowth or policy, OBG also includes detailed incomebreakdowns, affordability, and supply and demand indi-cators. Our statistics are produced by researchers whohave actually seen the buildings, the shopping centresand the hotels and have checked or made their owndetermination of the quality standard or the amountof space available.

Setting aside the addition of new markets to therankings, countries that were covered in the 2007 rank-ings have shown a remarkable degree of consistency.The three highest-ranked emerging markets in 2007were India, the Philippines and Turkey. When new mar-kets are subtracted, these three countries remain in thesame order in this year’s rankings.

In 2007 India ranked first in the overall score, firstfor the retail, hospitality and commercial sectors, andsecond only to the Philippines in the residential index.Although continuing to rank most consistently highlyof all countries studied, India has lost some ground inthe 2008 rankings as the balance of supply changes inthe key cities monitored by OBG.

The sheer scale of the Indian market remains its prin-cipal source of strength. In 2007 OBG cautioned thatthe development context in India would become morecompetitive. This prediction has since been justified. Con-cerns about oversupply for grade A residential andcommercial space have affected a growing list of cities,while investment funds are becoming more generallyconservative. Nevertheless, rents and sales prices con-tinue to climb across CBDs, and retail and hospitalitydevelopers remain exceptionally positive.

Macroeconomic factors were also expected to be asource of concern in the Philippines, which fell from

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Real estate rankings 2008Kate Godfrey, Senior Consultant, Oxford Business Group (OBG)

RANKINGS

second to fourth place in the rankings. Growth ratesremain in excess of 5% year-on-year, and remittanceshave held up strongly. Together with political stabilityand sustained demand, this has helped the Philippinesto again perform strongly. Expatriate remittances ofclose to $15bn from millions of Filipinos overseas con-tinue to drive investments in the Philippine luxury prop-erty market. The fall to fourth place can be explainedby an increasing supply at the high end of the market.

Meanwhile, Malaysia has acquired the second placein our rankings, a spot previously occupied by the Philip-pines. Of all of the countries covered, Malaysia is clear-ly the most prominent investment market, with KualaLumpur almost as dominated by the construction ofoffice and residential space as Dubai.

The real estate market in Malaysia is almost complete-ly open to foreign investment, probably more so thanany other market under consideration, and theMalaysian government actively encourages investmentthrough the “Malaysia My Second Home” programme.Real estate values have climbed consistently and pricesfor condominium developments commonly increaseby 50% to 70% within a year of release.

Malaysia has also been showing more consistentappeal across the property sectors than any other mar-ket. Commercial yields are around 7%, while falteringcommercial delivery since the end of the Asian prop-erty crisis in the late 1990s is being rectified throughthe creation of a new office district at Damansara. Thehospitality sector is another strength: tourism arrivalsclimbed by some 9.6% between 2006 and 2007, whileoccupancy rates in the capital rose by 7% and five-starroom rates by an impressive 27%.

A recent addition to our list of publications, Indone-sia, ranked third in the overall score and is anotherexample of a large market showing a strong perform-ance. Already the most populous Muslim country inthe world, over 15m people will be added to Indone-sia’s population of 227.8m over the coming five years.However, there is more to Indonesia than a just size-

able population. With a wealth of natural resources,including oil, natural gas, copper, tin and gold, GDPgrowth has been above 6% for the first half of 2008and the real estate market has been growing steadily.

The emergence of secondary markets outside thecapital has helped, with poor infrastructure in Jakartahaving previously impeded development. Indonesia’sperformance was, however, hampered by often con-fusing laws governing foreign ownership and by com-paratively flat real estate prices. Nonetheless, someroom for improvement remains.

Thailand is placed fifth in this year’s rankings.Despite the country’s unpredictable political situa-tion, GDP growth remains strong. Take-up rates haveslowed down in Thailand, although rents and saleprices continue to rise. The retail and hospitality sec-tors have performed strongly as well.

Turkey is ranked sixth this year, down slightly fromthird place in 2007, not because of any significant newweakness in the market, but due to the introductionof new Asian markets. Having said that, some linger-ing concerns remain: real estate values have declinedin 2008 as contagion from Europe has taken hold.In addition, the government continues to debatethe rules under which foreigners may own property.

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Investment ranking: final score

SOURCE: OBG research

India

Malaysia

Indonesia

Philippines

Thailand

Turkey

Morocco

Algeria

Egypt

Syria

Nigeria

Pakistan

RANKINGS6


Emerging markets index of commercial opportunity


India

Egypt

Algeria

Indonesia

Thailand

Pakistan

Philippines

Nigeria

Morocco

Malaysia

Turkey

Sri Lanka

Emerging markets index of retail opportunity


Turkey

Malaysia

Philippines

India

Indonesia

Pakistan

Nigeria

Egypt

Sri Lanka

Morocco

Syria

Thailand

Emerging markets index of hospitality opportunity


Malaysia

Thailand

India

Turkey

Philippines

Morocco

Indonesia

Singapore

Syria

Algeria

Jordan

Egypt

Emerging markets index of residential opportunity


Indonesia

India

Nigeria

Pakistan

Egypt

Syria

Malaysia

Philippines

Turkey

Algeria

Thailand

Libya

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The World Bank

THE REPORT

2003 2004 2005 2006 2007 20080

5000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Dubai 4- & 5-star rooms


2002 2003 2004 2005 2006 20070

10,000

20,000

30,000

40,000

50,000

60,000

Abuja grade A office space (sq m)


2002 2003 2004 2005 2006 20070

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Beirut retail GLA (sq m)


METHODOLOGY

The OBG method for calculating the compound mod-el began with listing major demand drivers for each offour sectors. For the residential and retail property sec-tor, key factors include population growth, householdsize, age composition, economic expansion and thegrowth of the expatriate population, income and con-sumption expenditure, as well as a detailed analysis ofsupply and demand. Additionally, rental prices and aver-age takings of retail property have also been consid-ered in determining demand for retail space.

Factors determining the fate of the office sectorinclude foreign investment laws, the nature of thelabour force, unemployment, the proportion of thelabour force needing offices and the number of newcompanies registering or set to register in the nearfuture. Demand drivers for the hospitality sector includetourism investment, visitor arrivals, average occupan-cy rates, average length of stay and a compound scorebased on strength of the meetings, incentives, confer-ences and exhibitions (MICE) market, retail provisions,market attractions, ease of access, market liberalisa-tion and proximity to key source markets.

Accurate data is then collected from a number ofsources, including field research, interviews with prop-erty developers and ministry officials, government sta-tistics and other secondary sources. Historical data hasbeen checked and revised so that we are able to pres-ent the most comprehensive and up-to-date regionalproperty market rankings available today.

Data for countries such as Libya, Syria, Nigeria andYemen has difficult to collate and, admittedly, containsa margin of error. However, data for these countriesfalls squarely within the confidence levels prescribed.

Field research plays a crucial role in providing detailsas specific as the number of housing units in Yemen orNigeria and the average rental price of a luxury villa inthe suburbs of Lahore, for example. This in-depth infor-mation is sourced by our research team, combining lin-guistic ability and regional expertise to ensure thatdata surveys are indicative of current market conditions.


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MethodologyOBG’s techniques and approach explained

9

United Arab EmiratesAbu DhabiDubaiNorthern Emirates

UAE

The property markets in the UAE have seen anoth-er year of growth in 2008. However, so have rentsand property prices in Dubai and Abu Dhabi. Bothemirates, famous for luxurious man-made islands,large-scale construction projects and malls thatboast indoor ski resorts, never seem to rest when itcomes to building impressive structures.

Yet living accommodations for the low- to mid-dle-income expatriate diasporas are difficult to comeby, exacerbated by the fact that the country’s pop-ulation is ever-growing. Furthermore, what housingis available is priced outside of most residents’ meansdue to material shortages and inflation.DUBAI: Supply and demand ratios remain a coreconcern for the property market in Dubai, withincreasing debate about when, and even if, rentsand sales prices will stabilise. Forecasts of potentialprice declines have become a feature of the Dubaimarket as the release of new units escalates. A num-ber of research reports have now concluded that themarket will experience a 10-15% decline in rentsand sales prices by the end of 2009.

In 2006 EFG-Hermes forecast that property val-ues would decline by 25-30% by 2010. In August2008 a Reuters survey of senior analysts conclud-ed that prices would fall 15% from the end of 2009.Morgan Stanley suggests that property values willfall by 10% between 2008 and 2010.

Banks and financial institutions seem to havereached a consensus that the market will see sta-bilisation in 2009 and a potential decline in valuesin 2010. However, these timelines are open to debate.

While the sale of off-plan property had been steady,the construction and delivery of these developmentshave been delayed by constraints in the construc-tion sector, which is facing a shortage of skilledworkers, raw materials and rapid price inflation.

The lack of completed property has in turn fuelledan inflation of property values. Investors, however,are currently adopting a wait-and-watch approach

to the property sector in Dubai, as many of the devel-opments that were announced in the interveningyears from 2002 are due for completion between2008 and 2012.

The rental market is also currently showing signsof stabilisation, increasingly on the back of rent capsimposed by the Real Estate Regulatory Authority,with many industry professionals forecasting grad-ual slowing of overall price increases. Projectannouncements suggest that a minimum of 180,000residential units will be ready in Dubai by 2013. Sim-ilarly, office space, currently estimated to be 1.8msq metres, is expected to increase to approximate-ly 16m sq metres by the end of 2012.

Historically, developers have found it difficult todeliver projects on schedule. According to reportspublished in 2006, it was expected that around 2.2m-2.3m sq metres of space could be available by theend of 2008. However, based on current estimates,only about 1.3m sq metres is now expected to beready by the end of the year; a shortfall of 44%.

There are other sources of risk. Construction costshave been escalating across the UAE, with a furtherdramatic rise since the beginning of 2008. Theincreases in construction costs are the result of anumber of factors, most of which look equally insol-uble to beleaguered developers. The increased costscombine regional factors with stronger markets forconstruction materials in India and China, makingthese countries increasingly protective in practiceif not in theory, and increased local competition.

With demand at insatiable levels, China, whichsupplies around 33% of all timber and steel materi-als to the UAE, has slashed subsidies to producersof construction materials. Even exchange rates seemdetermined to conspire against Gulf-based develop-ers, with a marked exchange-rate-related increasein the cost of imports from Europe.

Construction costs for residential space have beenclimbing consistently since 2005, with a further


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UAE introductionPrice stabilisation expected but forecasts differ on timing

UAE

upward increase in 2008. These rises in construc-tion costs have resulted in a congruent rise in ten-sion throughout the market, with some developersin the UAE buying back units, as construction costsmake it nearly impossible to deliver at the pricesoriginally quoted.

Tension also exists between contractors and devel-opers, as margins for both types of firms are falling.The climbing cost of land and construction makesit difficult for developers to justify construction ofanything but expensive luxury property. In turn, thisleads to another source of risk in the market, as thelack of affordable property impacts living costs andultimately labour supply.

Part of the lack of affordable property is the con-vergence of prices seen across Dubai. Rents are mov-ing ever closer to equilibrium for units in New Dubaiand the areas closer to Dubai Creek. Units are oftenlarger in the masterplanned developments of NewDubai, and the standard of amenity provision is high-er, but patterns of demand are complex. Dubai hasa number of diverse expatriate groups, many ofwhom prefer to live in proximity to traditional com-munity areas near Dubai Creek.

International City is one of the developments mostaffected by the lack of affordable units. Over the thirdquarter of 2008 alone, rents for studio apartmentsin International City have increased from Dh40,000($11,000) to Dh55,000 ($15,000) per annum.

Other developments designed to appeal to theaffordable and middle-income demographic havebecome increasingly expensive. One-bedroom apart-ments in the 26,000-unit Discovery Gardens are nowadvertised at Dh110,000 ($30,000) per annum, put-ting them beyond the reach of a substantial major-ity of the population, including professional work-ers with above-average salaries.

The cost of housing stretches the pockets of manyresidents, while construction costs make it difficultfor developers to justify building anything but primespace. Some 50% of the units scheduled for releasein 2008 and 2009 are defined as luxury or high end.

Supply and demand relationships are not the onlyfactors supporting high prices. The Dubai market issupported by a high rate of foreign ownership. Theunderstanding that property ownership would con-vey the right to residency has provided motivationfor many overseas buyers to purchase property, buthas yet to be confirmed by the government. Approx-imately 40% of the units in the Greens and the Springsare owner occupied, while as much as 80% of unitsare rented in other developments.

Government policy will also help to keep priceshigh, with the beginnings of a programme of dem-olition and replacement being introduced in Satwa,Jumeirah and Al Wasl. At the beginning of 2008 res-idents were asked to vacate buildings in order to makeway for the Jumeirah Garden City development.

Initial estimates suggest that redevelopment ofSatwa could affect 100,000 of Dubai’s 1.5m resi-dents. Such activity chiefly affects residents in the

low- and middle-income segments, while relocationwill place yet more pressure on the limited supply ofaffordable housing in the emirate. ABU DHABI: Affordability issues are, if anything,more severe in Abu Dhabi, prompting an increasingproportion of workers to commute from other emi-rates. Values in the Abu Dhabi residential propertymarket continue to escalate, with prices believed tohave increased by just below 20% in 2006 and 2007,following a 30% rise in 2005. A further 20% increaseis expected for 2008.

The shortage in supply in 2008 is now calculatedat around 50,000 units, with estimates showing only20% coverage of the shortfall by new projects in2008. The market for prime residential supply con-stitutes close to one-quarter of the entire residen-tial market in Abu Dhabi, and has seen a substantialupswing in prices and rents. The current prices forluxury units in developments such as Reem Island’sOcean Terrace and Sky Gardens start at Dh14,500($4000) per sq metre and climb to Dh20,000 ($5400)per sq metre.

The luxury segment has also caught the attentionof most developers, who are avoiding building forthe middle and lower segments of the market, wherethe demand is highest. The high cost of construc-tion and acquiring land is shrinking their margins.Even though the demand-to-supply dynamics of themarket allow developers to pass on this cost to thebuyers, the middle- and low-income segments canbear such costs only to a limit.

The completion of the Al Raha Beach, SaadiyatIslands and Al Reem Island, along with numerousother projects on Corniche Road and in Zayed SportsCity, will add more than 80,000 luxury units to themarket by 2018.

It is likely that medium- and low-income earners,on the other hand, who constitute 85% of the totaldemand, will still be struggling to pay high rents withthe supply unable to relieve pressure on this group.

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ABU DHABI

Oil is not the only natural resource with which AbuDhabi has been blessed. The emirate has an abundanceof prime real estate. While Dubai has gone to greatlengths to build the Palm Jumeirah, thus doubling thelength of its coastline, Abu Dhabi has an almost over-abundance of riches when it comes to islands. Beyondthe man-made Lulu Island, Abu Dhabi is set to devel-op the Al Sowwah, Al Reem, Saadiyat and Yas islandsas an integral part of its masterplan.

However, while this presents opportunities, it alsocreates challenges. The government realises that thedevelopment of these islands cannot stand alone asad-hoc attractions, but rather must be integrated intothe larger infrastructure of the emirate. Indeed, as partof its development strategy, the government is look-ing to silence any doubters with an overarching mas-terplan laying out how the infrastructural challengesof developing these islands will be overcome.

The government has declared that $200bn will bespent on infrastructure and real estate through 2013,with the private sector expected to shoulder 60% ofthe financial burden. Consequently, the need for cohe-sive thinking between the public and private sectorsis paramount. Many private sector developers suggestthat the publication of the masterplan has eased anx-iety over the nature of development.

Developers must ensure that all construction issympathetic to the needs of service providers so thatan undue burden is not placed on the system. Indeed,the overarching vision for the city has provided theparameters for other governmental agencies to workwith the private sector and plan for future develop-ment. Yet significant challenges remain.

The Al Sowwah, Al Reem, Saadiyat and Yas islandswill have a combined population of 450,000 people,placing a significant burden on all services, includingelectricity generation and distribution, water, andtransport corridors and networks. When the devel-opment of Saadiyat Island was first announced in2006, it was estimated that it alone would require 1500

MW of power, which constitutes 31% of existingdemand in the emirate. Abu Dhabi Water and Elec-tricity Company predicted in March 2008 that therewill be a shortfall of 774 MW between capacity andconsumption by 2012 and 2000 MW by 2013 for thewhole of Abu Dhabi. The UAE has one of the highestglobal water consumption rates per capita at 3.2bncu metres per year. With demand set to increase bya minimum of 10% per year, the UAE is primed to havethe biggest water usage increase in the region. There-fore, the infrastructural challenges are significant.

Plan Abu Dhabi 2030 has now set the blueprint fordevelopment, making explicit the expected infrastruc-tural demands in terms of population increases.

Although the government will retain control of gen-eration, transmission and distribution for the powergrid, the burden of creating the infrastructure will fallupon the private sector. This should not only enablea coherent infrastructure plan in line with develop-ment, but also ensure delays are avoided with no lagbetween private- and public-sector construction.

The government is also seeking to address trans-portation issues in the city, setting out a plan to over-haul the road network, including the construction ofseveral bridges connecting the islands. The plan catersfor a light-rail metro network connecting different dis-tricts of the city as well as a high-speed rail line thatwill eventually connect with Dubai. It is hoped that thevariety of transport options will diffuse passengersthroughout different transit systems, avoiding over-burdening any one network. Al Sowwah Island, whichwill straddle the new central business district, willhave a minimum of 10 bridges connecting to the AlMina area of the main Abu Dhabi Island, as well as toAl Reem Island. The authorities have decreased con-gestion in central areas with the upgrade of the arte-rial expressway linking the Corniche to Mina Zayed,ensuring that heavy vehicles are kept out of the cen-tral areas of the city. A third bridge linking Abu DhabiIsland to the mainland is also close to completion.


12

Life on the islandsExpanding coastlines present both opportunities and challenges

ABU DHABI

Average apartment sale rates stood at $3150 per sqmetre in 2007. The population is expected to dou-ble in the next decade, with demand for new hous-ing ranging between 225,000 and 250,000 units. In2005 the Abu Dhabi Executive Council put a cap onrent increases by specifying that no rent hikes shouldbe made within the first two years of a new contract,after which any rises should not exceed 20%.

The Khalifa Committee, which is responsible for pro-viding housing to nationals and has constructed alarge portion of the city of Abu Dhabi, is now tack-ling the lack of supply in the market. The new Khal-ifa Cities A and B, consisting mainly of residential vil-las and low-rise properties, are aimed at boostingaccommodation, with the Al Reem (100,000 resi-dents) and Al Raha (120,000 residents) develop-ments slated to contribute as well.

Mohammed bin Zayed City, a $3.8bn developmentwith 265 residential and commercial buildings, willprovide 50,000 units upon completion. The MarinaBreakwater development will add 300 villas. Apartfrom these, a number of tower developments will adda substantial number of apartments.

Reports estimate the shortage in supply in 2008to be as high as 50,000 units. Developments con-form to Plan Abu Dhabi 2030, which lays down theurban structure framework required to accommo-date an estimated population of more than 3m by2030. However, experts still fear a housing crisis in

2009, with some estimates showing only 20% cov-erage of the shortfall by new projects in 2008. Onereason for this is the preference shown by develop-ers to invest in the luxury segment.

The market for prime residential supply consti-tutes one-quarter of the entire residential marketand has seen a surge in prices and rents. The cur-rent prices for luxury units start from Dh14,500($4000) per sq metre and climb to Dh20,000 ($5400).

The high-end luxury segment stretches develop-ers’ profit margins to almost 30%, while the mid seg-ment allows only narrow margins of 15%. The 20%to 25% of yields generated by the mega developmentsare preferred to the 10% to 15% of leasing revenuesfrom lower-income segments.

The completion of the Al Raha Beach, SaadiyatIslands and Al Reem Island, along with numerousother projects on Corniche Road and Zayed SportsCity, will provide more than 80,000 units by 2018.

In the meantime, the Department of Planning sug-gests measures to avert a housing crisis. Short-termschemes include rent ceilings and freezes for a cer-tain period of time. Other suggestions include pro-viding plots on the outskirts of the city for a nomi-nal price or free for those developers who provideunits for 50% of current prices for lower-incomesegments, while the government may ultimately sub-sidise the cost of extending utilities and infrastruc-ture in order to ensure the supply of affordable units.

13


Abu Dhabi residential market Strategies are implemented to avoid a housing crisis

SOURCE: IMF, World Bank

Abu Dhabi: economic and demographic indicators, 2006-11Population Population GDP GDP per capita Average Labour force Unemployment

growth (%) ($m at current prices) ($ at PPP) household size rate (%)

2006 1,494,321 6.78 97,743 35,882 4.90 587,258 1.4

2007 1,595,896 6.80 109,190 37,293 4.86 651,857 1.4

2008 1,704,711 6.82 123,705 38,108 4.82 717,042 1.4

2009 1,821,308 6.84 140,151 39,262 4.78 810,258 1.4

2010 1,946,270 6.86 158,782 40,337 4.74 891,284 1.4

2011 2,080,228 6.88 179,890 41,719 4.71 903,762 1.4

ABU DHABI

As in the residential sector, the demand for commer-cial units has outstripped supply. The size of themarket ranges between 1.3m and 1.6m sq metresand has been growing at an annual rate of 25%, whilethe number of new companies being established inAbu Dhabi is climbing at an annual rate of 5%. Eco-nomic diversification and growth of the industrialsector is expected to increase demand for offices.

Vacancy rates in office space are under 1% andmonthly office rents in the central business district(CBD) have gone up to $50 per sq metre, with serv-ice charges at 15% of rent. As yet, Abu Dhabi hasfew available office buildings of an internationalstandard, although significant demand for high-qual-ity office buildings exists within the emirate.

Demand has prompted developers to move towardsbuilding of commercial space. Historically, officespace has been owned and built by major tenants.Providing space for third-party occupiers has beena profitable addition to company balance sheets, insome cases for 20 years.

Outside of these high-profile buildings, and withsome exceptions, the standard of office space inAbu Dhabi has been below expected standards.

Both of these problems are set to disappear, withnew office supply in Abu Dhabi resulting in a dra-matic inversion of the current situation. Where sup-ply is now sparse, OBG forecasts that the relation-ship of supply and demand could stabilise from 2010. A number of large flagship developments are underconstruction in central areas, of which two stand out.Approximately 100,000 sq metres of office spacewill be concentrated in Abu Dhabi National Exhibi-tions Company’s (ADNEC’s) mixed-use Capital Cen-tre development. ADNEC is a semi-governmentalauthority, originally established to manage confer-ences and exhibitions in the emirate.

Another 57,000 sq metres of leasable area is tobe provided in a single development in close prox-imity to ADNEC on the airport road. The remainder

will be concentrated in smaller developments, withan average size of 30,000 sq metres.

This trend for office space on a large scale has beenset by Aldar, with the developer’s Al Mamoura officecomplex remaining Abu Dhabi’s flagship develop-ment. This primacy will be confirmed at least until2009 and the completion of ADNEC’s space.

Formerly known as the MDC-ERWDA building, thedevelopment has been renamed Al Mamoura. It isAldar’s first completed office development and willbe the first in Abu Dhabi to be designed and finishedto international grade A standards.

Al Mamoura comprises ground, mezzanine and 10upper floors on 60,000 sq metres (gross built area).The building will have a library along with displayareas, male and female prayer rooms, a high-techbusiness and conference centre, a 150-seat audito-rium, a restaurant, a day care centre and a gymna-sium. The development is already pre-let to blue-chipcompanies such as the Mubadala Development Com-pany, UAE Offsets Group, Environment Agency AbuDhabi and other premier tenants.

ADNEC’s Capital Centre is a $2.2bn development.With a total of 23 buildings on site, the mixed-usedevelopment will have six branded hotels, four ded-icated office buildings, eight residential and servicedapartment towers, and five mixed-use buildings.

Together, these two developments are expectedto contribute to the shift in commercial orientationaway from the traditional areas in Al Markhaziyah.The decision to locate the Capital Centre on KhaleejAl Arabi Road, outside the traditional CBD, has encour-aged other developers to consider the airport roadand embassy district for new commercial develop-ments. As well as contributing to a lessening of thechronic traffic surrounding the corniche, the tran-sition away from the central areas should also resultin a higher quality and variety of commercial space,with a move from office towers to office parksand from high-rises to a high standard of provision.


14

Abu Dhabi office spaceMoving from high-rise to high standard of provision

ABU DHABI

The value of the retail sector in UAE is projected toexceed $500bn by 2010. Excluding the UAE, the GulfCooperation Council is home to approximately 5m sqmetres of shopping mall gross leasable area (GLA), withanother 5m metres under development. Inside theUAE, there is just under 3m sq metres of existing mallspace, with future supply more than doubling this total.

Sales in Abu Dhabi’s shopping centres have risenfrom $871m in 2000 to $1.1bn in 2005, with climate-controlled centres now accounting for 54% of all retailactivity. Per capita GLA in Abu Dhabi is now 0.38 sqmetres, compared to 1.1 sq metres in Dubai. This dis-parity can be accounted for in two ways. First, the retailsector in Dubai has enjoyed a level of government sup-port, so far unmatched in Abu Dhabi. Second, the DubaiShopping Festival and Dubai Summer Surprises com-bined to 5.4m visitors and $3.5bn in sales.

One undeniably attractive aspect of the market is thatretail rents remain considerably lower in the capital, withthe average annual cost ranging from Dh3400 ($926)to Dh5500 ($1500) per sq metre for line units at primeshopping centres. This compares to the rents in Dubai,which range from Dh4400 ($1200) to Dh6600 ($1800).

Available GLA in Abu Dhabi in 2001 was 278,200 sqmetres as against 526,898 sq metres in Dubai. Thoughthere was a continuous growth in shopping areas inDubai, there were no significant shopping centres ormalls released in Abu Dhabi until 2006. This is despitea per capita income of $38,108 – one of the highestin the world. Thus significant potential for retail growthremains in the emirate.

In 2006, phase II of the Marina Mall contributed anadditional 40,000 sq metres of GLA to the city’s avail-able retail mall stock. The opening of Al Raha Mall andAl Wahda Mall increased the existing supply by a totalof 169,000 sq metres. An additional 46,000 sq metreswas added in 2007 with the completion of the Al Kha-lidiyah Mall. Sorouh Real Estate is set to open the AlReem Mall with 130,000 sq metres of GLA, while theAl Yas development will add a further 300,000 sq metres

of leasable area in 2010. Line Investments is comingup with the Mazyad Mall in the Mohammed bin ZayedCity by 2009, a 167,225-sq-metre mall above the cen-tral fish market by the mid of 2010 and a 157,935-sq-metre extension to the Al Wahda Mall by 2011.

Line Investments, an offshoot of EMKE group, is themajor player in the Abu Dhabi retail sector in terms ofmanaged space. Line Investments was launched withthe induction of Khalidiyah Mall and Al Wahda Mall andwent ahead with Al Raha Mall. It also acquired a 10-year contract for the management of Madinat ZayedShopping Centre and Gold Centre, which is now knownas Madinat Zayed Mall. By 2009 they are coming upwith 42,000 sq metres Mazyad Mall as a part ofMohammed bin Zayed City and 30,000-sq-metre bou-tique mall, which will be similar to a traditional Arab souk.

One of the most anticipated retail developments isAldar’s $1.1bn Central Market, due for completion in2011. The development is in the heart of the city andis located at the site of the city’s traditional souk – atthe intersection of Airport Road and Khalifa and Ham-dan streets. The development will be anchored by antraditional Arab souk and three towers, which consistof grade A office space, a five-star hotel, and a com-plex of serviced and residential apartments.

In total, the available leasable area in Abu Dhabishould increase from under 650,000 sq metres atthe beginning of 2008 to over 1.3m sq metres by2012, bringing GLA per capita up to 0.56 sq metres.

15


Abu Dhabi retailThe emirate boasts an impressive amount of retail space

SOURCE: World Bank, IMF, International Macroeconomic Data Set

Abu Dhabi: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 1,494,321 25,030 25.8 9.27

2007 1,595,896 29,682 18.6 11.03

2008 1,704,711 35,090 18.2 9.04

2009 1,821,308 42,005 19.7 5.33

2010 1,946,270 50,482 20.2 4.66

2011 2,080,228 60,835 20.5 4.09

ABU DHABI

The tourism sector is growing in Abu Dhabi, account-ing for 6.8% of non-hydrocarbons GDP in 2006, up from6.4% in 2005. Indeed, the emirates tourism GDP grew62% in the five years before 2005. However, Abu Dhabiremains less reliant on tourism than the rest of theUAE, with the sector representing 17% of the country’snon-oil GDP. The hospitality industry represented only18.9% of all the UAE’s hotel room stock in 2006.

Abu Dhabi’s stated strategy is somewhat differentthan that of its sister emirate. Where Dubai has gonefor mass tourism and ever-increasing visitor traffic,Abu Dhabi has a more discerning approach, targetingthe top 2% of the world’s business and leisure visitors.

The emirate saw a total of 1.45m hotel guests in2007, 5% above its stated target. This trend is likely tocontinue with a Dh30bn ($8.17bn) airport expansionset for completion by 2010 and a target of 1.2m leisuretourists and 1.55m business visitors by 2015. The gov-ernment expects tourism revenues to hit Dh4bn ($1.1bn)in 2015. Beyond this, under the Plan Abu Dhabi 2030,the emirate envisages 74,500 hotel rooms catering toa total of 7.9m annual visitors.

Abu Dhabi has aggressively marketed its tourismoffering over the past two years and has allotted anannual marketing budget of $20m-$25m. While Dubai’sstrategy has been the development of man-made islandssuch as the Palm Jumeirah and the World, Abu Dhabihas sought to attract cultural tourists by bringing high-end museums, such as the Guggenheim Abu Dhabi and

the Louvre Abu Dhabi, to the emirate. Indeed, the $27bnSaadiyat Island development, which will be the hometo Abu Dhabi’s cultural district, is a key component ofthe strategy to create a unique tourism offering.

The lion’s share of development will be carried outby the Abu Dhabi Tourism Authority’s developmentarm, the Tourism and Development Investment Com-pany, with other government-owned companies, suchas the National Corporation for Tourism and Hotels. Aldar,the semi-government-owned developer responsiblefor building the Yas Island and Al Raha Beach develop-ments, also has a portfolio of mixed-use projects withsignificant hospitality components.

The majority of private-sector developers may steerclear of hotel development, as construction costs and,to a lesser extent, land prices are making such devel-opment more challenging than commercial and luxu-ry residential real estate.

This is ironic, given that Abu Dhabi faces an under-supply of hotels. Occupancy rates in 2006 stood at83.8% for five-star hotels. However, for much of the year,occupancy rates are well over 90%. Occupancy rates inApril 2008 were averaging approximately 95%. Rev-enue per available room is also relatively high in AbuDhabi, averaging Dh687.94 ($187.04) in the five-star cat-egory in 2006. This is supplemented by strong averagebanqueting and food and beverage revenues, which hitDh576.4m ($156.8m) for all five-star hotels in 2006.

Even with new supply expected to hit the market by2010, existing hotels on Abu Dhabi Island are in a strongposition. Many of the new hotels will be resorts thatare being developed around the emirate. The existinghotels in the central districts are therefore likely to con-centrate on business guests and exhibition tourists.Most of the five-star hotels in the centre of Abu Dhabiwill benefit, as the emirate is looking to attract morebusiness visitors by in the coming years. Although tar-geting the luxury segment, it is the three- and four-star segment that has been performing best in theemirate by attracting a variety of business clientele.


16

Abu Dhabi hospitalityVisitor numbers grow as Abu Dhabi’s tourism strategy pays off

SOURCE: Local statistical authorities, OBG Research

Abu Dhabi: tourism and hospitality indicators, 2006-11

Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-nights(4- & 5-star guests) (%) (days)

2006 959,979 3.3 2.6 2,495,945

2007 1,009,410 5.1 2.6 2,624,465

2008 993,394 -1.6 2.8 2,781,504

2009 1,053,153 6.0 2.8 2,948,829

2010 1,081,990 2.7 2.9 3,137,772

2011 1,130,285 4.5 2.9 3,331,367

DUBAI

The success of Dubai’s economic diversification towardsa non-oil-dependent economy and status as a globalcity has attracted regional competition from Abu Dhabi,Jordan, Oman, Saudi Arabia and Egypt. However, the cityhas displayed a strong desire not to rest on its past lau-rels. It unveiled the Dubai Strategic Plan 2015, whichseeks to sustain real economic growth at a rate of 11%per annum, to reach a GDP of $108bn in 2015 (from$53.8bn in 2007) and to increase real GDP per capitato $44,000 (from $31,000 in 2005).

The population of Dubai increased to 1.3m at a com-pound annual growth rate (CAGR) of 6.7%, one of thehighest in the region, between 1995 and 2005. The gov-ernment anticipates that the population will climb to1.9m by 2010, a CAGR of 7.6% in line with historicgrowth. This increasing population has resulted in rap-id urbanisation in the form of increasing constructionactivities in all segments of the real estate sector.

Watershed legislation in 2002 allowing foreigners topurchase and own freehold property in New Dubai hasincreased investor activities, providing immense momen-tum to the construction and real estate sectors.

It is estimated that the real estate sector contributed$5.5bn to GDP in 2007, while the construction sectoroutweighed this with a contribution of $6.4bn in 2007.The IMF reports that construction contributes to a sta-bilised 8% of GDP.

The growth of the economy and the population hasplaced significant pressure on Dubai’s infrastructure.The road network is strained by the increasing numberof cars and resulting traffic snarls. Demand for waterand electricity has been increasing by an estimated12-14% each year. The Dubai Strategic Plan 2015 cov-ers five areas: economic development; infrastructure,land and environment; security, justice and safety; socialdevelopment; and public service excellence. To ensuresustainable development of infrastructure, land andenvironment, the plan proposes to:• Optimise land use and ensure sustainable devel-

opment while preserving natural resources;

• Provide an adequate supply of housing for low- and medium-income families;

• Meet and secure energy, electricity and water needs• Provide an integrated road and transportation sys-

tem addressing current congestion problems, and accommodate future needs by increasing the share of public transportation, decreasing transport by pri-vate vehicles and increasing the capacity of road net-works and transportation systems;

• Upgrade and align environmental regulations with international standards; and

• Develop the required enforcement mechanisms.The government, through various agencies, has takena number of steps to implement the plan. The RealEstate Regulatory Authority has introduced a numberof rules to control and regulate the real estate mar-kets. Through master plan developments, Dubai’s urbanlandscape is being planned, developed and controlledto ensure sustainability.

The Regional Transport Authority is implementing anumber of measures to reduce car use, traffic conges-tion, pollution and greenhouse gas emissions. TheMobility Management Plan (MMP) targets these fac-tors as ones that will lead to improved public healthand safety. Chief among the suggestions in the MMPare the construction of the metro, increasing the num-ber of buses and upgrading the road network. Currentelectrical generating capacity is 5000 MW, while medi-um-term demand is assessed at 11,000 MW.

The Dubai Electricity and Water Authority estimatesthat it will require $37bn and three years to increasesupply to this level. In addition, the government is exam-ining the possibility of importing electricity; in April2007 Dubai and Iran signed a memorandum of under-standing that could see Iran supply Dubai with elec-tricity via a 180-km underwater cable. Dubai has notseen any major private sector participation in the infra-structure initiatives other than the allotment of a fewvarious contracts for construction. The private sectorhas been called upon to play a larger role in the plan.

17


Dubai master planPaving the way for expansion and diversification

DUBAI

The rental market in Dubai has been witnessing sup-ply shortages since 2002, which is highlighted by thesteady increase in rents for commercial and residen-tial accommodation. Rentals have consistently climbedacross all property categories, prompting developersto create new projects to meet the demand in themarket. The advent of the freehold market in 2002 ledto the release of a number of master-planned devel-opments, which witnessed strong investor interest ashighlighted by the 100% off-plan sale of developmentsannounced within the 2002-06 period. So much so thatthe appreciation in capital values and constructioncosts has prompted a number of developers to buy backpreviously launched projects from the initial investors.While the sale of off-plan property has been steady,the construction and delivery of these developmentshave lagged due to the constraints in the construc-tion sector, which is facing a shortage of skilled work-ers, raw materials and rapid price inflation.

In 2007 a number of projects were delivered andready for occupation, which has eased supply con-straints to a certain extent. Additionally, a number ofnew projects were announced in developments, suchas the City of Arabia, Jumeirah Village South, Down-town Jebel Ali and Dubai Sports City.

With large-scale mixed-use developments, such asthe Jumeirah Lake Towers and Downtown Burj Dubai,fast approaching their final phase of construction, asignificant new supply of residential units is expected

to be made available in late 2008 and early 2009. Theinflux of new supply has led to some stabilisation ofrents in the past six months, and this may continue.

Projects delays extending over one year are com-monplace in the market today. As a result, many resi-dents rent, leading to a constant high demand forquality rental accommodations in Dubai. Subsequent-ly, rental rates have been more consistently high overthe past few years than ever before – an issue furtherexacerbated by the lack of supply.

By the end of 2008 Dubai should have an addition-al 44,000 residential units, while in 2009 developersare planning to release another 80,000 units.

Currently, rentals within developments, such as PalmJumeirah and Old Town at Burj Dubai, command thehighest annual rents in the city, with annual rents fora studio and one-bedroom apartment being quotedat Dh100,000 ($27,230) and Dh140,000 ($38,122),respectively. The relative ease of mortgage financingfrom local and international banks, the current levelof rentals and the rising confidence among end-usersowing to the delivery of new projects have providedencouragement for the growing owner-occupier mar-ket in Dubai. Investors remain the majority buyers ofany newly launched development and they continueto earn handsome profits. Since 2005, rental and cap-ital values for both residential and commercial prop-erty in Dubai have witnessed steady, continuous growth,climbing almost 25-60% and 25-30%, respectively.


18

Dubai residentialNew developments help ease demand for housing


Dubai: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment

growth (%) at current prices) ($ at PPP) household size rate (%)

2006 1,392,139 5.35 45,889 35,882 4.90 529,035 2.4

2007 1,471,206 5.68 53,834 37,293 4.86 558,608 2.4

2008 1,549,418 5.32 62,285 38,108 4.82 589,834 2.4

2009 1,626,135 4.95 74,182 39,262 4.78 622,806 2.4

2010 1,702,064 4.67 86,291 40,337 4.74 657,621 2.4

2011 1,780,626 4.62 99,782 41,719 4.71 673,403 2.4

DUBAI

The increased demand in Dubai’s office market is adirect result of economic growth. Strong economicfundamentals, political stability, compound annualGDP growth of 20% from 2001 to 2007, and a busi-ness-friendly environment have ensured that manyinternational companies prefer to set up their officesin the emirate and use it as a base to enter regionalmarkets. The Dubai Statistics Centre calculates thatthe number of companies in Dubai grew from lessthan 50,000 in 1998 to 105,224 in 2007, while freezones have seen the number of businesses regis-tered with them increase by an astonishing year-on-year increase of 72% in 2007. It is estimated that in2005, about 20% of the population was working asprofessionals, technicians and associate profession-als, clerks and other white-collar, private sectoremployees in offices.

This increased demand has resulted in an acuteshortage of space. Rising costs of land, raw materi-als and labour, coupled with construction delays,have further added to the increased prices for officespace. Demand for space has boosted rent levels byaround 30-40% in the past 12 months, as the spaceis nearly fully occupied in all the office districts andvacancy rates remain between 1-3%. The current sup-ply of office space in Dubai is estimated to be 1.81msq metres. Prior to 2004 development activity wasnegligible, resulting in a build up of demand.

From 2004 onwards development activities foroffice space have increased exponentially. Around9.2m sq metres of office space is expected to bemade available in the next three to four years. Thisamounts to a growth rate of more than 400%, creat-ing a situation of severe oversupply.

Major projects aimed at contributing to the officesupply are under development chiefly along SheikhZayed Road and close to Business Bay, DubaiInternet and Media City, Jumeirah Lake Towers, andDubai Silicon Oasis. Additional office space is plan-ned and/or under development in the free zones.

Within the free zones, plots have been allotted orsold to private developers, and space has also beenmade available in the many private master-planneddevelopments in New Dubai. Included in these mixed-use developments with a commercial component areDubai Marina, Dubai World Central, Dubai SiliconOasis, Studio City, Motor City, Dubailand, JumeirahVillage, City of Arabia and Falcon City of Wonders,which are emerging as the suburban business districtsof Dubai. Finished buildings in the master-plannedareas will be released from the market from 2008onwards until around 2012. Some developers arealso continuing to build in Old Dubai as well, specif-ically targeting Garhoud, Port Saeed and Festival City.

As in the case of the residential sector, excessiveplanned supply is expected to create the potentialfor oversupply. Average rentals are highest in theDubai International Financial Centre (DIFC) at aroundDh5300 ($1443) per sq metre, while the lowest ratesof Dh3250 ($884) per sq metre are recorded in theTecom-administered areas of Dubai Media & Inter-net City. Bur Dubai reflects slightly higher or compa-rable rentals to Tecom mainly because it forms partof the old central business district with inherentdemand and little scope for further addition of space.Current rentals show an increase of approximately15-18% over previous years’ rentals, reflecting highdemand. Current average rents in privately-ownedbuildings between the one and two interchangesalong Sheikh Zayed road are around Dh4360 ($1187)per sq metre, a year-on-year increase of 16%.

New plots under development within the DIFC andDubai Media and Internet City exhibit current saleprices around Dh39,300 ($10,700) and Dh18,900($5146) per sq metre, respectively. The average pricesin 2007 were Dh29,600 ($8060) and Dh16,340($4449) per sq metre, respectively, representing anincrease of 33% and 14%. As a free zone for finan-cial and professional companies, space in the DIFCcontinues to command a premium over other areas.

19


Dubai office spacePremium commercial property entices businesses to the emirate

DUBAI

From a total gross leasable area (GLA) of under 70,000sq metres in the early 1990s, Dubai now has a total GLAof approximately 1.6m sq metres, including neighbour-hood shopping malls, which represent per capita GLAof 1.08 sq metres currently. If projects are completedas scheduled, shopping mall GLA will increase by a fur-ther 450,000 sq metres, and the projected per capitaGLA will increase to 1.31 sq metres by the end of 2008.

Based on developments that are currently planned,for completion by 2012, Dubai is set to have approxi-mately 4.5m sq metres of shopping mall GLA, repre-senting a per capita GLA of 2.44 sq metres.

This represents a doubling of the current availablespace within two years. The constant demand for retailspace in the market has ensured that Dubai’s malls arecurrently operating at 95% occupancy. However, thistrend may change over the coming years as more shop-ping malls are introduced into the market.

Anecdotal information from managers of upcomingshopping malls indicate that nearly 75% of the new retailGLA has been pre-booked by local, regional and inter-national retail brands. The remaining areas within thesenew malls have not been pre-leased in anticipation ofadditional brands and retailers in the market.

Dubai currently has one of the highest shopping mallGLAs in the region and it is expected to overtake Sau-di Arabia in the 2012-15 period. It is anticipated thattourism levels in excess of 15m (government estimates)

should be able to support the new space. Accordingto AC Nielsen’s shopping mall survey, which was con-ducted in the region in early 2007, shopping centresin Dubai derive 55% of revenue from tourists.

Tourism spending sustains space per capita in Dubai,and themed malls have played an important role inconnecting retail with hospitality. Mercato, the firstthemed mall in the Middle East, was based on a Ren-aissance theme with Italian, French and Spanish flavours,and was followed by themed developments at WafiCity, Souk Madinat Jumeirah, Ibn Battuta and DragonMart, which has become the largest trading centre forproducts from China outside the mainland.

Current market rates for retail space average justunder Dh4000 ($1089) per sq metre per annum, rep-resenting the highest rates in the UAE. Large anchorstores would be expected to pay less than Dh500 ($136)per sq metre per year, while small outlets, kiosks andfood outlets can expect to pay in excess of Dh7500($2042) per sq metre per annum.

New malls such as Dubai Mall and Mall of Arabia, arequoting Dh3000-3500 ($816-953) per sq metre for lineunits, well below rates quoted by established malls inthe emirate. Given the amount of shopping mall GLAunder construction across the different sectors ofDubai, it is unsurprising that newer malls are providingincentives such as lower rents and rent-free periodsduring fit-outs to attract tenants.

As the market becomes more competitive, develop-ers have worked hard to differentiate their projects.When it opens in October 2008, Dubai Mall will boastthe world’s largest aquarium, the largest gold souk inthe region, an indoor-outdoor streetscape with a ful-ly retractable roof, an Olympic-sized ice rink and a 20-metre long hydraulic walkway and stage area. The DubaiMall will feature 1200 stores, with a number of newmarket entrants including the Galeries Lafayette,Bloomingdale’s, Macy’s, Hamley’s of London, 12 Star-bucks cafes, a Spinneys, a 22-screen multiplex, a 36-lane bowling centre and other entertainment centres.


20

Dubai retailDevelopers differentiate new products with clever add-ons


Dubai: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 1,392,139 27,983 24.2 9.27

2007 1,471,206 32,288 15.4 11.03

2008 1,549,418 36,996 14.6 9.04

2009 1,626,135 43,130 16.6 5.33

2010 1,702,064 50,770 17.7 4.66

2011 1,780,626 59,041 16.3 4.09

DUBAI

Saleh Mohammed Al Geziry, the overseas promotionsdirector at the Department of Tourism and CommerceMarketing (DTCM), estimates that over $272bn of hos-pitality projects in Dubai are expected to be complet-ed by 2016. This estimate takes into account only 55projects that are in various stages of planning and/orconstruction today and does not take into considera-tion a further 71 projects that have been proposed tobe completed by 2016.

One of the main drivers of expansion in the hospi-tality sector is the Al Bawadi tourism and leisure devel-opment with an estimated value of $100bn, which isexpected to be completed in staggered phases start-ing in 2011 and ending in 2016. With the expansion ofDubai International Airport, the construction of Al Mak-toum International Airport, the development of theDubai Cruise Terminal and the expansion of EmiratesAirlines, the emirate has multiple points of entry andspecifically caters to business tourism, leisure stopover,shopping, sports and long-term stays. The strong per-formance of Dubai’s hospitality sector, both in termsof supply and demand, can be attributed to a varietyof factors, including the following:• Movement of Arab funds from Europe and the US to

the Middle East;• Increased liquidity in the UAE on the back of record

oil prices;• A strong economy and the government’s commitment

to increasing private investment in the sector;• The development of major tourism-related infrastruc-

ture;• The government’s promotion of the tourism sector

over the decade through initiatives such as DTCM, shopping festivals, and Emirates Airlines; and

• Increased travel regionally within the Middle East and the GCC states and the growth of budget airlines.

The number of tourists to Dubai increased by a com-pound annual growth rate (CAGR) of over 11% per yearfrom 1999 to 2007, from 3m visitors in 1999 to almost7m visitors in 2007. Dubai has managed to more than

double its tourism numbers in eight years. However, theDTCM has projected the number of hotel visitors to Dubaito rise to 10m by 2010, at a CAGR of around 20%.

In 2007 the total number of hotels and hotel apart-ments was 452, of which 325 were in the budget cat-egory, nearly 72% of the total number of hotels in Dubai.The number of hotels and hotel apartments is expect-ed to increase to 488 by 2010 and Dubai’s room strengthwill also rise to 64,179, a dramatic increase from 51,168room units in 2007.

Each visitor to Dubai generated hospitality revenuesof $238 in 2000, and in 2007 revenue per tourist was$520, representing a CAGR of 12%. With occupancy lev-els reaching 85% currently, the demand for hotel roomsin Dubai exceeds supply. With the DTCM targeting 15mvisitors by 2010, it is expected that Dubai will needapproximately 45,000 additional rooms over the nextfive years, according to industry experts. Leisure visi-tors account for approximately 68% of the market,according to a recent survey by the DTCM.

Total revenues from the hospitality sector increasedby 22%, from around Dh8bn ($2.2bn) in 2005 to overDh9.5bn ($2.6bn) in 2006. This growth has continuedinto 2007, with the hospitality sector generatingDh13.2bn ($3.6bn) in revenues, of which the budgethotels and apartments contributed Dh1.58bn ($430m).The average rate per room in budget hotels increasedfrom Dh241 ($65) in 2006 to Dh287 ($78) in 2007.

21


Dubai hospitalityCatering to a wide range of interests – from business to sport


Dubai: tourism and hospitality indicators, 2006-11


2006 2,763,260 15.0 2.6 7,184,475

2007 3,163,932 14.5 2.6 8,226,224

2008 3,629,030 14.7 2.8 10,161,285

2009 4,158,869 14.6 2.8 11,644,832

2010 4,657,933 12.0 2.9 13,508,005

2011 5,266,265 13.1 2.9 15,272,167

NORTHERN EMIRATES

Together, the Northern Emirates accounted foraround 18% of the UAE’s total GDP in 2007 and 34%of its population. The population is distributed withSharjah having 28%; Ajman, 7%; Ras Al Khaimah (RAK),7%; Fujairah, 4%; and Umm Al Quwain (UAQ), 1%.Although these five smallest emirates of the UAE havea lot of catching up to do with their two larger,wealthier and more high-profile counterparts, theyhave each been making a mark in their unique way. NEW FOCUS: The cultural centre of the UAE, and yetnot endowed with its neighbours’ abundantresources, Sharjah’s strategy has been to focus onindustrial development. As such, it already accountsfor 48% of the UAE’s entire industrial output. Cen-tral to this effort was the decision in the 1990s toestablish 11 industrial zones that are spread over 26sq km. These are located between the UAE’s maintransport arteries of the north-south Emirates Road,and the east-west highway to Khorfakkan andFujairah. The success of these zones has led to sub-stantial GDP growth since 2006.

Sharjah is also developing its hydrocarbons sec-tor, courting more industrial companies and devel-oping industrial and commercial clusters, such asthe Hamriyah Free Zone and the Sharjah AirportInternational Free Zone. The petrochemicals indus-try is well developed, as are the textiles and leather,basic non-metals, foodstuffs and wood industries.

In addition to industry, Sharjah also serves as a majorregional transport centre, with Sharjah Internation-al Airport being the region’s largest airfreight car-go handler. The emirate’s other major advantage isits operating costs, which are significantly lowerthan those in Dubai and Abu Dhabi.

Further infrastructure improvements are planned,with $45m due to be spent as part of an integratedinfrastructure plan for Sharjah, including construc-tion of 32 km of roads in Khozamiyah and Tala, stormwater systems and sewage systems.TOURISM: RAK is leveraging its diverse natural fea-tures – an abundance of greenery, picturesque moun-tains, deserts and beaches – to attract tourists. Ithas successfully witnessed a 40% rise in touristarrivals in the last two years. The emirate is alsoopening up the industrial sector for local, as well asinternational, investors through the RAK Free TradeZone and the RAK Investment Authority Free Zone,which is expecting inward investment worth $15bn.The RAK economy is expected to grow by more than15% in 2008, with the emirate attracting $2.4bninvestment in the industrial sector and more than$9.5bn in the real estate sector. It boasts of beingthe world’s largest tile producer, being a US Food andDrug Administration-approved pharmaceuticals pro-ducer, and housing Hollywood’s biggest post-produc-tion studio. Additional infrastructure development


22

Northern EmiratesMaking the most of their location and space


Northern Emirates: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 1,464,612 5.71 26,194 35,882 4.90 758,023 3.2

2007 1,547,509 5.66 35,381 37,293 4.86 807,457 3.2

2008 1,634,328 5.61 32,753 38,108 4.82 865,812 3.2

2009 1,725,229 5.56 36,039 39,262 4.78 906,262 3.2

2010 1,820,374 5.51 39,283 40,337 4.74 969,838 3.2

2011 1,919,936 5.47 42,663 41,719 4.71 1,000,873 3.2

NORTHERN EMIRATES

is being carried out throughout the emirate, with RAKInternational Airport and Mina Saqr Port undergo-ing expansion and upgrades.

Sharjah has a strategic advantage over several ofits neighbours, in that the port of Khorfakkan canshave several days off a passage through the Straitof Hormuz, saving valuable fuel and time. This facthas resulted in an economic boom for Khorfakkan,now ranked among the world’s top-100 containerports. It has a handling capacity of 3m 20-foot-equivalent-units (TEUs), and has benefitted fromseveral infrastructure upgrades in recent years,including a new $156m berth and a stacking roomwith a total capacity of 43,000 TEUs.

The Dubai Ports Authority has taken over the man-agement of the container terminal at Fujairah Port,which will consolidate Fujairah’s role as a transportcentre. Fujairah already has the world’s third-largestbunkering port and with additional investment beingpumped into the sector, the emirate hopes to becomea centre for regional trade.

UAQ and Ajman have both witnessed growth in thereal estate and industrial sectors. In the past coupleof years, the property boom in the UAE has spilledover to the Northern Emirates as a result of econom-ic fundamentals and the revamping of real estate reg-ulations to allow foreign ownership. In Sharjah the$5bn Nujoom Islands, as well as more than 20 tall,mixed-use towers, are currently under constructionand many more are planned.

Projects worth more than $8bn are expected tobe built in RAK, including Mangrove Islands, PortArabia, Marjan Islands, Al Hamra Village, Cove BeachResort, Julfar Towers, Saraya Islands, Mina Al Araband Yasmin Rural Village.

UAQ has the $3.3bn UAQ Marina and the $8bn AlSalam City, which is planned as a residential andcommercial development. Meanwhile, Ajman is plan-ning the high-tech, $700m Goldcrest Smart City,which will have 3500 luxury homes equipped withmodern digital home network solutions, the 12m-sq-metre Al Zorah City and Amber Islands.RESIDENTIAL: The UAE’s population has been rising atan annual growth rate of around 7% since 2000. Thoughthe Northern Emirates have only 34% of the UAE’s pop-ulation, they have 39% of the country’s housing units.Sharjah and Ajman have benefitted from the rise indemand in Dubai by providing reasonably priced over-flow accommodation for Dubai’s workforce. However,the increasing demand has consequently driven uprents and property prices in Sharjah and Ajman as well.

Residential rents in Sharjah were reported to haverisen by an average of 20% in 2007-08, slowing downconsiderably from the 40% rise that was seen in2005-06. Rents, however, still remain as much as 50%cheaper than the rents for comparable propertiesin Dubai. Low-income tenants have not been able toafford the increase and have moved further northto Ajman and UAQ. In Sharjah, rental yields haverisen from 8% to between 10% and 18%, with yieldson labour accommodation reaching as much as 20%.

Rent caps have been introduced in all of the emi-rates in an effort to control rental costs. In Sharjahand Ajman rents cannot be increased for the firstthree years of a tenancy contract, after which a 15%increase is permitted in Sharjah, and a 20% increaseis permitted in Ajman. Like Dubai, RAK has an annu-al 7% cap on rent increases.

A number of residential developments are underconstruction in the Northern Emirates, of which alarge percentage are offering freehold ownership.However, Sharjah does not permit freehold owner-ship for nationals who are not from Gulf Coopera-tion Council (GCC) member countries, although theycan obtain 99-year leasehold properties.

In spite of the number of projects currently underconstruction, the infrastructure in these cities hasnot moved at the same speed as the fast pace ofreal estate development, which has resulted in traf-fic congestion, inadequate parking and delayed deliv-eries, mostly due to a queue for utility connections. COMMERCIAL: Rising office demand is associatedclosely with industrial growth in the Northern Emi-rates, particularly with the development of indus-trial clusters, free zones and ports. These emirateshave numerous cost advantages over Abu Dhabi andDubai. Sharjah is reported to be the least expensiveemirate to invest in the UAE, with costs runningabout 35% less than in the other emirates, as the

23



Northern Emirates: tourism and hospitality indicators, 2006-11


2006 592,273 0.0 2.6 1,539,911

2007 588,686 -0.6 2.6 1,530,584

2008 580,648 -1.4 2.8 1,625,814

2009 566,024 -2.5 2.8 1,584,867

2010 541,644 -4.3 2.9 1,570,767

2011 573,106 5.8 2.9 1,662,007

NORTHERN EMIRATES

government subsidises 70% of the cost of water andelectricity. As a result, a number of Dubai-basedcompanies have relocated their back office andadministrative operations to Sharjah.

Additional roads and bridges are under construc-tion to ease traffic flows, and other infrastructuralimprovements, such as a hovercraft service betweenDubai and RAK, are being planned. Due to these fac-tors, foreign investments coming into the emirateshave climbed. The Sharjah Chamber of Commerceand Industry now has more than 40,000 members,with 5400 registering in 2007 alone. These num-bers are expected to grow further as the free zonemakes efforts to attract Fortune 500 companies. Anumber of office complexes are under developmentin Sharjah, Ajman and RAK that are expected to caterto the demand for office space. Upcoming industri-al projects – such as Rakeen’s RAK Financial City andHanoo Holding’s $2bn Emirates Industrial City – areexpected to help the office market reach maturity.Grade A office space will be added with projects likeSahara City and Sharjah Investment Centre.HOSPITALITY: Sharjah’s ambitious tourism sectoris hoping for growth of 8%-10%, with a focus oncultural and educational tourism, as well as eco-tourism. The number of hotel guests grew 11%, from1.31m in 2006 to 1.45m in 2007, and occupan-cy rates reached 80%, up more than 5% from 2006.

RAK is planning a large theme park and has ambi-tious plans to venture into space tourism, with the$1.9bn Emirates Flag project to develop a commer-cial spaceport from which suborbital flights may oneday be operated.

In RAK the number of hotel guests was a modest157,000 in 2005, which is expected to grow to 2.5mby 2012. Occupancy rates in the emirate increasedfrom 77% in 2005 to 85% in 2008. The introductionof Air Arabia and RAK Airlines has provided a boostto the sector, with the former providing some 40%of all air traffic to Sharjah’s airport.

Development of the tourism sector has been heldback, due largely to a need for more quality hotelfacilities. Ajman has only four hotels, with around 600rooms, while RAK has eight quality hotels. Sharjah’shospitality sector is showing the fastest growth, with37 hotels and 65 furnished apartment buildings pro-viding 7486 rooms, a considerable increase fromthe 5000 rooms available in 2005. Around 10 hotels,providing 3000 rooms, are under construction. Themixed-use development of Nujoom Islands will havea significant hotel component. A new five-star beachresort, Al Hamra Palace Hotel, in RAK is expected tostart operations in late 2008, while 25 top-end hotelsare expected to open in Ajman by 2015.

Upcoming projects include the Jebel Jais Resort andMina Al Arab in RAK, Switzerland-based MovenpickHotel in Ajman, Germany-based Kempinski’s FujairahResort, Robinson Club, Fujairah Dana (Pearl) devel-opment and Fujairah Paradise in Fujairah. Ajman isdeveloping the $4.1bn Emirates City and UAQ isdeveloping the marina waterfront community.RETAIL: Malls were introduced in Sharjah later thanin Dubai. Three malls opened in 2001 – Sharjah MegaMall, Sharjah City Centre and Sahara Centre – fol-lowed by Al Taawun Mall, Ansar Mall and Safeer Mall.Retail space in Sharjah is significantly less costlythan in Dubai or Abu Dhabi. Sharjah’s malls and shop-ping centres now account for little more than 8% oftotal UAE gross leasable area, with 280,956 sq m.

Shopping centres in Ajman include Ajman CityCentre and Safeer Mall, as well as large hypermar-kets like Lulu. RAK has Manar Mall, Al Waha Centreand Lulu Centre. The $109m Dana Mall, an upmar-ket 150,000-sq-ft shopping complex being built inAjman, will open by the end of 2008. It will have 200retail outlets with international brands, restaurantsand a 1500-vehicle car park.

New retail supply will be concentrated in large,mixed-use developments such as the Nujoom Islandsand Al Hamra Village. Apart from these, the Sharjah-based Al Safeer Group plans to open new malls inRAK and Fujairah. Sharjah City Centre, which has thehighest footfall in the Northern Emirates (10m vis-itors in 2007 and 5m in the first half of 2008, a 15%increase over the same period in 2007), is undergo-ing an expansion, renovation and redevelopmentprogramme that is set for completion in December2008. This will take the mall’s total retail area offer-ing to over 37,553 sq metres, with over 114 shops.

24



Northern Emirates: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 1,464,612 19,869 24.7 9.27

2007 1,547,509 23,857 20.1 11.03

2008 1,634,328 28,538 19.6 9.04

2009 1,725,229 34,164 19.7 5.33

2010 1,820,374 40,594 18.8 4.66

2011 1,919,936 49,586 22.2 4.09

25

Gulf Cooperation Council BahrainKuwaitOmanQatarSaudi Arabia

BAHRAIN

Bahrain has historically acted as the financial capi-tal of the Gulf Cooperation Council (GCC). Financialservices continue to thrive, despite greater regionalcompetition. The economy had a compound annualgrowth rate (CAGR) of 6.8% between 2003 and 2008,with the same expected in 2008. According to the2008 Index of Economic Freedom, Bahrain’s econo-my is 72.2% free and ranks 19th in the list of theworld’s most free economies. The kingdom is alsoexpected to be the first GCC member to run out ofoil, which has resulted in the diversification processstarting in Bahrain long before its neighbours. Thereal estate and building boom that has been part ofthis diversification has given Bahrain one of the mostdeveloped property markets in the GCC.

Land prices appreciated by around 300% between2001 and 2005 and by three to four times morerecently. Land prices in high-end districts such asSaar and Budaiya have increased at the most rapidrates, with Juffair and Busaytin having performed themost strongly of all districts. The real estate and con-struction market continues to be extremely active,with a large number of high-profile projects current-ly under construction in the kingdom.

The total value of traded land permits rose by aCAGR of 35% between the years 2001 and 2006,while the number of land permits rose by 13% in2006 alone. Commercial bank lending to the sectorrose by more than 50% in 2007. In August 2008 sta-

tistics from the central bank showed that the mort-gage market stood at a healthy $1.19bn. However,contractors are presently facing challenges withregard to fulfilling their commitments due to supplyconstraints and skills shortages. The crackdown onillegal immigrants has ultimately led to a shortage ofworkers, while the export restrictions imposed bySaudi Arabia and the lack of domestic production ofcement have resulted in huge increases in the con-struction cost index.

Since 2001 several decrees have been passed inthe region to permit all foreigners, in addition to GCCnationals, to buy and invest in real estate. Both for-eign buyers and investors can enjoy 100% ownershipof land in predetermined areas. Foreign investors inBahrain may either lease government land throughthe Ministry of Finance and National Economy orpurchase land in the five districts of Manama: AhmedAl Fateh, Hoora, Bu Ghazal, the Diplomatic Area andSeef. They can also buy into three projects – theAmwaj Islands, Durrat Al Bahrain and Dannat Hawar.

International investors are also attracted to thecountry’s infrastructure and urban development.Major upgrades to the road network, building of fly-overs and tunnels and additions to existing roads areprojects that are currently in progress. Bahrain hasthe 2030 National Strategic Masterplan in place thathas already approved land-use plans for residential,commercial, industrial and agricultural uses, result-


26

BahrainDevelopment takes off as the country opens up to foreign investors


Bahrain: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 749,000 2.04 15,823 29,873 5.36 380,000 15.0

2007 764,000 2.00 19,660 32,064 5.33 352,000 15.0

2008 779,000 1.96 24,395 34,043 5.30 369,600 15.0

2009 795,000 2.05 25,442 36,206 5.27 388,080 15.0

2010 811,000 2.01 26,405 38,437 5.24 407,484 15.0

2011 827,000 1.97 27,226 40,757 5.22 468,607 15.0

BAHRAIN

ing in greater investor confidence. Large-scale, multi-billion-dollar projects currently under constructioninclude Durrat Al Bahrain, Bahrain Bay, Reef Island,Al Areen, Riffa Views, Diyar Al Muharraq and the SeefDistrict Development. High-rise tower developmentsinclude Bahrain World Trade Centre, Abraj Al Lulu,Infinity Tower and Era Tower. RESIDENTIAL: Of all the construction permits issuedin Bahrain, 30% are for new construction, primarilyfor villas and houses, of which there is a severe short-age at the lower end of the market.

Bahrain’s population has been growing at an aver-age of 2% per annum over the past four years, withthe population expected to reach around 779,000 in2008. The market for mid- to high-income housinghas been boosted further by the government’s deci-sion to allow expatriates to buy property, but estimatessuggest that 40,000 social-housing units are need-ed, and with half of the population under the age of15, the pressure to build more units within this seg-ment is likely to continue.

Residential property prices have been rising at anaverage of 10% to 15% per annum over the past threeyears, with reports of a 20% increase in some proj-ects in the nine months from third quarter 2007 tosecond quarter 2008. In Durrat Al Bahrain, the priceof a 500-sq-metre villa doubled from aroundBD150,000 ($400,500) in early 2007 to BD300,000($801,000) in early 2008. Costs in new projects inManama now range from $1000 per sq metreupwards, with prime developments selling from $1200per sq metre on lower floors, and $1500 per sq metreonwards for upper floors.

Rents in residential areas are also rising sharply.Though rents for existing tenants have been cappedat 10%, new leases in 2007 have been showing 30%to 40% increases. Annual rent per sq metre rangesfrom $300 in Jufair to $400 in Seef. It is worth not-ing that the new villas and apartment developmentscommand rents that are more than 40% higher thanthat of similar older properties.

The government housing bank lends up to BD40,000($106,800), around half of the cost of most familyhomes. Also, though the mortgage sector in Bahrainis strong with banks offering up to 30-year loans withdown payments as low as 10%, affordability is still anissue. Developers have therefore largely ignored thelow- and middle-income housing sector, and the gov-ernment has therefore initiated affordable projectssuch as the 15,000-unit North Town project.

In spite of this, speculators and investors haveensured that there is little expectation of a down-ward turn in prices. But uptake in residential projectsis slowing. With supply so firmly targeted at the upperend of the market, concerns over the potential foroversupply are inevitable. OFFICE: The office market in Bahrain has sufferedas a result of the increase in competition from Dubaiand other emerging financial centres. In spite of this,office developments in the first year of openingrecorded occupancy rates of between 35% and 55%.

Rents are low by Gulf standards, and they remain inthe bottom quartile internationally. Rental yields havefallen from 8% in 2005 to 6.5% in 2008. The markethas the potential to move towards oversupply giventhe number of ambitious commercial projects thatare currently under way.

The kingdom’s fight against the regional compe-tition in financial services, on the other hand, has beencomparatively successful, with total banking assetsgrowing by an impressive 34% in 2006. The total num-ber of banks and financial institutions at the end ofNovember 2007 was 404, with this being made upof 153 banking institutions, 165 insurance firms, 34investment banking firms, 13 capital market brokersand 39 specialised licensee firms.

The Bahrain Financial Harbour (BFH) is a $1.3bnproject intended to act as a physical flagship forBahrain’s traditionally strong financial services sec-tor, with space for international firms, banks andinsurance companies, and the Bahrain StockExchange. The gross building area is reported to beapproximately 570,000 sq metres. BFH is now part-ly operational with monthly rents at around BD12($32) per sq metre and an additional 15% servicecharge. It is a higher price compared to other officespaces, which range between BD7 ($19) and BD9($24) per month per sq metre.

The 50-storey Bahrain World Trade Centre (BWTC),another major office development, has already

27



Bahrain: tourism and hospitality indicators, 2006-11


2006 398,157 12.8 2.0 796,313

2007 448,589 12.7 2.0 897,179

2008 507,716 13.2 2.0 1,015,432

2009 574,597 13.2 2.0 1,149,195

2010 649,825 13.1 2.0 1,299,650

2011 735,524 13.% 2.0 1,471,048

BAHRAIN

become an iconic landmark in the Manama skyline.It will offer twin office towers, the five-star Shera-ton Hotel and Moda Mall. Around 15% of its energyneeds will come from turbine-generated wind pow-er. Engineering issues are rumoured to be the maincause for the delay on the project, but most analystsexpect that the towers will be completed by the endof 2008. These developments are considerably abovethe current standards of market provision. By offer-ing generous car parking allowances and flexiblespace, they may end up attracting corporate occu-piers from less well-equipped buildings. Change istherefore expected in the secondary tier of the mar-ket, with refurbishment, redevelopment or changeof use available for older buildings.RETAIL: Bahrain’s retail sector has matured substan-tially over the past decade and the country is report-ed to have the fourth-highest private spending onretail in the region. Visitors from Saudi Arabia arereported to account for a 30% to 35% increase in foot-fall during the weekends.

The Grand Prix has also had a substantial impacton the retail sector. In 2007 the event drew a totalof 90,000 people over the course of three days, result-ing in a gross economic impact of $548m, whichmarked a 40% leap from 2006. On average each inter-national visitor spent $1356 per day outside theBahrain International Circuit.

Shopping centre supply in Bahrain is concentrat-ed in the Seef area. The Seef Mall is a perennial

favourite, opening its doors in 1997 and later expand-ing its gross leasable area (GLA) to 135,000 sq metres.The higher end of the market is satisfied by Al AaliMall, along with Dana Mall and Bahrain Mall, withsmaller properties targeted at the lower end of themarket found elsewhere in the kingdom, such as SitraMall and the already mentioned Isa.

Given the success of Seef, it is not surprising thata raft of further development is planned for Bahrain.Retail GLA in 2007 was around 400,000 sq metres,with stock expected to triple by 2010. Seef itself hasrecently undergone an expansion; Moda Mall at theBWTC will have double the space originally planned,while space is being released in the Bahrain Finan-cial Harbour, Sitra and Lagoon Malls.

MAF’s Bahrain City Centre is a $400m, 150,000-sq-metre facility, which had its soft opening in Septem-ber 2008. Retail space for rent in the developmentis at a premium, and is on the market at BD40 ($107)per sq metre per month, while other older malls arerenting at an average of BD16 ($43) per sq metre permonth. Still, the mall is reported to have been com-pletely rented out. HOSPITALITY: Bahrain has witnessed an impressiveincrease in visitor numbers over the past few years,with arrivals by foreign nationals reaching 7.8m in2007, rising from less than 5m in 2002. In 2007tourism had accounted for close to 7.6% of GDP, withrevenues reportedly passing the $1bn mark. The gov-ernment is hoping that it will be possible to doublethis figure, increasing the sector’s contribution toGDP to 10% by 2014.

A tourism master plan has been created which rec-ommends the establishment of a public-privatetourism authority as in other Gulf states. Also rec-ommended is the creation of 12 zones dedicated totourism development. The zones identified for tourisminclude the large, mixed-use mega-projects that arecurrently under construction, such as Durrat AlBahrain, the Amwaj Islands and Al Areen.

Bahrain’s five-star hotels reported average occu-pancy of 72% in 2006, which was up from 68.8% inthe previous year, and it is certainly the strongest per-formance for some time. In 2007 a number of hotelsreported occupancy close to 80%, driven partially byhigher bookings from American military personnel.

Historically there has been little marketing ofBahrain’s hospitality sector, but this is set to changein the years to come, with investment including an$800m development headed by Ithmaar Bank torehabilitate Bahrain’s main public beach.

The hospitality sector boasts of an estimated 6700rooms in 2008, with more than 2000 expectedto come up by 2010. The Banyan Tree, which openedin the Al Areen development in 2007, is the latestaddition. Upcoming projects include the Renais-sance Marriott on the Amwaj Islands, a secondRitz-Carlton on a man-made island off the Seef dis-trict, a new Four Seasons on the Bahrain Bay devel-opment and a new Accor beach resort, which willbe located on the west coast of Bahrain at Zallaq.

28



Bahrain: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 749,000 5476 7.9 2.19

2007 764,000 5993 9.4 3.39

2008 779,000 6563 9.5 3.34

2009 795,000 7163 9.1 3.14

2010 811,000 7809 9.0 3.10

2011 827,000 8534 9.3 2.95

KUWAIT

Kuwait is another emerging market which has ben-efitted from the increase in oil prices. The countryis reported to hold 10% of world reserves, with thesector accounting for 55% of GDP, 95% of export rev-enues and 80% of government income. Post-Septem-ber-11 repatriation of funds, moderate inflationrates, political stability and increased earnings frominvestments have all been responsible for the buoy-ant Kuwaiti economy, which grew by 12.6% in 2006.New infrastructure, utility, tourism and constructionprojects can be attributed as both the cause andeffect of growth in the economy.

In its latest economic brief on the macroeconom-ic indicators in Kuwait, the National Bank of Kuwait(NBK) reported that Kuwait’s GDP grew by only 8%to KD31.8bn ($111bn) in 2007, following a streak offour consecutive years of double-digit growth. Fig-ures released by the Central Statistical Office alsoindicate a slowdown in non-oil sector growth though,at 13.3%, bested the oil sector. Despite this slowdown,domestic demand growth accelerated to 19% andthis slowdown is expected to have negligible effectson the overall performance of the economy.

The real estate and construction sectors grew by7.9% in 2006 and contributes approximately 6% ofthe nation’s economy. According to the NBK, thevalue of real estate sales grew by 67% in 2007. Vol-ume of units sold expanded by 54% in the first halfof 2007, as compared to the same period in 2006.

Total real estate investment tradings have increasedduring first-quarter 2008 to account for KD385m($1.3bn) compared to KD490m ($1.7bn) during thefourth quarter of 2007 with a decrease of 21.5%. Thesector has been receiving increased investor atten-tion. Around $8bn of private investment and $3bnin government investment is expected to come intothe sector in the next five years.

Developments trends have shifted with a wideracceptance and affinity towards taller buildings andinternational-quality offices, apartments and hotels.Major projects include the $5bn Failakha Island, the$6bn Boubyan Island, Project Kuwait, the $20bnKhairan and Arifijan residential projects, and the SilkCity, a mixed-use development, with a jaw-droppingprice tag of $86bn covering 250 sq km. In total, newreal estate construction is expected to reach $129bnup to 2010. However, construction costs have beenrising; building material costs went up 32.6% in 2006in spite of government subsidies, and wages rose by6.9%. Another source of weakness for developmentof the sector is that the large expatriate population(68%) is not permitted to own property. RESIDENTIAL: In 2006 Kuwait’s population grew by6.4% to reach 3.2m, of which the expatriate popu-lation accounts for 68%, with a huge concentrationof unskilled male workers. In 2006 the Kuwaiti nation-al population grew by about 3.1%, whereas the expa-triate population increased by 8.1%. Population

29


KuwaitDomestic demand fuels real estate and construction growth


Kuwait: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 3,183,000 6.42 98,717 31,014 5.36 1,963,000 2.0

2007 3,310,000 3.99 111,339 33,634 5.33 2,093,000 2.1

2008 3,443,000 4.02 145,141 42,159 5.30 2,275,000 2.2

2009 3,563,000 3.49 152,946 42,924 5.27 2,452,000 2.4

2010 3,688,000 3.51 161,247 43,723 5.24 2,596,000 2.5

2011 3,817,000 3.50 171,394 44,903 5.22 2,748,000 2.7

KUWAIT

growth and the influx of expatriates attracted tothe country’s booming economy have resulted inundersupply in the residential sector.

According to the Public Authority of Housing Wel-fare (PAHW), the waiting list for housing has risento over 50% in the last few years, up from 25% in the1990s and 17% in the 1980s. The waiting list ofapplicants in mid-2007 exceeded 30,000. In Febru-ary 2008 the Public Authority of Housing Care (PAHC)announced its plans aimed at distributing 1000 hous-ing units every month up to the year 2014 in the newcities of Jaber Al Ahmad, Saad Al Abdullah, Sabah AlAhmad, Khairan and Mitlaa.

According to the recent reports by KFH the priceindices showed a decrease in the prices of residen-tial lands in the governorates of Kuwait during thefirst quarter of 2008 as the price per square metrewas marked down to KD739 ($2584), equal to aslight decrease of 5%, reflecting the price stabilityin certain areas such as Abdullah Al Salem, Residen-tial Shuwaikh, and Faiha, while prices decreased sig-nificantly at Al Qadessiayah, Doayah and Surrah.

The situation with apartments is slightly different,with a potential oversupply of units targeted at thehigh-income expatriate population and a shortageof low- and middle-class apartments. An estimatedoversupply of 30,000 high-quality units is reported,with vacancy rates rising from 8.4% in 2004 to 12.6%

in 2006. A number of residential projects are underdevelopment – Silk City (500,000 residents), Arefi-jan (100,000 residents), Jabr Al Ahmad (78,000 res-idents), Sabbeya (50,000 units), PAHW housing (27projects) and Khairan (30,000 units).

However, there are some question marks sur-rounding such large-scale projects, as there is alreadya surplus of housing of the style that is generallydeveloped to cater for expatriate rentals. Accord-ing to figures from the Public Authority of Civil Infor-mation, the average vacancy rate by mid-2006 was12.9%, up from 12.1% in 2005. Meanwhile, the val-ue of apartments and commercial properties declinedby approximately 21% in the first four months of2007, although it increased by over 7% for residen-tial properties. It is therefore reasoned that the mar-ket will need to be opened to foreign investors toprevent an oversupply situation. This is somethingthat those within the construction and real estateindustry appear to be expecting in the coming years.

In total, BankMuscat estimates 2.62m housingunits will be built to meet the demand up to 2020.For the expatriate population, low-cost apartmentsremain the segment most under-supplied. COMMERCIAL: As in Jordan, demand for commercialproperty in Kuwait has been stimulated by the Iraq war.A large number of new companies have set up shop inthe country, using Kuwait as a base to target the largeand wealthy Iraqi market. Limited supply and a consis-tent demand for commercial lands, especially withinKuwait City, have helped push prices up even further.

A number of foreign banks have been grantedlicences to operate in the country, including BNPParibas, HSBC and Citibank. Project Kuwait is a $14bnproject that will develop the northern oilfields andother offshoot projects. All these factors have result-ed in an economic boom in Kuwait, with approximate-ly 144,000 new jobs created in 2006, creating a hugedemand for office space, particularly in Kuwait City.Commercial land rates have grown by some 11.8%in 2006 and vacancy rates are low. Rental costs havebeen going up, which has increased yields and there-fore the demand for commercial land, rates of whichhave witnessed an increase of approximately 18.6%CAGR between 2000 and 2006.

The average commercial price per unit went fromalmost $1.5m in 2003 to $2.3m in 2005 and to $2.5min 2006. There has been a short supply of officespace in Kuwait over the years. The surge in demandfrom 2003, following the Iraq war was difficult to meetwith existing supply. This surge in demand played arole in the push for new legislation to allow the build-ing of taller buildings.

Previously, Kuwait had a maximum height for build-ings of 20 storeys, but in 2005 new legislation allowedfor 100-storey buildings. This opportunity has encour-aged a rush to develop a new skyline in Kuwait City,and according to industry analysts, total expectedsupply coming up until 2009 is around 750,000 sqmetres. Furthermore, analysts expect that this willresult in an oversupply. However, according to OBG’s

30



Kuwait: tourism and hospitality indicators, 2006-11


2006 344,680 6.2 3.4 1,171,913

2007 366,051 6.2 3.4 1,244,572

2008 388,746 6.2 3.4 1,321,735

2009 412,848 6.2 3.4 1,403,683

2010 438,445 6.2 3.4 1,490,711

2011 475,325 8.4 - -

KUWAIT

analysis and data modelling, there is still scope forgreater expansion in this sector. Foreigners, asidefrom citizens of the GCC countries, are not allowedto own real estate in Kuwait, although in 2005 thegovernment hinted at a move towards allowing lim-ited foreigners in specially designated areas. Surveysconducted in 2006 reported an increase of approx-imately 17% in salaries for both expatriates andlocals and were further projected to rise by anoth-er 19% over 2007; also Kuwait’s average monthlysalary was the highest in the Gulf region, at $3100.HOSPITALITY: Following the Iraq war, there has beena steady stream of hotel guests into Kuwait, whichboosted the sector between 2002 and 2004. Afterthis point, growth in the hospitality sector slowedconsiderably. Occupancy rates reached 90% between2002 and 2003. However, in 2005-06 the averageoccupancy rates were reported to be close to 70%,with average room rates (ARRs) around $196 andRevPAR close to $140.

Recently the InterContinental Hotels Group andBukhamseen Holding Group announced the signingof an exclusive agreement towards developing Inter-Continental Kuwait Downtown. Figures released bythe Kuwait Hotel Owners Association estimate anadditional 3000 rooms to be added by 2010 by majorinternational chains including Golden Tulip Kuwait,the Regent Messilah Beach Resort & Spa, HiltonOlympia Kuwait, the Monarch Luxury Hotel & Con-ference Centre, InterContinental Kuwait Downtownand Four Seasons Hotel Kuwait.

The hospitality sector’s dependence on the Iraqimarket has prompted a large number of changes inorder to promote tourism in the country; visa regu-lations have been relaxed, for the first time a licencewas given to the first private commercial line, andthe government has come up with a 20-year strate-gic tourism plan. The government is aiming toincrease the number of tourists visiting Kuwait to 1mper year by 2010, of which some 650,000 are expect-ed to stay in hotels. Some 79% of Kuwaitis travelabroad on holiday, spending an estimated $3bn annu-ally; the government is keen to capture this localmarket as well. In 2007 Kuwait had 28 hotels withapproximately 4500 rooms, while 2006 witnessed thecommencement of construction for at least 10 newhotels with more than 2100 rooms estimated to becompleted by the end of 2007. Even if only a frac-tion of these rooms are completed, the market willundoubtedly move towards oversupply. The WorldTravel and Tourism Council, in its 2006 report, fore-casted a 3.6% growth annually for the next 10 years.According to the council’s report in 2007, the sec-tor was projected to generate approximately$13.79bn of economic activity (total demand), grow-ing to $21.73bn by 2017. RETAIL: Present per capita gross leasable area inKuwait is much lower than in most other Gulf states,indicating unmet demand. However, non-availabili-ty of large tracts of land has automatically placed alimit on the number of new mall developments.

Despite this, developers have started taking a keeninterest in Kuwait’s retail sector. Average retail rateshave gone up drastically and are now approachingDubai’s relatively high rates, indicating a strong retailmarket. Two new malls by Tamdeen became opera-tional in 2006, with the 31,000-sq-metre MarinaMall attracting over 9m customers in only its firstyear of operations.

The year 2007 saw the introduction of large mallssuch as Mabanee’s Avenues with a gross leasable areaof 170,000 sq metres, the country’s first Carrefour,the region’s largest IKEA store and a 10-screen mul-tiplex. The second phase of the project is the addi-tion of another 60,000 sq metres this year. Tamdeen’s360-degree Kuwait Mall will add another 75,000 sqmetres in this year and its 150,000-sq-metre Mall ofKuwait will be operational by 2010.

In spite of this growth, the sector faces a fewsetbacks due to rampant video and music piracy,which will definitely have an impact on retailers likeVirgin Records. In addition, the strict censorshipregime currently does not allow for the types of pub-lic events that have the potential to induce greaterretail spending. According to in-depth OBG research,upcoming supply is expected to meet the existingdemand in the sector. It is for this reason that thedevelopment of climate-controlled shopping cen-tres in Kuwait is not recommended in the short term.

31



Kuwait: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 3,183,000 28,363 12.0 3.09

2007 3,310,000 31,628 11.5 4.98

2008 3,443,000 35,532 12.3 6.48

2009 3,563,000 39,779 12.0 5.54

2010 3,688,000 44,527 11.9 4.97

2011 3,817,000 49,904 12.1 4.48

OMAN

The years 2007 and 2008 will be etched forever inthe memory of Omanis because of Gonu, a storm thatkilled more than 50 people and caused $4bn worthof damage. Though the signs of the destruction arestill evident in most cities, the Sultanate has bouncedback. Roads have been repaired, new rules banningdevelopment in the Wadis have been introducedand grants have been generously distributed for theredevelopment process.

Rising crude prices ensured that economic growthwas strong at 11.6%, with manufacturing and tourismalso showing impressive performance. The WorldEconomic Forum’s Global Competitiveness Indexranked Oman 42nd out of 130 countries in 2007,which was the first year the Sultanate was includedsince the study began in 1979.

The hydrocarbons sector accounted for 50% ofGDP and 80% of government revenues in 2006, withthe share declining to 27% and 65% in 2007. Underthe Vision 2020 plan released in 1996, oil’s contri-bution to GDP should reduce to 9%, while that of man-ufacturing should increase from the current 13% to29% by 2020. These targets seem achievable, espe-cially given the fact that oil production is on thedecline and the fields are ageing. In spite of newmeasures to increase oil exploration and the use ofenhanced recovery processes, supplies are not sus-tainable and the current reserves of 5.6bn barrelsof oil will likely be depleted over the next two decades.

Diversification is being given the first priority inthe country, with infrastructure upgrades being tar-geted in order to boost the manufacturing andtourism sectors. Being just hours away from theworld’s main shipping lines and relatively close toAsian markets makes Oman and its re-emergentports, such as Sohar and Salalah, natural sites forcompanies targeting markets in the East and West.CONSTRUCTION AND REAL ESTATE: Given theamount of infrastructural development involved inthe diversification of the economy, it is no surprisethat the construction sector is the second-fastestgrowing sector, having grown at a compound aver-age of 22% between 2001 and 2005. This sector’scontribution to the country’s GDP rose from $3.9bnin 2006 to $4.7bn in 2007, accounting for nearlyone-third of the country’s GDP.

Oman was previously categorised as being slow injumping on the Gulf Cooperation Council (GCC) realestate bandwagon, with fewer projects and low take-up rates. However, a perceptible increase has beenwitnessed between 2007 and 2008 in the amountof investment activity. Projects released towards theend of 2007 and beginning of 2008 have sold outquickly, in a matter of hours in some cases. At thesame time, land prices have increased by close to100% since 2006. Costs in 2008 range from OR1000($2600) per sq metre in Madinat Sultan Qaboos(MSQ) to OR30 ($78) per sq metre in Al Amrat.


32

OmanThe country bounces back after a massive hurricane


Oman: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 2,546,000 1.56 35,729 22,152 7.87 1,747,000 15.0

2007 2,570,000 0.94 40,059 23,967 7.86 1,782,781 15.0

2008 2,595,000 0.97 50,504 26,023 7.85 1,841,102 15.0

2009 2,619,000 0.92 54,392 27,833 7.84 1,897,783 15.0

2010 2,644,000 0.95 58,042 29,743 7.83 1,958,541 15.0

2011 2,669,000 0.95 62,176 31,839 7.82 2,020,897 15.0

OMAN

RESIDENTIAL: Oman’s population is expected todouble during the next two decades, rising at a com-pound annual growth rate of 2.5%, from 3.3m in2008 to 5m by 2025. The country has a youthful pop-ulation, with 43% of Omanis aged under 14.

A stronger economy has increased the number ofexpatriates moving to the kingdom, and more than12,000 expatriates are reportedly entering the Omanevery month. These increases in population haveresulted in a shortage of residential units through-out the kingdom, and rising rents have made own-ership an attractive alternative. The government isincreasing the number of land plots that it distrib-utes and banks have responded to this rising demandfor property by providing a better choice of mort-gage options to customers.

An increase in demand for apartments in Omanhas been augmented by a recent government deci-sion to stop issuing permits beginning in October2007. Unsatisfied demand has resulted in prices dou-bling and at times even tripling in a period of oneyear. Vacancy rates have dropped substantially, from13% in 2003 to less than 5% in 2008. Monthly rentalsfor a two-bedroom apartment range from OR700($1820) in MSQ to OR150 ($390) in Muthrah, whilea three-bedroom villa in PDO Heights would rent forup to OR1300 ($3380).

Sale prices average OR500 ($1300) per sq metre,with new developments like The Wave demandingover OR1100 ($2860) per sq metre. Prices at Shin-ing Shati, the latest development, now averageOR1100 ($2860) per sq metre – the initial releaseprice in 2005 was OR265 ($689). Landlords havehiked rentals by more than 100% in 2007, which hasforced the government to introduce a rental risecap of 15% over the next two years.

Some of the major high-end residential develop-ments coming into Muscat over the next two tothree years include The Wave, with 4000 one- andtwo-bedroom apartments, three- and four-bedroomtown houses with gardens, waterfront and beach-front villas; Salam Resort & Spa; Al Shmou; Omag-ine; Shangri La; Yenkit; Tilal Residences and Al QurumGardens. These developments are not expected tobe able to satisfy the growing demand for luxuryhousing, and there is surely scope for more residen-tial developments in Oman, especially in cities likeSohar and Duqm. There is a niche demand for smallunit sizes and Western-styled units.OFFICE: Growth in Oman’s domestic private sector,combined with increased foreign investments andthe entry of a number of international companiesin the country, has resulted in a huge demand foroffice space in Muscat as well as in Sohar. A num-ber of companies are looking at Oman as a possiblebase in the GCC, instead of opting for Dubai or Qatar,where costs are skyrocketing.

In Oman as well, rents have risen by over 50%every year since 2004, with rents in some years evendoubling. Property prices have followed suit, dou-bling between 2004 and 2007, with 2008 witness-

ing a 25% increase. Muscat is now one of the 35 mostexpensive commercial markets in the world.

Despite the increase in demand, Muscat has yetto offer a definitive commercial centre. Offices aregenerally located in the central business district(CBD) in the east of Muscat. However, the conges-tion, parking problems and cramped offices of theCBD have encouraged tenants to look elsewhere inthe city. New companies and existing CBD tenantsare considering moving to the west of Muscat, wherenew office buildings and industrial parks are beingdeveloped. These developments are typically lowrise and offer a number of state-of-the-art officesas well as adequate support services.

The $300m Azaiba Business Park will be complet-ed by 2011 and will feature modern corporate offices,upmarket retail facilities, a five-star hotel and serv-iced apartments. Qurum City will have 35,000 sqmetres of office space, while Al Argan Tower willhave 12,000 sq metres. Over 200,000 sq metres ofoffice space is expected to be handed over in thenext four to five years. These new developments arenot expected to satiate demand, and there will stillremain scope for construction. RETAIL: The retail sector in Oman remains under-developed in comparison to other GCC markets. Pre-viously, disposable income in the hands of Omanishas been low, spending patterns have been conser-vative and the sector faced very stiff competition

33



Oman: tourism and hospitality indicators, 2006-11


2006 1,660,721 18.0 1.9 3,155,370

2007 1,802,620 8.5 1.9 3,424,978

2008 1,884,572 4.5 1.9 3,580,688

2009 1,985,505 5.4 1.9 3,772,459

2010 2,107,590 6.1 1.9 4,004,420

2011 2,450,732 16.3 1.9 4,656,390

OMAN

from Dubai. The market is now looking more posi-tive, as Omanis are slowly becoming more affluentand the youth is increasingly brand-conscious. Exist-ing malls are experiencing increasing traffic, and anumber of new ones are planned. The sector is poisedfor growth in the medium term.

Muscat City Centre and Markaz Al Bahjaa are thetwo large retail centres in Muscat. Qurum is the retailcentre of the city and has shopping centres like Cap-ital Commercial Centre, Al Araimi Complex, KhamisPlaza and Sabco Centre. This area is low lying andwas thus the worst-affected by Gonu. Tenants andthe mall owners suffered immense damage as aresult, with their insurance plans covering only apart of their losses. The government has been forth-coming with compensations and in some cases mallmanagement has even given rental breaks to the ten-ants. Renovation works are almost complete andthings have started to normalise, though quite anumber of tenants, especially those on basement orlower levels, have vacated their spaces. They havebeen promptly rented out to new tenants.

Rentals in most malls range between OR16 ($41.6)per sq metre to OR20 ($52) per sq metre, with placeslike City Centre and Markaz Al Bahja commandingmuch more. According to figures from Retail Inter-national, approximately 75,000 sq metres of retailspace is in the pipeline to be completed by 2011.

These developments will take the retail gross leasablearea (GLA) to over 340,000 sq metres, a 70% increasesince 2006. Upcoming projects include the MuscatGrand Mall, which is part of the Tilal Al Khuwair Proj-ect. Muscat City Centre completed an expansion in2007, increasing GLA by 17% and adding over 60 newretail stores, bringing total GLA to over 60,000 sqmetres. A number of retail spaces are also under con-struction in Sohar and Salalah.HOSPITALITY: Tourism has been growing steadily inOman, with demand rising by 19% in 2006, and by9% in 2007. Tourism accounted for 0.7% of GDP in2004 and 2% in 2006; the government aims for thesector’s contribution to rise to 3% over the nextdecade and to attract 2m foreign visitors by 2010 –double the figure of 2001.

The government has accordingly increased itstourism promotion budget and has provided subsidisedland for the development of tourism projects. In April2008 the Ministry of Tourism announced a number ofincentives to attract investments – tax and importduty exemptions, interest-free loans, no personalincome tax and no foreign exchange controls. A pub-lic company will be established to help implement proj-ects as part of a fast track procedure. Infrastructuraldevelopment has been beefed up with the 2008 budg-et announcement of plans for the construction of sixregional airports in Sohar – Al Duqm, Ras Al Hadd,Adam, Haima and Shaleem. There are already manysigns of success. According to the 2007 HotelBench-mark Survey by Deloitte, average occupancy in Mus-cat was 70.6%, while revenue per available room grewby 52.8%. This has given Oman the title of the strongestgrowing market in the Middle East. With the openingof resort projects in Oman, such as Shangri La Barr AlJissah, the country has made it to the top few on var-ious international lists of must-see-destinations.

Barr Al Jissah represents the top end of the mar-ket, with rates ranging from OR150 ($390) to OR350($910) for a standard room depending on the typeof property. These prices represent a 100% rise fromlevels in 2006, and the hotel has enjoyed an aver-age occupancy of 65% since its opening in February2006, while its break-even occupancy is 40%.

The Chedi and the newly renovated Al Bustan arethe other premier hotels in the capital city. The CoralAl Nahda in Barka is also focusing on the luxury seg-ment in Oman. Salalah, Sohar, Musandam and RasAl Hadd are also witnessing new developments withbrands like Six Senses, Jumeirah and Banyan Treeentering the market.

The tourism sector’s room capacity is expected todouble by 2012 and several mixed-use developmenttourism projects are in pipeline. New projects willinclude hotels, marinas, shopping centres, golf cours-es and exhibition centres.

Forthcoming hotel openings in Oman include BlueCity Phase I, with three hotels; Omagine, with twohotels; The Wave, with two five-star hotels (Fairmontand Kempinski) and a four-star hotel; Muriya, withsix hotels; and Sama Dubai’s Salam Resort and Spa.

34



Oman: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 2,546,000 16,623 33.6 3.20

2007 2,570,000 20,086 20.8 5.50

2008 2,595,000 24,762 23.3 6.00

2009 2,619,000 31,175 25.9 6.75

2010 2,644,000 38,450 23.3 6.00

2011 2,669,000 47,744 24.2 5.50

QATAR

With GDP reaching $65bn in 2007 and the oil-and-gassector contributing up to 56% of the economy, Qataris another Gulf country hoping to diversify away fromthe hydrocarbons sector. Its proven oil reserves, morethan 2% of the world’s supply in 2007, are expected tolast over 60 years at current rates of production.

Gas reserves stood at 904.1trn cu feet at the end of2007. The hydrocarbons sector accounts for about 90%of export earnings and roughly 70% of budget rev-enues. Oil and gas revenues have fuelled Qatar to thehighest per capita GDP in the world – $80,870 in 2007,with expectations of reaching $85,000 in 2008.POPULATION: In 2008 the Qatar Statistics Authorityestimated the population to be 1.45m, and the Plan-ning Council expects the population to reach 1.5m bythe end of 2008. The last census was carried out in 2004when the population stood at 744,029. The strong per-formance of the economy has attracted a growingnumber of expatriate workers – professional and oth-erwise, which has contributed to the rapid increase inthe population from 2004 to 2007.

Foreign workers account for an estimated 75% of thetotal population, with the majority of migrant labour-ers coming from South Asia, the Philippines and oth-er Arab countries. The latest estimates indicate thatapproximately 37% of the population is concentratedin Doha, while nearly 30% live in worker housingat industrial centres across the rest of the country.

REAL ESTATE: The oil boom, expanding gas sector,increased foreign direct investment, major real estateprojects and public infrastructure programmes have con-tributed to the GDP, increasing by 10% from 2006 to2007 and achieving a compound annual growth rate(CAGR) of 27% from 2004. The finance, insurance andreal estate sectors made up 11.3% of GDP, at $7.2bn in2007 – growing at a CAGR of 38% from 2004. Mean-while, the building and construction sector contributed6.3% of GDP at $4bn in 2007, growing at a CAGR of 32%from 2004. The government has estimated that approx-imately $125bn worth of real estate developments isscheduled for completion by 2015.

Though over 50,000 residential apartments and vil-las were constructed from 2003 to 2005, these unitshave been unable to meet the levels of demand in thecountry. Supply side constraints have to contend withincreasing shortage of materials and capacity issues.

Foreign investments in the real estate sector com-menced in 2004, when the foreign ownership of realestate law permitted non-Qataris to invest and own land,buildings and constructions in three designated proj-ects, namely Pearl Qatar, West Bay Lagoon and Al KhorResort developments. There are 18 special investmentzones in Qatar, where ownership is in the form of a longlease. A second stimulant has been the growth in themortgage market. Up to 80% financing is available onresidential property at interest rates of less than 10%.

35


QatarIncreasing population spurs growth in all sectors


Qatar: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 838,000 5.28 52,722 76,537 5.50 746,000 0.9

2007 930,000 10.98 67,763 80,870 5.50 881,000 0.7

2008 1,032,000 10.97 98,260 84,833 5.50 1,044,000 0.6

2009 1,146,000 11.05 114,421 88,035 5.50 1,196,000 0.5

2010 1,272,000 10.99 133,961 92,476 5.50 1,350,000 0.5

2011 1,412,000 11.01 149,889 93,662 5.40 1,486,000 0.5

QATAR

An added advantage in Qatar has been the enact-ment of Law No. 2 of 2006, which automatically grantsnon-Qataris who own property a residency visa. There-fore, anyone who owns residential property, subject tothe regulations of the foreign ownership law, can applyfor and obtain a residency permit without a local Qatarisponsor (subject to normal residency visa conditions).Qatari Diar Real Estate Investment Company leads thedevelopment stakes in the country with its $6bn Lusaildevelopment. Covering an area of 35 sq km, Lusail isexpected to house a population of over 200,000 whenit is completed in 2016. Qatari Diar is currently involvedin over 50 active projects in 30 countries worldwide,including the UK and France. United Development Com-pany is another important player in the Qatari market,managing the $2.5bn Pearl Qatar development. The firstinvestors are expected to move into completed resi-dences in December 2008, while the entire develop-ment is expected to be completed in 2011.RESIDENTIAL: The Qatar Statistics Authority’s popu-lation estimate of 1.45m has posted rapid compoundgrowth of 10.8% since 2000. Growth in professional serv-ices and hydrocarbons has attracted a class of wealthyexpatriates able to pay rents higher than those foundin other Gulf Cooperation Council states. The housingshortage in Qatar has been exacerbated due to the dem-olition of old buildings in the centre of Doha and aroundthe main arterial roads such as the A, B and C ring

roads. Demolition of buildings was mainly to widenexisting roads and for the beautification of differentareas of Doha. This has inevitably led to a shortage ofunits in the market, as the level of construction has notbeen able to keep up with the pace of demand.

From mid-2007 to 2008 rents have increased over50% in some areas of Doha – especially in newly com-pleted buildings, with a few areas commanding morethan $2000 per month for a one-bedroom and over$4000 for a two-bedroom apartment. Given the highlevels of activity in the resale market, original proper-ty prices have appreciated by as much as 100% in manycases, with current sale prices at $2400-4500 per sqmetre for apartments and $4500-$6500 per sq metrefor villas. New supply is expected to meet demand, witha potential correction forecast for 2011-12.

In its ongoing battle against rapid inflation, the gov-ernment has imposed a two-year freeze on propertyrents, effective from February 15, 2008. This applies toall rental contracts signed since January 1, 2005 orafter February 15, 2008. The law also lays down guide-lines on how much a landlord can increase the rent afterthe expiry of the ban (February 14, 2010). It replacesa 10% increase limit set in a previous law issued in 2006,which expired on February 16, 2008. According to fig-ures released by the General Secretariat for Develop-ment Planning, consumer prices rose by 13.7% year-on-year in the third quarter of 2007. Average inflationbetween 2000 and 2004 was only 2.4%, although itpicked up in 2005 to 8.8%, and further in 2006 to 11.8%.Sharply rising household costs, in the wake of a rapidinflux of foreign workers, lay behind the jump in theconsumer price index, with the rent, fuel and energycategory increasing by 28.8% year-on-year in the thirdquarter (after a record 33% rise in the first quarter).

Demand for housing units increased by a CAGR of8% between 2000 and 2006, while supply grew by aCAGR of 5% during the same period. Annual demandis estimated at 10,000 homes, while only around 5500units per annum have been released into the marketduring 2000-06. Construction remains geared towardsthe luxury market, while the majority of the expatriatedemand is for middle-class housing. Demand in thehigh-end market is also picking up, driven by the Qatarielite, expatriates and foreign buyers from the Gulf look-ing for a permanent or second home.

Appreciating land values coupled with rising con-struction costs are pushing up the prices of propertiesin Qatar. However, the rental market has still been ableto sustain gross yields of 10%, in some instances up to12%. Land prices in areas such as West Bay are now ashigh as $7500 per sq metre.

The demolition of degraded housing units has actu-ally decreased the stock in the medium term, whilenew buildings get approval and are constructed. Therehave also been problems with bottlenecks in projectcompletion. With the tremendous pressure on the sup-ply of construction materials, developers have tried toimport from outside of Qatar, only to find that the coun-try’s capacity to take in imports is limited. Ports and roadsare at critical mass, while border posts are understaffed.

36



Qatar: tourism and hospitality indicators, 2006-11


2006 751,223 7.2 2 1,502,446

2007 805,376 7.2 2 1,610,751

2008 863,432 7.2 2 1,726,865

2009 925,674 7.2 2 1,851,348

2010 992,403 7.2 2 1,984,805

2011 1,107,637 11.6 2 2,215,274

QATAR

COMMERCIAL: Economic growth in Qatar has result-ed in expansion of the employment base, with rates ofgrowth exceptional even by Gulf standards. With an eco-nomically active workforce of 831,886 in 2007, nearly60% of the population is employed in some form of work.Market pressure is reflected in high rents for offices,especially in West Bay, where new office space is avail-able from $65-$85 per sq metre per month.

Office demand has dramatically outstripped supply.Current office stock is approximately 400,000 sq metresof GLA, with delivery of an additional 90,000 sq metresanticipated in Doha by the end of the year. Demand fornew offices space is estimated at over 90,000 sq metresper annum until 2012.

Vacancy rates for prime space are less than 1%, withoccupiers forced to settle for lower-grade space orbuild their own facilities. Delays experienced in theconstruction sector have delayed a potential marketcorrection, however, demand will continue to outstripsupply in the short term. The supply of grade A spacewill nearly treble, with the release of 550,000 sq metresfrom Fox Hills Lusail, 24,700 sq metres at The Gate,80,000 sq metres from the 80-storey commercial DubaiTowers, together with less high-profile developments.HOSPITALITY: From a current base of approximately965,000 visitors, Qatar hopes to attract 1.5m touristsby 2010. The government has earmarked tourism as akey area for development and has supported this bydedicating $18bn to the sector. The Qatar TourismAgency (QTA) hopes to increase leisure tourism, whichcurrently stands at 10% of all visitors.

QTA is also aggressively pushing to increase the aver-age visitor stay length from one and a half days to fourdays by 2010 and is currently concentrating on nichemarkets such as sports, education, medical, and meet-ings, incentives, conferences and exhibitions tourism.In the hospitality sector, QTA has increased the stockof hotel rooms by 50%, from 3700 in 2004 to nearly5500 by the end of 2007. The current stock of hotelrooms is expected to increase by a further 9500 by 2012;some of the new hotels planned in Doha include theHilton, Shangri-La, Four Seasons, Marriott, Rotana andGrand Hyatt brands. The national carrier, Qatar Air-ways, has seen a 35% increase in passengers, flyingover 8m passengers in 2007. Qatar Airways aims toreach a fleet size of 110 aircraft by 2018.

Despite efforts to increase leisure tourism, the mar-ket is likely to remain business orientated. Currently,tourism demand is hampered by high prices as a resultof capacity shortages and the willingness of corporateguests to pay higher prices. The demand that business-linked tourism created has helped the hotel sector inQatar to realise impressive growth over the past fouryears, outperforming almost all other markets in theregion. Including business visitors, total arrivals increasedby a CAGR of 10% from 2004 to 2007, reaching 965,000in 2007, against 730,000 arrivals in 2004.

Occupancy rates have been over 80% since 2004. Theyear 2007 has been an exception to this rule, since occu-pancies have slid to 70% from the highs of the AsianGames in 2006. The average room rate (ARR) has

increased by an impressive 27% annually, rising from$115 in 2004 to $233 in 2007. Revenue per availableroom (RevPAR) has increased by 18%, with CAGR from$98 to $161 in the same period. Though occupancy hasslipped slightly in 2007, ARRs have climbed by 8% from2006 to 2007. Analysis indicates that hotel rooms areexpected to reach 15,000 in 2012 at current estimates,and the market could still face an oversupply due to adecline in occupancy rates, ARR and RevPAR.RETAIL: Like Dubai, Qatar is also developing destina-tion shopping malls. The retail offering in Qatar isexpanding dramatically in terms of scale and the diver-sity of offering. The retail experience is increasinglybeing planned as more of a leisurely event than a shop-ping trip, as evidenced by the gondoliers at Doha’s Vil-lagio Mall. However, there are criticisms that shoppingcentres in Doha may be carrying this principle too far,with the smaller centres diversifying their offerings tothe extent that they attract patrons who may not actu-ally intend to shop. City Centre still sets the bar for size,with 116,000 sq metres of leasable area anchored byCarrefour. The limited availability of space in the retailsector has pushed rents up in shopping malls, withrents ranging from $500-900 per sq metre per annumin 2007. The rapid economic growth has resulted inincreasing rents across the sector. This trend is expect-ed to continue until new supply arrives in the form ofa 200,000-sq-metre retail space on Pearl Qatar in 2009.

37



Qatar: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 838,000 9,169 18.5 11.83

2007 930,000 11,753 28.2 13.76

2008 1,032,000 15,674 33.4 11.96

2009 1,146,000 20,766 32.5 9.96

2010 1,272,000 27,086 30.4 7.96

2011 1,412,000 34,831 28.6 5.96

SAUDI ARABIA

With GDP growth expected to reach over 5% in 2008and a recorded increase in population of about 2.5%in 2007, the economy of the Kingdom is presentlyin the midst of a persistent growth phase. Such astrong expectation can clearly be achieved with theacceleration of foreign investment growth through-out the Kingdom.OIL: Being a member of the World Trade Organisa-tion since late 2005, as well as being the prime oilexporter worldwide, Saudi Arabia has continued tosurpass expectations, with a potential of increasingtotal oil capacity to well over 10%. The country cur-rently holds about 25% of the world’s confirmed oilreserves. In spite of the huge revenues generatedby oil, the government has embarked on a policy ofeconomic liberalisation and diversification. Havingwitnessed one boom-and-bust cycle in the 1970sand 1980s, Saudi Arabia is now paying considerableattention to the task of sheltering the economyfrom fluctuations in the price of oil.REAL ESTATE: According to a report by the Coun-cil of Saudi Chambers of Commerce, the real estateindustry will achieve 6.7% growth over the nextfive years, owing to commercial and residentialprojects, in addition to demand for land and hous-es. Overall, real estate investments more than dou-bled by the end of 2007 to reach about $26bn fol-lowing increasing prices and demand, according toa report by Kuwait-based Global Investment House.

Demand drivers for real estate include high lev-els of liquidity stemming from generous oil revenues,a continued preference for investing in the localmarket, low interest rates and an increase in bankcredit. Real estate demand is based primarily onpopulation growth and economic diversificationassociated with such large-scale projects as the KingAbdullah Economic City (KAEC), which is proving tobe a sustainable model.

KAEC is the first of six planned economic cities tobe developed on the coast and in Medina, Tabuk,Rabigh, Hail and Jizan. Each establishment will havea distinct identity and will contain a combination ofcommercial, residential and industrial businesses,which together are expected to contribute morethan $140bn of the nation’s GDP.

Research in 2008 by the Saudi British Bank showsthat real estate remained the preferred investmentwithin the Kingdom, with 50% of locals preferringto invest in real estate at the beginning of 2008, com-pared to 41% who expected to invest in equities. Arelated survey of developers and agents showedthat 90% expected significant growth in the realestate sector over the next two years.

Major contractors working in Saudi Arabia include:ABB Lummus Global, AMEC, Aker Kvaerner ASA, ACC,Astaidi, Bauer, Bechtel, BOUYGUES, Chiyoda, Con-solidated Contractors, Enelpower, GAMA, Grupo ACSand Impregilo. The largest real estate developers in


38

Saudi ArabiaLooking beyond oil, the economy offers more stable investments


Saudi Arabia: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 23,697,000 2.50 349,138 22,290 5.69 6,384,000 9.1

2007 24,289,000 2.50 376,029 23,243 5.63 6,563,000 9.0

2008 24,897,000 2.50 464,441 24,240 5.57 6,740,000 8.8

2009 25,519,000 2.50 506,017 25,428 5.52 6,922,000 8.5

2010 26,157,000 2.50 551,172 26,707 5.46 7,109,000 8.2

2011 26,811,000 2.50 599,556 28,099 5.41 7,301,000 8.7

SAUDI ARABIA

the local area are Dar Al Arkan, Al Saedan, OlayanGroup, Arriyadh Development and Tamniyat Group.RESIDENTIAL: With a recorded population of 24.3min 2007, along with an average annual growth rateof 2.5%, the population is projected to double by theyear 2050 due to the continuous arrival of newcom-ers. The majority come from South-east Asia. In addi-tion to this influx of new residents, about three-fourths of the nation are under 30 years old. As aresult, the residential market remains undersup-plied and there is significant room for future growth.

According to the Saudi American Bank (Samba),a total of around 2.62m housing units need to bebuilt between now and 2020 to meet demand. Unitsshould be released at an average rate of 163,750per year. In terms of value, the housing sector makesup 75% of all real estate activity in the country,according to Samba, adding that some $20bn peryear will be required to meet the annual housingdemand up to 2020. The capital, Riyadh, alone facesan estimated shortage of 225,000 residential units,and the overall shortage figure for the country couldbe as high as 1m.

Growth in the residential sector of up to 7% isexpected under the first phase of the government’seighth five-year development plan. The seventhdevelopment plan was completed in 2004 and result-ed in an 8% increase in residential units construct-ed, with a total of 250,000 units having been addedto the market. About 6.4% out of the 8% mentionedwere self-financed.

The eighth development plan envisages construc-tion of 1m housing units over a span of five years,allowing an increase of more than 300% in housingunits built in comparison to the 2000-04 period.According to the housing demand allocation of theeighth development plan, forecasts project thatRiyadh and Mecca alone will be home to almost 50%of the total units expected to be built, with up to10% of new construction consisting of commercialunits of the cumulative units built.

Average housing prices are increasing by 20% perannum. Rents in Riyadh have increased by at least25% over the past year. In some districts of the cap-ital, residential price increases of 50% and morehave been recorded in the year up to mid-2008, withsales prices in Riyadh now averaging SR2000- 2500($544-680) per sq metre. Reports have surfaced inJeddah that some real estate owners are increasingrents by 10-50%, while reports of 30% increases onlease renewals have become common.

However, with the exception of the two holy cities,prices in Saudi Arabia are still relatively low comparedto other countries in the Gulf region. A three-bed-room flat in central Dubai would cost anywhere from$27,000 to $50,000 per annum; in Saudi Arabia theprice would be around $13,000. The July 2008approval of the mortgage law by the Shura Councilis being regarded as an important step forward. TheMinistry of Economy and Planning estimates thathome ownership dropped in the period 2000-05

from 65% to 55%, due to a lack of real estate financ-ing opportunities and the rather small amount ofloans given by the state-owned Real Estate Devel-opment Fund. With a figure of 24% home ownershipin Saudi Arabia, compared to 95% in Dubai, the newlaw is expected to prompt one of the largest hous-ing booms in the Gulf Cooperation Council (GCC). COMMERCIAL: Demand for office space, especial-ly that for grade A offices, is heating up due to thenumber of newly established companies and thecontinuing expansion of existing ones. This is expect-ed to continue as the Saudi economy opens up andnew investment laws lure in a greater number of for-eign investments.

Currently, the lack of office space in prime loca-tions, such as Riyadh and Jeddah, has caused a hikein rent prices. Office space prices in prime locationssuch as King Fahd Road, the main artery in Riyadh,have increased from about $180-$215 per sq metreto $350 in just the past year.

However, supply and demand for office space isexpected to balance out with the planned arrival ofa host of projects in Jeddah and Riyadh over the nextfour years. For example, among a host of other proj-ects, there is the Headquarters Business Park $213m,a 52-storey business tower to be constructed in Jed-dah, which will offer about 280 units of office space.In addition, Saudi Arabia’s Prince Khalid bin Al Waleedbin Talal Al Saud and the UAE-based real estate

39



Saudi Arabia: tourism and hospitality indicators, 2006-11


2006 4,042,000 7.5 2.0 8,084,000

2007 4,264,645 5.5 2.0 8,529,290

2008 4,431,964 3.9 2.0 8,863,927

2009 4,675,613 5.5 2.0 9,351,225

2010 4,830,346 3.3 2.0 9,660,692

2011 5,078,999 5.1 2.0 10,157,997

SAUDI ARABIA

developer KM Properties have forged a joint ven-ture, which is known as KMPK Properties. The aimof this venture is to create approximately 16,000 newhousing units within the next five years.HOSPITALITY: Increasing visitor arrivals each yearhave always been a challenge for the governmentbecause of its interest in maintaining the Kingdom’sunique cultural and social integrity. An increase innon-religious tourism has the potential to compro-mise the religious views of the Kingdom. To tacklethis, the Kingdom established the Supreme Commis-sion for Tourism, which is solely responsible for giv-ing all aspects of tourism relatively equal attention.

Tourism and hospitality attractions that have beenidentified include diving at the Red Sea, and leisuretourism in cooler climates close to the border withYemen. The tourism commission proposed a devel-opment project in the desert, with about a dozentourist sites situated in mountainous locations.Recently, tourism development plans in Jeddah havebeen approved by Prince Khalid Al Faisal.

New initiatives under the Jeddah Tourism Devel-opment Plan include the establishment of a large-scale tourism project in Jeddah, the expansion ofregional festivals and the listing of the historic cityas an international heritage site.

Due to the shortage in the supply of rooms inRiyadh, room prices are at peak rates throughout the

year. On the other hand, room rates in Jeddah tendto average about 60% of Riyadh prices, making therate of a single room at a five-star hotel about $160.Similar room rates to those in Jeddah are found inMecca, Medina and Khobar.

International hotel chains, such as Le MéridienHotels and the Kempinski Group, plan to add to thesupply in the Kingdom. Currently, the majority of rev-enues generated in Saudi Arabia within the hospital-ity sector come from business and local tourists, dueto the difficulty that women have in entering the King-dom. Umrah Plus services have been introduced to helpincrease the average length of stay of visitors who arearriving for their yearly pilgrimage to Mecca by includ-ing leisure tourism as a purpose for those who are onlyvisiting for worship. The programme gives visitors anopportunity to tour around other cities in the King-dom. With these visions successfully being imple-mented, the tourism sector is expected to reach atotal value of over $25bn in the next decade. Deloitte’sHotelBenchmark Survey reports that occupancy inRiyadh in 2007 was 72.7%, compared to 65.1% in Lux-or and 76.8% in Muscat. Average room rates were$183, a 29.8% change from the previous year, with arevenue per available room of $133, which representsa 34.9% change from 2006.RETAIL: As the largest retail market in the GCCregion, Saudi Arabia has welcomed foreign invest-ment from overseas. Over the next six years, avail-able retail space will nearly double, and much of itwill move out of Riyadh and Jeddah, and into small-er cities and outlying regions. By 2010 Saudi Arabiawill supply close to 40% of total gross leasable area(GLA) in the GCC.

The Fawaz Alhokair Group controls one of thelargest mall networks in the country. The group nowhas about 50 international brands in its portfolioincluding Zara, Massimo Dutti, Promod, Adams, Aldoand Monsoon. Fawaz Alhokair Group malls have acombined GLA of over 700,000 sq metres – about30% of the total mall GLA in Saudi Arabia – with plansto open 12 more malls by 2013.

French supermarket chain Carrefour has said it willopen four new outlets in Saudi Arabia before 2009.The hypermarkets will be located in Jeddah, Taif,Riyadh and Medina, while Saudi Carrefour, a joint ven-ture between the Olayan Group and the MAF Group,is aiming to establish an additional 20 stores acrossthe Kingdom by 2015.

French retail chain Géant plans to double its exist-ing representation in Saudi Arabia by opening fivenew stores in 2008, with new outlets planned forRiyadh, which already has two, and Mecca. Further-more, Saudi Arabia-based Al Sadhan Trading Com-pany has said that it plans to open 20 hypermarketsin the Kingdom within the next three years. Mean-while Savola Group, which manages 14 shoppingmalls in Saudi Arabia, has signed a memorandum ofunderstanding for the first phase of a retail devel-opment at Medina’s Knowledge Economic City, cov-ering over 100,000 sq metres in a deal worth $133m.

40



Saudi Arabia: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 23,697,000 98,694 21.0 2.31

2007 24,289,000 109,840 11.3 4.11

2008 24,897,000 124,248 13.1 6.20

2009 25,519,000 143,055 15.1 5.60

2010 26,157,000 161,913 13.2 5.00

2011 26,811,000 184,276 13.8 4.50

41

Middle East JordanLebanonSyriaTurkeyYemen

JORDAN

Jordan’s economy experienced high growth rates in2005 and 2006 – 7.3% and 6.3% respectively, withgrowth slowing only slightly in the last two years –5.7% in 2007 and an estimated 4.8% in 2008. Thegrowth has been the result of excess liquidity in theregion due to high oil prices and the return of Arabfunds back into the Middle East following the Sep-tember 11, 2001 terrorist attacks on New York. Polit-ical unrest in the region has led to many wealthy Iraqiand Lebanese expats relocating to Jordan, which isalso being used as a gateway to Iraq by foreign firms,UN agencies and non-governmental organisations.

A number of governmental measures, like theInvestment Promotion Law, which grants tax exemp-tions and allows repatriation of capital and profits,are helping to create an investment friendly environ-ment. There are few restrictions on foreigners own-ing property or investing in Jordan; any foreigner canpurchase a house or land in Jordan, provided they waitfive years before selling. Permission to buy general-ly does not take more than 10 days to obtain.

Jordan is seeking further ways to stimulate andencourage investment and development in the coun-try. The king has called for the implementation of acomplete land-usage plan for the entire kingdom,which will make it clear to investors where opportu-nities exist; it has designated areas for agricultural,tourism, industrial, housing and urban development.

All these factors have resulted in a buoyant realestate sector. During the first quarter of 2007, theconstruction sector’s contribution to GDP increasedto JD74.8m ($106.2m) compared with JD69m ($98m)recorded for the same quarter in 2006. According tothe Department of Land and Surveys, the total val-ue of real estate transactions in the first six monthsof 2007 was JD2.96bn ($4.2bn), representing a 23%rise when compared to the same period in 2006.

Recent investments in the country are estimatedto exceed $13bn, while planned investments overthe next five years are reported to be around $15bn.A number of mixed-use residential and tourism proj-ects are under development in Amman, Aqaba andthe Dead Sea. Tala Bay, Ayla Oasis, Royal Village andJordan Gate are major upcoming projects in the king-dom. Aqaba has seen dramatic growth and is an areamarked for particular investment, especially in theresidential and hospitality sectors. The town has seenthe development of a series of coastal resorts, witha mix of residential, hotel and high-end leisure devel-opments, including the $6bn project Saraya Aqaba.

However, the market has been showing signs of acorrection since the beginning of 2008, with land andproperty prices stabilising and, in some areas suchas the airport corridor, prices have even declinedslightly. The correction has been anticipated eversince the beginning of 2007, as the increased prices


42

JordanGreat potential for further development remains in certain areas


Jordan: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 5,599,000 2.30 14,101 4606 5.21 1,512,000 13.2

2007 5,728,000 2.30 16,011 4886 5.12 1,563,000 13.5

2008 5,859,000 2.29 18,508 5140 5.01 1,615,000 13.0

2009 5,994,000 2.30 20,855 5413 4.90 1,667,000 12.9

2010 6,132,000 2.30 23,062 5712 4.78 1,719,000 12.0

2011 6,273,000 2.30 25,354 6044 4.68 1,771,000 11.0

JORDAN

were not believed to be sustainable. Additionally, theban on Iraqis from owing properties in the countryhas negatively impacted demand.

However, real estate experts expect that the mar-ket has strong fundamentals and so demand andprices will start picking up towards the end of 2008.Expectations for the long term are positive.RESIDENTIAL: The residential market in Jordan isundersupplied and is saturated with middle-incomehousing units, which are delivered rapidly, creating asurplus market. Thus, demand is greatest at the high-est and lowest deciles of the housing market.

A number of factors are largely responsible for thehigh demand for housing. The population is current-ly growing at a rate of 2.3% and is expected to dou-ble in the next 25 years. Jordanians are also veryyoung, with a median age of just 24 years and 32%are under the age of 15 years. Changes to the land-lord and tenant laws have led to the expectation ofhigher rents, as people fearing significant rentalincreases have been opting to buy. Attractive mort-gage packages with low interest rates (12.7% in 1999,falling to 8-9% in 2007) and longer payment sched-ules have also boosted the sector.

Selling prices for a high-end villa in Abdoun rangebetween JD1700 ($2400) and JD2000 ($2800) persq metre, while annual rentals range between JD80($110) and JD100 ($140) per sq metre. Rental yieldsare estimated to range between 7.5% and 9.5%, whileupscale, well-serviced properties command yields ofas much as 12%. Occupancy rates for residential prop-erty range from 70-90%, with areas like Abdoun andJabal Amman enjoying occupancy rates in excess of90%. Apartment rentals in Jebel Amman rose by over150% between 2004 and 2006, while villa rentals aswell as sale prices rose by over 90% in Dabuq. Rentshave risen by a compounded annual growth rate(CAGR) of 65% between 2004 and 2007, but havestarted stabilising towards the end of 2007.

Annual demand for residential units in Ammanvaries from 20,000 to 30,000 units; whereas between19,000 and 24,000 units are believed to be construct-ed every year. Up to 10% of this demand is derivedfrom the high-end sector, which sees only half thedemand being fulfilled with new supply every year.Upcoming projects are expected to contribute to ahigh-end supply in excess of 2000 units between2008 and 2013. Though demand for these units willincrease, returns are expected to be higher for mid-dle- and low-income housing as developers ignorethis sector, with Beitna City and Al Jiza being the onlytwo significant developments targeting the group.COMMERCIAL: Jordan’s favourable legal environ-ment, with numerous free trade agreements, freezones and incentives for foreign investors, as well asthe stability of the economy, has resulted in a dra-matic increase in the number of new companiesbeing registered. However, until very recently, therewas little grade A office space available in Amman.

Office supply was instead concentrated in three-and four-storey buildings, which offered small office

space lacking in market appeal. Unsurprisingly, manytenants opted instead to convert space in villas orapartments. A high proportion of current demand isdriven by companies and non-governmental organ-isations operating in Iraq.

With demand increasing and a limited supply, therental costs for office space have increased, on aver-age, by an estimated 30-50% since 2003. Among thenewer and higher quality grade A on Mecca Street,rents have increased by as much as 56% between 2006and 2007. Commercial yields in Amman are estimat-ed to range between 9% and 11%.

The undersupplied position is expected to changein the next few years, once the Abdali project reach-es completion. The Abdali project alone will cater tomore than half of the market demand. Other upcom-ing commercial projects are the Jordan Gate, theGrand Amman Financial Complex and the Mihrathproject by the Kurdi Group.

The price increases since 2003 are not sustain-able and further hikes should not be expected, as themassive pipeline supply and a downturn in the eco-nomic cycle could serve to dampen price growth.However, in the short term, further increases are like-ly, with Mecca Street reaching a potential of JD160($230) per sq metre in the next six months. OBGModelling suggests that grade A supply is expectedto grow by over 250% between 2008 and 2013, which

43



Jordan: tourism and hospitality indicators, 2006-11


2006 895,724 -6.7 3 2,687,173

2007 1,002,541 11.9 3 3,007,624

2008 1,069,299 6.7 3 3,207,896

2009 1,149,741 7.5 3 3,449,223

2010 1,232,295 7.2 3 3,696,886

2011 1,320,389 7.1 3 3,961,168

JORDAN

is expected to dampen rents as the market movestowards a huge oversupply situation.HOSPITALITY: Jordan has continued to see a healthyflow of foreign visitors entering the country, with thenumber of foreign arrivals increasing by 8% in 2006to reach 3.2m. According to information provided bythe Jordan Tourism Board, the number of touristarrivals in Jordan is expected to grow at an annualrate of 7% by 2010. Amman is the top destination forforeign visitors to Jordan and accounts for approxi-mately 67% of the hotels in Jordan.

Amman has a total of over 5000 four- and five-starrooms enjoying an average occupancy of 62%. Fur-ther expansion within the sector is expected andOBG forecasts capacity to exceed 7000 rooms by2013 with hotels such as Hilton, Rotana and W com-ing into the market. Approximately 2000 rooms areexpected to enter the high-end segment between2008 and 2013, resulting in a decline in the averageoccupancy rate to just over 50% by 2013.

Other locations are also gaining prominence. Aqa-ba has been experiencing renewed interest fromtourists, while a number of international developersare working towards building room infrastructure toaccommodate the increased demand. Occupancyrate in Aqaba are higher than in Amman, although alarge number of developments coming online overthe next few years may change the situation. SASRadisson, Hilton International, Iberotel, Ayla Hotels,

Aqaba Saraya Hotels, Kempinski Hotel and Holiday Innare some of the upcoming hotels.

The Dead Sea is becoming a popular stop on upmar-ket group tours of Jordan, though average stay lengthsare typically short. The market is concentrated on theluxury hotel and spa experience. But forthcomingsupply (Sun Days, Holiday Inn, Sanabel, Crowne Plaza,Belavista and Crystal Citi) will make the hospitalitymarket in the Dead Sea highly competitive.

Together, these new projects are expected to comeclose to saturation of the hospitality market in Amman,Aqaba and the Dead Sea. Nevertheless, it is worthnoting that the north of the country still remainslargely underdeveloped in terms of sizeable projects,which are limited to Qatar’s “The Wall”, which is atourist resort in Ajloun. Opportunities still exist inthe north of the country; places such as Ajloun, Jerash,Irbid, Karak and Umm Qais are virtually untouched.They require hotels and the government has offeredadditional incentives to investors in these areas.RETAIL: Traditionally, the downtown area has beenAmman’s principal shopping destination. Neverthe-less, the high-end retail market has followed the res-idential development of the city westwards and anumber of malls have been built to cater to the needsof the western suburbs.

Climate-controlled malls have sought to appeal towealthy Jordanians who have traditionally travelledabroad for their shopping experiences. The first mallthat opened its doors in 1999 was the relatively smallAmman Mall, with approximately 75 shops. TheAbdoun Mall, which opened in 2001, is part of Jor-dan’s Kurdi Group, which in 2003 opened Amman’sfirst grand mall, the 65,000-sq-metre Mecca Mall.

The development was a huge success and was lat-er extended to 195,000 sq metres, allowing the shop-ping mall to accommodate a series of leading inter-national brands, as well as a food court and ago-karting track on the top floor. Other local shop-ping malls include the Zara Centre, Abdoun Mall,Amman Mall and Istiklal Mall.

While Amman’s shoppers have embraced mall andsupermarket shopping, high footfalls do not neces-sarily translate into high per-capita spending. Therising cost of living is one of the major reasons forthe slowing in retail spending.

Annual rents in malls range between $500 and$1000, with the most expensive commercial spacesto be found in Abdoun Mall and the least expensivein Amman Mall. Rents have reportedly risen at a CAGRof 36% between 2004 and 2007.

There is a high volume of indoor shopping spaceunder development in Amman: Al Baraka Mall, Beit-na Mall, Taj Mall, Jordan Mall and the Abdali Boule-vard. These new projects are estimated to double thetotal volume of organised retail space from 600,000in 2008 to over 1.2m-sq-metres by 2013. Retail spaceper capita is modelled to reach 0.46 sq metres in2013, which is considered relatively high when com-pared to other regional markets, indicating thatthe market might be moving towards an oversupply.

44



Jordan: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%)

expenditure ($m)

2006 5,599,000 13,852 13.5 6.26

2007 5,728,000 15,514 12.0 5.39

2008 5,859,000 17,376 12.0 10.87

2009 5,994,000 19,461 12.0 6.51

2010 6,132,000 21,796 12.0 4.32

2011 6,273,000 24,412 12.0 3.72

LEBANON

The real estate sector in Lebanon is currently con-sidered more stable than it has been in recent years.It is accepted wisdom that cash has been flowing inthe country since the early 1990s as a result of inter-est from buyers from Gulf Cooperation Council (GCC)countries. Lebanon’s population this year is estimat-ed to be around 3.7m, with around 40-45% of thepopulation living in the capital, Beirut. An increaseof over 8% in GDP and 6% in inward remittances wasrecorded in 2007. Up until the time of writing, infla-tion has risen to at least 7% during 2008.

Political stability has been extremely fragile overthe years, leading to a number of events that havetraumatised the nation. Nevertheless, developmentsin the capital and neighbouring districts have notslowed down. Despite all the recent political sensi-tivities, construction activity does not appear to havebeen affected in the capital.

Lebanon has six governorates: Beirut, Beqaa,Nabatiyeh, North, South and Mount Lebanon. Themost popular destinations for the majority of for-eigners are Beirut and Beqaa.

Interest rates on deposits have generally beenstable following the substantial increase that tookplace in early 2005. Foreign trade exports haveremained relatively stable over the past four years.Imports dropped off significantly in July 2006, butother than that decline, imports of goods haveincreased by 50% in 2008 compared to four years ago.

KEY DEVELOPERS: A substantial number of localdevelopers have been taking part in projects in theresidential and commercial sectors recently, includ-ing Solidere, Jacques Matta, Mouawad Projects, CAREGroup, SAYFCO, BREI, Horizon Development and VenInvest Holding. Foreign developers that have enteredthe market and established themselves in Lebanoninclude Abu Dhabi Investment House, Kingdom Hold-ing and Kempinski Hotels.

Most of the projects are financed heavily by com-panies and investors that originate in the GCC andthe tremendous amount of investments made in thecentral district has facilitated the successful com-pletion of the majority of projects. DAMAC has pur-chased a total area of 500,000 sq metres and hasfuture plans to transform it into residential units,shopping malls and hotels.

Local developers have also been introducing ahigher standard of commercial and residential space.This trend is being pioneered by local developer,Jamil Ibrahim, who has been developing several ofthe most luxurious residential buildings in the cen-tre and outskirts of Beirut, including the Dream Bayand Sky Homes developments.RESIDENTIAL: The Lebanese real estate sector is oneof contrasts: from the brilliant success story of thedevelopment of the downtown area, to continuingtroubles over redevelopment of wartime damageelsewhere; from rocketing land and property prices

45


LebanonThings have turned around for the real estate sector


Lebanon: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 3,703,000 1.31 22,759 10,692 4.19 2,443,980 1.4

2007 3,751,000 1.30 24,640 11,270 4.14 2,475,660 1.4

2008 3,799,000 1.28 26,775 11,690 4.09 2,507,340 1.4

2009 3,849,000 1.32 29,103 12,277 4.04 2,540,340 1.4

2010 3,899,000 1.30 31,745 12,961 3.98 2,573,340 1.4

2011 3,950,000 1.31 34,365 13,719 3.93 2,607,000 1.4

LEBANON

in the capital, to a flat-at-best housing market in oth-er towns and cities. In rural areas too, the contrastscan be stark: between investment in high-end moun-tain villas and resorts, to underinvestment in theisolated villages of the north and south.

With an average annual population increase ofalmost 2%, a decrease in average household sizefrom 4.2 to 4.1 in 2007 and an estimated supply ofover 160,000 residential units in the city alone, itappears that the number of single people rentingout studios and one-bedroom apartments is increas-ing, and that the tradition of living with the familyuntil marriage is slowly becoming less popular.

Occupancy of studios and one-bedroom apart-ments around university campuses is over 95%throughout most of the year — a popular alterna-tive for students to residing outside Beirut and hav-ing to commute every day to university.

The increase in the price of steel and several oth-er materials has affected construction costs world-wide. Rental and buying prices throughout Lebanonhave been affected significantly over the past eightmonths, increasing by over 25%.

Prices in prime locations in Beirut start at around$1300 per sq metre and can reach as much as $3500per sq metre, which is making it harder for residentsto buy homes. However, villas and apartments inprime locations are mostly second homes for peo-

ple from the Gulf. Citizens in the capital prefer to renthomes rather than own them.

On the other hand, in the east and north ofLebanon ownership of traditional houses is very pop-ular. Not only do prices tend to fall outside Beirut,but also many families have owned the houses theydo today for more than 30 years. There are also sev-eral prime locations around Beirut that are highlypopulated with luxurious villas and apartments,including Al Rabieh, Achrafieh and Adma.COMMERCIAL: The lack of high-end office space inLebanon has been building up over recent years andmany potential tenants have been left in great needof new premises. Many international firms expect toset up branches in Beirut in what they consider tobe quality premises in 2008. The shortage of quali-ty in office buildings has been the main reason thatrents for commercial spaces rose by 20% in 2007.Buying prices now could reach as much as $5000per sq metre in central Beirut. Renting out a 30- to50-metre office could cost anything from $500 permonth to around $900, depending mainly on thelocation. Office supply in 2007 in Lebanon was esti-mated to be approximately 320,000.

International standard space remains concentrat-ed in the central business district, although risingcosts and the rehabilitation of buildings in centralareas is now forcing some occupiers from centralBeirut to move to outlying areas. Construction forretail, residential and commercial purposes has beenmoving towards the centre of Beirut because of itsprime location. This has forced several firms leasingspace to relocate mainly to the south and north ofBeirut. These businesses are now outside the city cen-tre, although they are still close enough for theirclients to reach them. Rental prices on the city’soutskirts could be as low as 60% in comparison tothose in the centre of the capital, which could affectthe profits of small businesses in the long run.

This relocation has not been a serious problem forbanks and larger tenants, which still occupy vastoffice spaces and entire floors in many downtownareas. Nevertheless, a few areas have shown greatpromise and high demand, such as Verdun andAshrafieh, where high-end office space is available.Prices have doubled in these areas on account oftheir strategic locations. They have a huge poten-tial of becoming the most sought-after spots in thecapital after the central district.

Another widely popular way of setting up an officein Beirut is renting out apartments and fitting themwith office facilities, which saves money for tenants,since prices for office space are noticeably higher.Getting a license and setting up a real estate officeor workstation in one’s own home is also popular inthe more mountainous areas around Beirut.HOSPITALITY: Before 1975, at the zenith of theindustry’s success, tourism contributed around 20%of GDP, peaking in 1974 with 1.4m arrivals. Lebanonwas a Mediterranean playground for rich WesternEuropeans who jetted in for beaches, yachts, world-

46



Lebanon: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 3,703,000 19,190 3.2 5.57

2007 3,751,000 20,048 4.5 4.06

2008 3,799,000 20,650 3.0 5.50

2009 3,849,000 21,382 3.5 5.29

2010 3,899,000 22,167 3.7 4.87

2011 3,950,000 22,922 3.4 3.76

LEBANON

class historical sites and a seductive mingling of Eastand West. The war halted this trade and reduced boththe industry and the country to rubble.

But since the war ended in 1990, the industry hassteadily rebuilt itself. After the recent presidentialelections, the potential of the hospitality sector haslooked promising. With the economy regaining itsstrength from the tourism sector, it is estimated tosoon account for over 10% of the total GDP.

The hospitality sector was affected greatly in theJuly 2006 war when thousands of tourists fled backto their countries and thousands of other reserva-tions were cancelled. Tourism was still down by theend of 2006 because visitors were advised not to trav-el to Lebanon and they remained uncertain aboutthe future stability of the country.

With the election of President Michel Suleiman,the situation in Lebanon has become far more sta-ble and tourists are feeling far more secure. Withoccupancy rates in 2007 still low, hotels could justcover their costs, but did not expect profits.

However, visitor arrivals have picked up signifi-cantly in 2008 and with tourism this year consideredstable, total arrivals are projected to reach 1.5m. TheMinistry of Tourism has pointed out that tourismhas gone up by approximately 75% with an evalua-tion of year-to-date comparison. The tourist visitorcount has been increasing since the beginning of theyear, with more than 30% of the arrivals coming fromneighbouring Arab countries and most of the restcoming from Asia and Europe.

Hotels are currently working to regain the occu-pancy levels they once had. They have been reduc-ing prices and offering room rates at about 80% ofthe price of the Middle Eastern average, a 30% year-on-year decrease on Lebanese room rates.

In the mountains, hotels tend to combine withresorts. Most are not considered five-star hotels,but they fill the gap and meet visitor expectations.

There are tourist sites that receive thousands ofvisitors yearly, including the famous six-column tem-ple ruins that were constructed from the Romanperiod, Jupiter Temple, The Great Court and JeitaGrotto. These are just some of the attractions thathave given Lebanon a unique reputation as a placewhere people of all ages and interests can enjoy his-torical sites or leisure tourism.RETAIL: The gross leasable area for retail in Lebanonis estimated to be in excess of 340,000 sq metres.The retail industry in Beirut has always been recog-nised in Lebanon for the sophisticated internation-al brands it is able to offer customers. The residentsof Beirut have always been very fashion-consciousand the latest trends are closely watched by youngLebanese in most urban centres, which makes it easyfor international brands to enter the market andestablish themselves in retail outlets.

Research shows that incoming tourists often seta separate budget for buying clothes, with Beirut tra-ditionally one of the Middle East’s first destinationsfor high-end shopping. The fashion-conscious pop-

ulation welcomes international brands, many ofwhich use Lebanon as a springboard into the Gulf.

A number of popular malls in Beirut have estab-lished and developed a well recognised name forthemselves throughout the country, including theABC group, which has opened in Ashrafieh, Dbayeh,and Bab Idris in downtown Beirut. City Mall, anoth-er successful establishment, covering 70,000 sqmetres of land, is located in north-east Beirut. Thecontinuous success of ABC group has allowed it toopen yet another branch in Amman.

The retail sector was heavily affected by the July2006 war. A few recognised brands were forced outof the capital, which significantly lowered footfall in2006. This change shifted the spotlight to otherneighbouring areas. Despite the movement awayfrom the capital by retail outlets, rents in the cen-tral district are still higher than in most other areas.

One of the latest possible developments plannedfor completion in early 2009 is the Beirut Souks. Itis located in the central district, covering over100,000 sq metres of rental space. With the open-ing of Beirut Souks, the developers hope that thehigh-end souks will become a destination shoppingcentre, justifying its high rents. With the politicalsituation becoming more stable in 2008 andtourism taking off once again, it is expected thatthe market will return to its previous conditions.

47



Lebanon: tourism and hospitality indicators, 2006-11


2006 212,400 -6.8 2.5 531,000

2007 238,313 12.2 2.5 595,782

2008 267,387 12.2 2.5 668,467

2009 300,000 12.2 2.5 750,000

2010 336,600 12.2 2.5 841,500

2011 377,665 12.2 2.5 944,163

SYRIA

Economic growth in Syria has been consistent forthe past five years at an average rate of 5%. Nomi-nal GDP grew by 18% in 2005 to reach S£1.48bn($28m), the highest growth rate recorded by thecountry over the past few years. The IMF also pre-dicts a real GDP growth rate of 3.7% and 4.6% for2007 and 2008, well below the government’s ownprojections of more than 5%. Syria is not a major oilproducer in the region or on the world stage, butthe sector remains crucial to the economy, con-tributing 50-60% of total export earnings and up to25% of GDP. The economy is also heavily reliant onthe agricultural sector, which accounts for approx-imately 26% of GDP and employs around 18% of thelabour force. Industry and manufacturing accountfor 18% of GDP, with growth in the textiles sectorbeing the most significant, accounting for 35% ofthe total Syrian industrial sector. CHALLENGES: The country faces a number of fis-cal challenges, in addition to the problem of declin-ing oil revenues. A number of economic reformshave been introduced to counter these challenges.The recently approved five-year plan has reinforcedreform, stressing the importance of further trade lib-eralisation, engagement with the outside world, thefreer flow of goods and the need to attract foreigninvestment. Syria’s foreign direct investment as apercentage of gross fixed capital formation climbedto 10.6% in 2006 from just 3.6% in 2003. This reflects

the very serious attention that is being paid to Syr-ia by other Arab and foreign investors who are look-ing for new investment opportunities.

Through these reforms, the government aims toaccelerate growth to an annual rate of 7% by 2010,lower the unemployment rate to 8% by 2010 andreduce the number of people living in poverty. Manyreforms are aimed at improving financial interme-diation, enhancing the business environment in thenon-oil sector, unifying the exchange rate, andstrengthening the monetary policy framework as ameans to reinforce market mechanisms in the pric-ing of financial assets and ensure the most efficientallocation of private sector savings. As a result ofthese goals, more international companies are nowlooking to establish a presence in Syria. CONSTRUCTION: The government has traditionallydominated the country’s construction sector. Whileit still holds the lion’s share of development, it hasdecreased its control in the past few years and hasworked to encourage the development of private sec-tor investment. In 2005 the total amount of construc-tion area in Syria stood at 16.4m sq metres, whichrepresented a compound annual growth rate (CAGR)of 55% since 2002. Contractors regard 2006 and2007 as the beginning of a phase of real growth.These years were marked by the entry of a signifi-cant number of high-profile Gulf investors fundingmajor development projects around the country.


48

SyriaGradual and steady growth


Syria: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 18,941,000 3.19 34,919 1844 5.40 5,316,000 12.5

2007 19,405,000 2.45 37,760 1946 5.40 5,462,000 12.5

2008 19,880,000 2.45 41,923 2109 5.40 5,612,000 12.5

2009 20,368,000 2.45 43,369 2129 5.40 5,767,000 12.5

2010 20,867,000 2.45 45,033 2158 5.30 5,772,791 12.5

2011 21,378,000 2.45 46,676 2183 5.30 6,003,865 12.5

SYRIA

Opening up the private sector is part of an over-all government strategy to counteract the effect offalling oil revenues by encouraging investment inother sectors. Construction and real estate havebeen targeted as two essential areas that are ripefor development. Most such activity has so far beenconcentrated in Damascus, with increasing activitybeing seen in Aleppo and other secondary cities.

Planning has also taken a step forward, with region-al authorities working on the planning documenta-tion and strategy that are needed as developmentactivity across the country.RESIDENTIAL MARKET: Data from the Syrian Bureauof Statistics has shown that the number of residen-tial units has risen from around 400,000 in 1970 toover 2m in 2006 at a CAGR of 4.6%, while floor areain square metres has gone up from 35m in 1970 to212m in 2006, showing a CAGR of 5.1%.

Residential prices in the prime suburbs of Dam-ascus, such as Malki, Mezzeh and Kaffersusse, arebetween $3000 and $4000 per sq metre, while pricesin low- to middle-income areas tend to cost $1000per square metre and up. Rents per sq metre beginat $100 per sq metre per year and climb to close to$400 per sq metre in Abu Roumani.

The residential market reflects the recent changesto both the Syrian economy and demography. Res-idential supply has gone up from 2m sq metres in2001 to over 15m sq metres in 2007. Housing pricesin the capital, Damascus, rival those in Europeancapitals, while Aleppo too has been witnessing con-siderable increases in rental and sales rates. NewAleppo, Hamdanieh and Shahba have been witness-ing a construction surge with luxury villas and apart-ments in high demand.

Residential prices in secondary cities are report-ed to have risen by over 20% in the last two years,while rentals have increased by up by 40%. Averagerental yields sampled across Syrian cities are still rel-atively low, at 4-5%, a result of the propensity topurchase homes rather than rent.

The large youthful population is in need of low-to middle-income housing. The Iskan Al Askari Hous-ing Association announced an apartment develop-ment near Bab Jnien in Aleppo with a mere 186 units,but saw interest from over 16,000 individuals, illus-trating the shortage of lower income housing. It isreported that over 170,000 people are on the wait-ing lists of housing associations in Aleppo alone.OFFICE SECTOR: The structure of the Syrian econ-omy limits private sector participation, with a result-ing lack of prime office space across the country, evenin the capital city. Damascus Tower, situated next toMartyrs’ Square in the heart of the capital, is regard-ed as prime space. The 24-storey tower offers some550 offices and has an occupancy rate of over 90%,despite the fact that the building is hopelessly out-dated – offices measure a mere 35 to 40 sq metres,the building is in serious need of renovation, park-ing is inadequate and there is no provision of ameni-ties, such as wireless or broadband internet.

Many companies in Syria choose to rent residen-tial space and use it as an office. Major companieshave had difficulty in finding not only the right typeof office space, but also the right size. Shell wasoriginally housed in the Cham Palace Hotel for anumber of years until the government constructedoffice space for the company outside of Damascus.The Areeba mobile phone company sought to obtain20,000 sq metres for its business and has only man-aged to satisfy this partially by spreading itself acrosssome 20 different locations.

In Aleppo there is no current availability of gradeA office spaces although it is expected that the Tariqbin Ziyad area would accommodate office spaces inthis category. Due to a serious lack of office spaceswith good infrastructure facilities, many offices aremoving to residential areas. Grade B and C officespaces are available in Jameliah and Aziziah, both forrenting and buying. Also once the two Awqaf build-ings are complete there will be a flow of affordableoffice and retail spaces in the market. As estimatedby OBG, the current vacancy rates in existing build-ing in both Aziziah and Jameliah are 10%.RETAIL SECTOR: Syria is classified as a mid-incomecountry by the World Bank, with striking disparitiesbetween the various components of society. Thebottom 20% of Syrians account for only 7.24% of totalexpenditure, whereas the top 20% account for45.25%. Public sector salaries are low, although 2007

49



Syria: tourism and hospitality indicators, 2006-11


2006 1,110,054 10.0 1.8 1,998,097

2007 1,221,059 10.0 1.8 2,197,907

2008 1,343,165 10.0 1.8 2,417,698

2009 1,477,482 10.0 1.8 2,659,467

2010 1,625,230 10.0 1.8 2,925,414

2011 1,808,204 11.3 1.8 3,254,767

SYRIA

did see the minimum wage being raised from S£4800($100) to S£5880 ($123) per month. RETAIL: Retail in both Aleppo and Damascus was,and often still is, centred on its historical souks,street trading and local markets. Both cities do havea few boutiques, fashion outlets and higher-classretail in high-end residential areas like Mogambo inAleppo and Malki in Damascus, but these are morethe exception than the rule. Syria is still quite unde-veloped in Western retail terms when compared withits neighbours in Jordan, Lebanon and Turkey, despitethe current economic downturn in Lebanon follow-ing continuous political tension in Beirut.

There are no internationally operated retail cen-tres in Syria but the pipeline indicates a number ofGulf and Arab joint ventures with Syrian governmentbodies. Many of these investment projects are incor-porating a retail component.

Retail centres now open in Damascus are all under20,000 sq metres, with Town Centre’s 20,000-sq-metre extension the most sizeable project. The exten-sion opened in 2006 and the 9000-sq-metre City Cen-tre, the 3500-sq-metre Town Centre, the 10,000-sq-metre Shams Centre and the 6000-sq-metres atSkiland were released in 2007.

In the last few years, Damascus has seen a rapidgrowth of retail supply, with the addition of theShams Centre and Town Centre’s 20,000-sq-metre

extension building supplying a huge increase In Dam-ascus, between 400,000 and 440,000 sq metres ofleasable area will be delivered to the market by 2012,adding to the 41,500 sq metres that currently exist,and contributing to an increase in the city’s spaceper capita from 0.0009 sq metres to 0.09 sq metres.

Shopping City and Aziziyah Centre are the primaryshopping centres in Aleppo, while New Town andSafeway are its first hypermarkets. Apart from these,the city lacks formal retail space, with OBG estimat-ing supply to be less than 20,000 sq metres. A num-ber of malls are currently under development in thecity and if all these projects are completed, supplyof retail space will witness a tenfold increase to200,000 sq metres by 2012. Per-capita space in Alep-po is expected to rise from 0.005 sq metres to 0.033sq metres in 2010 and 0.039 sq metres in 2012.

The $50m Shahba Mall, Manar Mall, Town Mall,Mounchieh Mall, New Mall, High Education Mall,Martini Mall, Cairo Mall and Royal Mall are amongthe projects under construction.HOSPITALITY: With less than 40,000 beds nation-wide, many of poor quality, the hotel sector is sig-nificantly underdeveloped in Syria. Currently thecountry has 17 five-star hotels, 37 four-star and 54three-star. Only a few foreign brands operate in thecountry at present – Sheraton, Le Meridien, FourSeasons, Rotana and Sofitel. In addition, there is alocal Cham Palace chain of five-star hotels, whichincludes two hotels in Damascus, and a smaller Semi-ramis chain of four- and five-star properties.

More than half of Syria’s hospitality supply is locat-ed in Damascus, with four five-star and 11 four-starhotel establishments totaling just over 2500 rooms.With the influx of business and leisure tourists tothe country, supply is often limited during peak sea-sons. In view of further growth, investments in hotelsare flourishing with over four new high-end hotelsthat will be integrated into mixed-use developmentsbeing planned in Damascus.PAYING A PRICE: Hotel rates are comparatively steepfor the existing quality of facilities and services. Atpresent, the average standard rate for a five-starroom is $158 per day and $117 per day for a four-star room, a record 20% to 40% rise, respectively, over2006. However, average revenue per available roomacross the market was just $86, up 22% on 2006, Thehighest standard rate is posted by the Four SeasonsHotel in Damascus, which charges up to $255 perday, almost 50% to 65% above what other similarestablishments charge, suggesting that many visi-tors are happy to pay a premium for luxury.

The average hotel occupancy throughout the yearin Aleppo is 60%. Occupancy may however furtherdrop in the near future as a result of 500 new roomsbeing released over 2008, out of which the majorshare would be at the Rotana and Riga Palace.Further on there will be a steady increase in thenumber of available rooms until 2010, as there aremany new hotels, including both internationalchains and boutique hotels, which are in the pipeline.

50



Syria: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 18,941,000 20,395 7.5 10.58

2007 19,405,000 24,064 18.0 7.00

2008 19,880,000 27,784 15.5 7.00

2009 20,368,000 31,576 13.6 7.00

2010 20,867,000 36,533 15.7 6.00

2011 21,378,000 41,989 14.9 5.00

TURKEY

Although Turkey has come a long way in terms of itseconomic recovery and financial markets, its recentpolitical unrest is threatening economic stability aswell. Higher interest rate payments cost the treas-ury $16bn from March to July in 2008. But with theconstitutional court’s August 2008 decision not toban the ruling government party, the stock marketindex has responded favourably and risen by 2%,while economic forecasts have improved.

Since 2003 GDP has grown by an average of 6.9%annually, although growth slowed down consider-ably to 4.5% in 2007 and is expected to grow at thisrate through 2008 and 2009. Total foreign directinvestment (FDI) decreased sharply in the first quar-ter of 2008 to $4.37bn from $9.2m during the sameperiod in 2007. The total FDI in 2007 amounted to$22bn. The inflows are, however, expected to financethe relatively large current account deficit and enableTurkey to meet its external debt payments.

The progress of the country’s EU membership bidis slower than ever with the negative impact of thepolitical situation. The govenment are not expectedto be start following all of the EU conditions for atleast the next five years. Foreign investors are relievedby the fact that the IMF is examining the Turkish econ-omy and risk while it is in technical negotiations fora standby arrangement for a $10bn loan.

Construction and real estate are very importantcontributors to GDP, and also to export earnings,

with Turkish contractors realising development plan-ning from North Africa to Asia. Sluggish GDP growthand the subprime crisis have negatively affected thereal estate sector. The construction sector grew byan estimated 17% in 2007, slowing down from 20-21% in the previous two years. Real estate transac-tions reduced drastically in the first quarter of 2008.

The demographics of the country are favourableto the real estate sector, with more than 65% of thepopulation living in urban centres and with a rate ofurbanisation that stands at 2.7%. About 70% of thepopulation is under the age of 30, while the aver-age household size is declining. With 400,000 to500,000 marriages a year, there are many coupleslooking for new homes.

In February 2007 the government introduced a newmortgage law, but it has not yet had a sizeable impacton the market, with high interest rates persisting.Homebuyers have held back, waiting for interestrates to drop and for house prices to fall. Meanwhile,real estate companies continue to take measures toincrease sales, subsidising interest rates on housingloans to entice home-seekers into acquiring prop-erty at a time when interest rates would ordinarilybe considered too high. This is despite the low mar-gins earned from such sales.

But developers still believe that the real estate mar-ket will be one of the most successful industries inTurkey in a decade and development is continuing

51


TurkeyA growing economy and population offer great opportunities


Turkey: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 68,133,000 0.34 528,686 7760 4.30 24,399,000 10.2

2007 68,897,000 1.12 663,419 9629 4.30 23,530,000 10.2

2008 69,689,000 1.15 748,301 10,738 4.30 23,700,000 10.2

2009 70,491,000 1.15 758,025 10,754 4.30 23,880,000 10.2

2010 71,301,000 1.15 807,149 11,320 4.30 24,300,000 10.2

2011 72,121,000 1.15 853,010 11,827 4.30 24,740,000 10.2

TURKEY

at a good pace. Foreign real estate developers arestill interested in the market as well, with Gulf andEuropean companies entering into joint ventureswith Turkish developers through 2007-08.KEY DEVELOPERS: Leading contractors operatingin Turkey include ENKA Construction & Industry CoInc, GAMA Endustri Tesisleri Imalat ve Montaj, DogusConstruction and Trading Co, Tekfen Construction &Installation Co Inc, Alarko Contracting Group, NurolConstruction Co, STFA Group Co, Yapi Merkezi Con-struction & Industry Inc, Summa Turizm Yatirimcili-gi AS, Hazinedaroglu Construction Group, Soyak Co,Baytur Construction & Contracting Co, Limak Con-struction Industry & Trade Inc, TML Construction Co,Emaar, and Sama Dubai.RESIDENTIAL: The current population growth rateof 1.3% per year is estimated to require the construc-tion of at least 300,000 homes annually. Until nowsupply has been keeping pace with demand, but thegovernment is still under pressure to provide low-cost housing. According to the State Institute of Sta-tistics, there are 11.6m registered residential unitsin Turkey, creating an average household size of 6.13people. Construction permits for a further 350,000houses are obtained each year.

Construction is largely being driven by privatedevelopers, with public spending being curbed byrestraints placed on government expenditure by IMF

programme targets and EU ambitions. Currently theconstruction sector is experiencing some delays,especially in infrastructure projects.

The Turkish residential sector has traditionally suf-fered due to the underdeveloped mortgage market,but recent reforms in the mortgage systems havemade this sector more attractive.

With high population growth and urbanisationrates, the demand for residential units is climbing,but remains circumscribed by income. It is estimat-ed that Turkey will need some 7m new houses in thecoming decade. Current plans are to build some800,000 houses in an attempt to meet rising demand.More than 50% of all construction activities in Turkeyare in the residential sector.

The main types of residential property can be dis-tinguished as villas, residential high-rises and masshousing. Villas are generally located in the suburbsof metropolitan cities, measure some 300 sq metresand cost some $750,000 to $1.5m.

Residential high-rises are generally located in thedowntown areas of major cities and apartmentsmeasure 90 sq metres to 800 sq metres. They tar-get high-income individuals rather than families andcost between $3000 and $4500 per sq metre. Eco-nomical housing projects are generally located inthe city suburbs, with apartments measuringbetween 85 sq metres and 250 sq metres, and arepriced between $1200 per sq metre and $2000 persq metre. The Housing Development Administrationhas been establishing mass-housing schemesdesigned to cater to low-income families. A total of6848 houses with affordable repayment plans havebeen put up for sale under the a current programmeCOMMERCIAL: Turkey’s formidable economic per-formance between 2001 and 2006, the recent down-turn notwithstanding, is reflected in a growingdemand for grade A office space in Istanbul, wherean ever-increasing number of multinational firmsare establishing themselves. The grade A office mar-ket is spread across nine separate business districts,three on the Asian side and another six on the Euro-pean side. On the European side, Levent is consid-ered to be the most important central business dis-trict of Istanbul, with Etiler and Maslak also emergingas important business centres.

Prime office space is scarce in Istanbul, resultingin increases in rents and a decline in vacancy rates.As a result of the limited supply of garde A offices,prices continued to rise in 2007-08. Provision of Bgrade office space is increasing, particularly on theAsian side, and will go some way to meeting demand.Istanbul currently has almost 1.7m sq metres ofoffice space, with just over 160,000 sq metres in thepipeline. This supply should be readily absorbed, giv-en negligible vacancy rates across the city, indicat-ing high demand in the market.

Offices range in size from between 200 sq metresand 1000 sq metres around Istanbul. Annual rentsfor offices have risen sharply to $350 per sq metreat the higher end of the market. Office towers for

52



Turkey: tourism and hospitality indicators, 2006-11


2006 1,850,000 -12.7 2 3,700,000

2007 2,380,000 28.6 2 4,760,000

2008 2,724,269 14.5 2 5,448,537

2009 3,175,866 16.6 2 6,351,731

2010 3,640,464 14.6 2 7,280,928

2011 4,088,851 12.3 2 8,177,702

TURKEY

rental purposes have become popular over the lastdecade and are generally located in downtown areas. HOSPITALITY: Tourist arrivals by the end of 2007reached 23.34m and have been growing at a healthyrate, with more than 7.3m tourist arrivals in 2008 byMay. Although the majority of leisure tourists headto the resorts, an estimated 25% of tourists spenthotel nights in Istanbul. Indeed, the city is increas-ingly on the international tourism circuit, with a 15%increase in tourist numbers in the first five monthsof 2008 as compared to the same period in 2007.

Turkey also has a thriving domestic tourism mar-ket, with approximately 40% of stay nights attribut-able to tourists. At present there are 28 five-starhotels in Istanbul. According to the 2007 results ofDeloitte and Touche’s HotelBenchmark Study, aver-age occupancy improved to 73.8%, with an averageroom rate of $230, an 8.9% increase on 2006. Thegovernment is now aggressively promoting tourismwith the March 2007 release of its Turkish TourismStrategy plan, set to run between 2007 and 2013,with the aim of encouraging large-scale tourismprojects. This is reflected in government targets toincrease hotel bed capacity by 50,000 rooms, 10,000of which will be created through expansion of exist-ing space, such as renovations and upgrades, with70% of this total likely to be located in the urban cen-tres of Antalya and Istanbul. The government alsoplans to exploit the potential of the Black Sea region,with the Turkish government aiming for seven five-star hotels to be built in the area.

Upcoming projects include four new hotels plannedby the Spanish hotel group Barceló, distributedbetween business districts in Istanbul and the resortareas of Belek, Antalya and Izmir. Antalya has becomeparticularly popular, with hotel development accel-erating, along with the resort’s status as the preferredtourism destination in Turkey for locals and foreign-ers alike. Foreign investors are initiating investmentsin hotels in southern Turkey, especially aroundAntalya. The southern and western coasts of Turkeyare more attractive for foreign investors than thecoasts of Spain, Italy and Greece, due to supply andlower land prices for hotel development.RETAIL: More than half of Turkey’s approximately70.6m inhabitants are under 25 years of age. As per-capita income continues to rise, Turkey’s malls areexpected to become all the more packed. Even thoughpolitical uncertainty and market volatility sloweddemand for consumer goods in 2007-08, the sec-tor is expected to improve and is retaining the inter-est of international players. Luxury designer brandssuch as Armani, Gucci, Louis Vuitton and the UK-based luxury boutique Harvey Nichols are all oper-ating in main shopping streets and upmarket shop-ping centres in Istanbul in order to tap the spendingpower of wealthy urban consumers.

Istanbul has the highest gross leasable area (GLA)per capita in the country with a total GLA of 1.5msq metres. As of February 2008 there were 188 shop-ping centres in Turkey, having increased by 21% from

2007. About 35 new shopping centres, adding morethan 1m sq metres, are currently being construct-ed in Istanbul and 30 more are in other cities aroundthe country. With the market so heavily focused onthe nation’s largest city, particularly on its Europeanside, untapped opportunity for retail developmentwill expand throughout the rest of the country.

Realising market potential, international investorshave shown considerable appetite for Turkish acqui-sitions. The US’s Merrill Lynch, with Turkish partnerKrea Real Estate, holds a 50% state in Eskisehir’s$35m Neo Shopping Mall and is looking to take con-trol. Great things are expected from leading malldevelopment company Multi Turkmall, a joint ven-ture between Netherlands-based Multi Developmentand Turkey’s Turkmall, which is developing ForumIstanbul and Forum TEM, two of the largest retail proj-ects in the country, among others.

Shopping centre space has been increasing, with10% being added in 2005 alone, taking the markettotal to just under 2m sq metres. Around 42% of cli-mate-controlled GLA is located in Istanbul, with 16%in Ankara and 8% in Izmir.

Average annual rents in climate-controlled shop-ping centres are about $540 per sq metre. This aver-ages out at a monthly rent of $30-80 per sq metrefor medium-size units in Istanbul shopping centresand $40 to $100 sq metres for food court outlets.

53



Turkey: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 68,133,000 273,914 7.6 9.60

2007 68,897,000 296,411 8.2 8.76

2008 69,689,000 320,058 8.0 7.54

2009 70,491,000 345,400 7.9 4.54

2010 71,301,000 373,158 8.0 4.00

2011 72,121,000 402,926 8.0 4.00

YEMEN

Yemen is the poorest country in the Middle East, withan estimated 40% of the population living below thepoverty line and a per-capita GDP of just $972 in 2007.As indicated by the difference between this value andthe GDP per capita in neighbouring Oman ($15,500)and Saudi Arabia ($15,400), Yemen also has the great-est income disparity with its neighbours in the world.Primarily a rural country, with 75% of the populace resid-ing outside urban areas, Yemen also suffers from severedevelopment challenges, including water scarcity, highunemployment and underdeveloped infrastructure.

According to a recent report released by the Econom-ic and Social Commission for Western Asia (ESCWA),economic growth in Yemen was estimated to be approx-imately 4.3% for 2007, which represents no changefrom 2006 and continues to fall short of the target setby the government. The report highlights the Yemenieconomy’s attractiveness to foreign investors, especial-ly in the energy, minerals and transportation sectors,suggesting a need for more comprehensive econom-ic reforms aimed at increasing competitiveness and atfurther diversification of the economy.

Population growth remains close to 3.5%, makingYemen one of the fastest-growing countries in theregion. Yemen’s estimated population of more than20m is projected to grow to 70m by 2050. Such anincrease would undoubtedly put severe pressure onthe country’s already overstretched resources. Water

is a critical issue, with fears that supplies for the cap-ital, Sanaa, may run out within the next 10 years.Despite these negative indicators, Yemen also has asignificant number of high-income residents, as wellas a large segment of the population living and work-ing outside the country. Many of these are now keento invest in tangible assets, such as the real estatemarket. They remain the key investors and buyers interms of real estate and construction.

Yemen continues to be one of the least developedreal estate markets in the Middle East and NorthAfrica. There is also a serious lack of grade A facili-ties in the retail, office, residential and – until recent-ly – hospitality sectors, all of which are currentlyexperiencing increasing demand.

The lack of advanced infrastructure has been themajor deterrent to international investment, with for-eign cash inflows thus far having been directedalmost exclusively at the oil and gas sector. Howev-er, important measures directed by the governmentin building infrastructure have made a considerabledifference, as has a pledge of $4.7bn from Gulf Coop-eration Council (GCC) countries to help develop thecountry’s infrastructure.KEY DEVELOPERS: A number of internationalinvestors are now interested in the country. Thelargest foreign investments to date have been in realestate, with developers from the GCC having


54

YemenImmense potential waiting to be tapped


Yemen: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 21,622,000 3.08 19,106 884 7.10 7,287,212 26.2

2007 22,290,000 3.09 21,664 972 7.10 7,578,593 27.7

2008 22,978,000 3.09 25,863 1,126 7.10 7,881,855 26.9

2009 23,687,000 3.09 31,577 1,333 7.10 8,197,253 27.3

2010 24,398,000 3.00 34,261 1,404 7.10 8,349,000 27.1

2011 25,130,000 3.00 36,511 1,453 7.10 10,612,036 27.1

YEMEN

announced plans for Sanaa and Aden. The projectsin Sanaa include Majid Al Futtaim’s Bab al Yemen, amixed-use residential complex in the city centre, andQatari Diar’s $500m Al Rayyan Hills in the new sub-urb of Fajj Attan. In March 2008 the Emirates Invest-ment Group (EIG) announced Sanaa Terraces andSanaa East as its flagship projects in Yemen. The$500m developments are part of a series of signa-ture projects that EIG intends to establish in thecountry. Al Qudra, Emaar and Tameer are all expect-ed to nurture a presence in the capital. In Aden, sev-eral large mixed-use developments are planned. Thelargest of these is Ferdosa, which is expected toreceive an investment of $10bn.RESIDENTIAL: Yemen’s growing population has cre-ated an increased demand for housing. Demand forupmarket residential properties is mostly for villas,which most people choose to have built themselves,meaning that land is the most sought-after commod-ity in real estate. On the other hand, residential com-pounds are rare despite being the most popularhousing option for foreigners. The quality of theseis generally not very high, with most developmentshaving been completed in the 1980s.

There is an obvious gap in the market for fur-nished apartments in Yemen, which is reflected bythe occupancy levels in the limited compound andgrade A apartment supply. None of these develop-ments is of significantly high quality, despite the factthat uptake rates have been very fast.

Property in Sanaa does not yet operate in a devel-oped market, in which areas can effectively begrouped together into specific price categoriesaccording to district. The market is at a nascentstage with a limited number of large-scale housingprojects having universal selling prices. Each prop-erty is still judged on its own merits, based on arange of criteria. Location does play a key factor inthe pricing of land, and is the main factor affectinghousing prices. The unit most often used when deal-ing with real estate in Yemen is the lubna, whichroughly equals 44 sq metres.

The number of building licenses issued indicatesthat around 1613 residential buildings were clearedfor construction during 2005. Residential construc-tion is broken down into 35% contractor activity,35% self-constructed for residence and 30% busi-ness investments. Of total sales, 50% were to localYemenis and 50% to Yemeni expatriates as secondhomes or investments.

The biggest driver behind the residential proper-ty market in Yemen is the expatriate community,which is purchasing land on which to build villas inthe south of Sanaa. Yemen has a particularly largeexpatriate community resulting from the large gapbetween its GDP and that of its GCC neighbours.Another factor encouraging expatriate investmentis the weakening Yemeni riyal, which gives higher pur-chasing power to foreign currency holders.

Foreigners are currently not allowed to purchaseproperty in Yemen, although the large, mixed-use real

estate projects which are planned in Sanaa, Salalahand some of the country’s islands will be open toforeign purchasers. Large regional real estateinvestors are eyeing the Yemeni market, with AlQudra, Diar, Emaar and Majid Al Futtaim all planningdevelopments in the capital. The majority of newresidential developments are self-built villas, con-structed privately. Licensing information indicatesthat residential starts equal about 0.6% of the totalstock in Sanaa. This supply gap, combined with thesignificant development of Yemen’s economic situ-ation as it becomes friendlier to foreign direct invest-ment, indicates a market opportunity that only alimited number of international developers haverecognised. Quality housing built efficiently and fastwill find a ready market in Sanaa.COMMERCIAL: Office space is arguably the mostunderdeveloped segment of the real estate marketin Yemen, and one which could prove central to thecountry’s further development. With an economywhich remains dependent on agriculture and inter-national companies establishing a substantial pres-ence in the country, demand for formal, high-endoffice space has been low, but is now being stimu-lated by Yemen’s potential for liquid natural gas(LNG) production. Traditionally, office buildings havebeen owner-occupied. Important Yemeni compa-nies tend to be very large diversified groups and

55



Yemen: tourism and hospitality indicators, 2006-11


2006 201,642 20.0 6 1,209,852

2007 231,642 14.9 6 1,389,852

2008 261,642 13.0 6 1,569,852

2009 291,642 11.5 6 1,749,852

2010 321,642 10.3 6 1,929,852

2011 388,311 – –

YEMEN

build their own offices. International tenants arelargely from the oil and gas sector and also chooseto construct their own space.

The only grade A office facility in the capital is foundin the Sanaa Trade Centre (STC), which has an expand-ing waiting list. Many of the villas in the newly devel-oped residential areas are also being rented as officespace. Most tenants are international companies,embassies, international organisations and non-gov-ernmental organisations. Rates are varied, with pricesat around $5 per sq metre in the STC and $4 to $10per sq metre in converted residential villas.

The situation is now changing, with new stock ris-ing more quickly than in any other sector. Most ofthe mixed-use developments announced in Sanaainclude commercial space, although the proportionto be allotted for offices has yet to be established.HOSPITALITY: Hospitality and leisure developmenthas been limited by a perceived danger to touristsfrom disaffected parts of Yemeni society. The gov-ernment is now making serious efforts to enticetourists to Yemen, so far focusing mainly on visitorsfrom GCC countries, who are attracted to Sanaa andAden. Tourist arrivals have been increasing but isstill very low. According to the Ministry of Tourism,tourist arrivals in 2004 numbered 270,000, grow-ing to 335,000 in 2005. Tourist revenues increas-ed from $214m to $265m during the same period.

In its recent report, the tourism ministry announceda decline in tourist numbers for the first quarter of2008 against the same period in 2007. However, thegovernment is also trying hard to improve the tourismsector. Yemen’s Tourism Promotion Council has setup its budget for 2009, as well as its plan for the nexttourism season, which will include participation ininternational travel trade exhibitions and implemen-tation of an investment promotion programme.

Opening in 2006, the Mövenpick is the only five-star hotel in Sanaa that conforms to internationalstandards. With the arrival of the Mövenpick, thenumber of five-star rooms almost doubled from 445rooms in 2005 to 780 in 2006.

The five-star market is dominated by businesstravellers, accounting for over 80% of stays. Accord-ing to figures released by the tourism ministry, visi-tors from Saudi Arabia made up the largest groupof tourists from the Arab world in 2007. Occupancyin five-star hotels is still low, standing at an estimat-ed 50%, but has been increasing at a relatively rap-id pace. The investments in infrastructure, pledgedby neighbouring countries in 2006, are bound toincrease the number of business visitors.

Aden has one five-star international hotel, theSheraton, and formerly had a Mövenpick, which isnow known as the Aden Hotel. Other internationalchains in Aden include a Golden Tulip and a Mercure.Occupancy rates are not high, standing at around50% in 2007, but are consistently rising.RETAIL: The most prevalent form of retail in Sanaais small street-facing retail outlets, with an averageunit size of 25 sq metres. They are typically integrat-ed into four- or five-storey mixed-use towers withresidences on the upper floors. Larger stores are amore recent introduction, but even these still typi-cally concentrate on a single product. Earnings fromretail remain very limited in Yemen, with the best esti-mates showing an average annual income of $800to $1000. The disparity in income means that Sanaaand Aden are home to very wealthy individuals whosedemand for luxury goods is thriving.

The first international retail player in Yemen wasEMKE Group’s Lulu Centre in Aden, which opened itsdoors in September 2006. The EMKE Group alsoestablished the 60,000-sq-metre Aden Mall. On itsfirst day of business, the mall had to be closed dueto crowds fighting to get in. There is one food retailchain in the capital, Hudda Supermarket, which isplanning to expand in 2009 given the success of itsoperations. Rents in the shopping centres rangefrom $4 to $6 per sq metre in Al Kumaim, on HaddaStreet, to $15 per sq metre in the STC, which is wide-ly regarded as the city’s most attractive location.

There are three shopping centres in Sanaa whererental prices range between $4 and $15 per sq metre.Based on gross leasable area, OBG estimates thatair-conditioned mall space is around 0.0072 sq metresper capita, a very small amount in comparison to theGCC average of 0.35 sq metres. This is a telling re-flection of the country’s lower per-capita income.

56



Yemen: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 21,622,000 11,235 6.3 18.25

2007 22,290,000 12,646 12.6 12.48

2008 22,978,000 14,074 11.3 10.28

2009 23,687,000 15,488 10.1 11.00

2010 24,398,000 17,239 11.3 11.00

2011 25,130,000 19,114 10.9 12.50

57

AfricaAlgeriaEgyptLibyaMoroccoTunisiaNigeria

ALGERIA

The Algerian economy has been reliant on hydrocar-bons for the past 50 years. With enough oil to lastAlgeria for at least another 50, predictions showthere are still regions available for the developmentof resources. Globally, Algeria ranks number eightfor natural gas reserves and number 14 for petro-leum reserves, holding just under 12bn barrels.

With a population of about 34.2m projected for2008, the annual growth rate stands at just over 1%,with 30% of the population under 15 years of age.An annual increase in GDP of over 6% was recordedin 2007. This growth rate is expected to be sustain-able in the medium term. Economic expansion hasbeen increasing as the security situation has improvedfollowing a significant decrease in violence and ter-rorism attacks that had shaken the economy andjeopardised the tourism industry.

Employment rates are projected to go up by 3-4%over the next few years. Unemployment is estimat-ed to drop 2-3% annually if all factors remain stable.

Algeria does not currently have a threatening sov-ereign risk due to the large cash flow coming in fromthe hydrocarbons it offers. Algeria is more securethan many other countries with political risks. Inter-est rates have been mostly stable over the past yearswithout any significant indicators hinting at changein the forseeable future.

Algeria’s hydrocarbons provide 60% of budget rev-enues and 30% of GDP. With a decline of oil reserves

and a possible drought over the next 50 years, Alge-ria is seeking alternative ways to expand and improveits economy. With the help of the International Mon-etary Fund the fiscal situation has improved signif-icantly over the past 10 years.

The government is determined to increase andimprove several aspects of the economy, includingits trading performance. To support this expansion,the government is providing incentives to the pri-vate sector and supporting companies that are will-ing to invest in different sectors of the economy. Theeducational system is also improving, which will helpto reduce unemployment and increase the pool ofskilled labourers. The government is trying to estab-lish a clear legal system and boost the country’s cap-ital. The government has allocated over $50bntowards realising its objectives.

The demand in real estate has increased since thedevelopment of the economy began. This newdemand will attract an expanded supply of housingunits to the market. The housing requirement stoodat over 1m in 2006, but with the significant expan-sion of the real estate market and construction sec-tor, supply is increasing.

Over the past six years the construction sector hasgrown by 8% and most of the major construction proj-ects are mainly financed by the government. Hous-ing finance has been significant in this regard andclose to 12,000 mortgages are expected to be


58

AlgeriaEmployment rates are rising along with tourism investments


Algeria: economic and demographic indicators, 2006-11Population Population GDP ($m at GDP per capita Average Labour force Unemployment

growth (%) current prices) ($ at PPP) household size rate (%)

2006 33,800,000 2.72 114,831 3397 6.15 9,343,000 15.4

2007 34,400,000 1.78 131,568 3825 6.1 9,380,000 13.6

2008 34,916,000 1.5 158,699 4545 6.05 9,440,000 12.1

2009 35,440,000 1.5 165,187 4661 6 9,510,000 10.6

2010 35,971,000 1.5 171,712 4774 5.95 9,590,000 9.3

2011 36,511,000 1.5 180,031 4931 5.9 9,680,000 7

ALGERIA

approved annually, which will help individuals andfamilies own homes in their own country.

Several international developers have decided toenter the country in order to play a role in develop-ing and improving the tourism sector, the prize assetsof which include beaches, deserts, and historic andcultural attractions.

Projects in the pipeline include Accor’s tourisminfrastructure projects, Mehri Group’s plan to open36 Hotels, Saudi group Sidar’s holiday villages inAlgiers and Boumerdes, and Emaats’s master-plannedprojects, which include Algiers Bay, Colonel Abbesdevelopment, Gare D’Aghaproject and Cite Tech-nologique de Sidi Abdulla. A subway is also being con-structed and will extend all the way from Tafourahto Hai El Badr. There is also a new U-city in Buinanwhich is expected to be completed in 2011.

Emaar’s has been the most visible commitment tothe market, with Emaar projects to deliver luxuryhotels, resorts and retail establishments with a totalinvestment of more than $20bn. Emaar’s projects aredistributed across Algeria, the capital Algiers andthe western coastline, and include sea-front devel-opment and the creation of a new town in Algiers. RESIDENTIAL: The severity of Algeria’s housingshortfall is indicated by the statistics. The countryhad a population growth rate of over 1% between1995 and 2006 and about 70% of the population isbetween the ages of 15 and 64. Some 250,000 house-holds are added annually. In contrast, 130,000 unitsare supplied to the market each year, of which only40,000 are constructed privately. The rest are builtthrough the state housing programme.

Algeria has a housing stock of over 5.5m with anestimated shortage of about 1m units. The govern-ment hopes to meet demand by 2009, but it isthought that this target is well beyond capacity.

Demand for low- to middle-income housing ishigh. The government has devoted $12m to address-ing the shortage of housing units and aims to deliv-er 200,000 low-cost housing units annually until2009 to fill the supply gap. Currently the supply avail-able is still thought to be insufficient to fill thenation’s growing demand.

Vacancy rates in some parts of Algeria are atapproximately 20-30%, mainly due to heavy migra-tion from the south of the country towards the north.Housing prices and rents are heavily influenced bythe government, which has dominated the residen-tial segment since the nationalisation of housingfollowing the end of French occupation. Strict ten-ancy laws have impeded market development andhelped to keep prices historically stable, despite thegap between supply and demand.

Residential land prices start at just over $100 persq metre. Property prices can exceed $2000 per sqmetre for apartments and $4000 per sq metre forvillas in mid- to upper-end segments.

Rental yields are 5-7% and are expected to risemoderately in the future. There are several oppor-tunities across the country for apartments, as well

as for villas in all segments, particularly for middle-and upper-middle-class housing.COMMERCIAL: The government is working toincrease employment through a dual strategy ofencouraging small and medium-sized enterprisesand attracting international firms. As a measure ofsuccess, unemployment rates have fallen from 30%in 2000 to 19% in 2007. Approximately 9m peopleare now economically active with an annual growthof 9% in the workforce. The government is planningto construct approximately 150,000 new offices tokeep up with the increase in demand.

Some international companies in the real estate,construction and hydrocarbons sectors are settingup bases in the country, thanks to the encourage-ment from the government. As such, there is a newsource of demand for workspace, particularly fromforeigners seeking office facilities that live up tointernational standards. Limited grade A space hasforced many companies to establish offices in resi-dential villas or apartments in upper-class areas.With a lack of housing supply, rents have increasedfor tenants. In addition, businesses are also expect-ed to sign long-term leases.

In line with the increase in development activity,national and international builders are now lookingat the commercial segment and have several plansto set up and develop grade A offices. A number of

59



Algeria: tourism and hospitality indicators, 2006-11


2006 640,692 11.0 3.6 2,306,491

2007 711,168 11.0 3.6 2,560,205

2008 789,397 11.0 3.6 2,841,829

2009 876,230 11.0 3.6 3,154,428

2010 972,616 11.0 3.6 3,501,418

2011 1,079,603 11.0 3.6 3,886,572

ALGERIA

integrated business centres are being developed inthe greater Algiers region. This construction will alle-viate concerns over the lack of quality office spaceand encourage international companies to opentheir branch offices in Algeria. HOSPITALITY: Algeria has 1200 km of coastline thatincludes mountains, high plateaus, varied desertlandscapes with dunes and oases, a good climate,and a rich historical and cultural heritage, with ves-tiges of Phoenician, Roman, Arab and Ottoman archi-tecture. Algeria’s tourism industry is also assisted byits proximity to its European customers. Several his-torical attractions have helped to increase the num-ber of visitors coming to the country, including thespectacular Mount Chrea, the famous Zighout Yousefstreet and the Roman ruins in Timgad.

The attractions, along with reduced civil conflictand violence, have boosted the number of touristsvisiting the country. During 2000-05, Algeria wit-nessed a compound annual growth rate of over 10%in tourism traffic, reaching close to 1.5m visitors in2005 from 866,000 in 2000.

Occupancy rates within the country remain low buthave climbed following growth in visitor numbers anda comparatively long average stay length of three tofour days. As the market improves, an increasingnumber of developments are being announced in thehospitality sector. There are approximately 300 mid-sized government projects reported to be under way.

Developments in the private sector were intend-ed to add more than 50,000 rooms to the nation’ssupply between 2004 and the end of 2007, withplans to add an additional 130,000 beds between2008 and 2013. Hotels currently in the planningphase include projects by Accor’s Sofitel and Mer-cute Hotels, which has a joint venture with the localprivate group Mehri to develop a chain of mid-mar-ket hotels throughout the country.

Saudi group Sidar is developing two holiday villagesin Algiers and Boumerdes. Further government inter-vention, especially to promote Algeria as a touristdestination, will boost the sector and create roomfor more hospitality projects. The average room ratestands at just under $250 per night. RETAIL: Purchasing power has been rising for Alger-ian citizens, especially for those working in the pub-lic sector. The World Bank calculates average incomein Algeria to stand at $7600 with 9% growth in realincome since 2003. Income disparity is severe, witha class of wealthy families estimated at less than 3%of the total population. In 2007 the state approveda 25-35% increase in public service salaries, whichhas benefitted thousands of civil employees. This hasultimately boosted the retail sector and increasedconsumer spending, particularly in the commercialcentres of Algiers and Oran.

The volume of traded goods is reported to be ris-ing by over 5% annually, while trade liberalisation hasreduced public sector domination of distribution.The privatisation process has attracted foreign dis-tributors, especially from French companies, whichhave established operations in the retail market.

However, the retail market remains largely under-developed with several procedures a customer hasto go through, heavy taxes and barriers to foreigninvestment. These barriers make it difficult for for-eign companies to enter the country and establishdevelopments and investments. Franchising is notcommon, as it is not yet governed by any legislativemeasure. Among pioneer brands France is well rep-resented by Yves Rocher, Carre Blanc and Celio. Cred-it card usage has increased with over 250,000 clientsreported to be holding bank cards that are accept-able at 1700 retail outlets.

Carrefour is planning to expand into Algeria; how-ever, with average income still remaining low, thereare doubts about the stability of the market andeconomic feasibility of large hypermarkets openingup in the country. Several luxury retail establish-ments integrated with master-planned projects arenow under way and are expected to modernise andimprove the retail sector. The high-end niche mar-kets are being targeted by the new developers.Opportunity exists to develop more retail facilitiesin Algeria to cater to both the high-end as well asthe middle-income groups.

Climate-controlled space is planned in the Gulf-funded, mixed-use projects. Emaars developmentin Algiers Bay will deliver significant space in themarket, as will the Gare D’Agha retail development.

60



Algeria: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 33,800,000 33,311 -3.0 2.50

2007 34,400,000 35,908 7.8 3.70

2008 34,916,000 38,505 7.2 4.30

2009 35,440,000 40,139 4.2 4.05

2010 35,971,000 41,768 4.1 3.70

2011 36,511,000 44,204 5.8 3.25

EGYPT

With a population of more than 80m, Egypt has thesecond-largest population in Africa. More than 95%of the country’s numbers are concentrated in lessthan 5% of its land, primarily in the fertile band oneither side of the Nile. About 42% of the populationis classed as urban, with the UN expecting this pro-portion to rise to 54% by 2030. By 2050 the UN fore-casts total population will reach 126m.

Per capita GDP was estimated at $5400 in 2007and is growing at rates above global and NorthAfrican averages, with 7.2% growth in 2007. Econo-mist Intelligence Unit forecasts suggest that this willaccelerate to 7.4% in 2007-08, before easing slight-ly to 6.9% in 2008-09. Egypt does, however, contin-ue to run a budget deficit, at close to 7.5% of GDPin 2007, which has been the cause of some concern.

Growth has been predicated based on increasedinvestment and a surge in exports. Since 2004 theNazif government has instituted a series of funda-mental economic reforms, which have includedreductions in tariffs and taxes, privatisation of pub-lic holdings and legal changes designed to promoteeconomic diversification. A stringent privatisationprogram means that, among other asset sales, morethan half of the banking system is now privately held.This has resulted in Egypt being recognised as theleading reformer in 2007 by the World Bank.

IMF observers have also been highly complimen-tary about progress, concluding in February 2008 that

economic liberalisation is directly linked to growthand that the positive effects have expanded fromnew sectors, such as energy, construction andtelecommunications, to labour-intensive sectors,such as agriculture and manufacturing. This hascaused a corresponding decline in unemployment,which has fallen from 10.5% to approximately 9%.

Problems remain, however, as the economy is stillsubject to government manipulation. Heavy indus-try is also broadly state-controlled and accounts forthe largest proportion of GDP at 17%. The IMF alsowarns that sustaining growth will be dependent onreducing the size of the public sector, continuing aprogramme of tax reform and cutting subsidies.

Population expansion has been a matter of seri-ous concern to the government. Initial results fromthe 2006 census suggest that it has increased 22%in the past 10 years alone. Population growth mayalso further accelerate, as 38% of the population isaged under 15 and the potential exists for Egypt’spopulation to reach almost unmanageable levels farbeyond the 100m mark. Government targets are tostabilise the population at 100m, an important tar-get, as close to 20% of Egyptians already live on lessan $1 per day. Population density is also notable,with 20% of the people concentrated in Cairo.

The real estate market in Egypt is regarded ashealthy, with continuing high levels of demand frompopulation and GDP growth, and foreign investment.

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EgyptConstruction and real estate scramble to keep up with demand


Egypt: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 74,200,000 1.78% 107,375 5,094 4.25 21,600,000 10.3

2007 76,000,000 2.43% 127,930 5,491 4.20 22,100,000 10.3

2008 77,500,000 1.97% 151,258 5,874 4.15 22,850,000 10.3

2009 79,100,000 2.06% 175,452 6,279 4.09 23,650,000 10.3

2010 80,600,000 1.90% 194,208 6,709 4.04 24,480,000 10.3

2011 82,100,000 1.86% 213,323 7,208 3.99 25,520,000 10.3

EGYPT

More than $50bn of foreign funds has been com-mitted to large-scale developments in Egypt, includ-ing resort projects and the opening of new urbantownships in line with the government plan to dis-tribute the population more equally. According toGlobal Finance House, foreign direct investment intoreal estate increased by 136% between 2005 and2008, now standing at $39m per annum.

The real estate sector declined, as its contributionto the percentage of GDP between 2006 and 2007slid from 3.3% to 3.1%. Although it grew by 9.9% dur-ing the same period. Between 2001 and 2007 thereal estate sector grew at a compound annual growthrate of 8.5%. The building and construction sectorrose by 27% and its contribution to GDP movedupward to reach 4.4% during the period between2006-07, as opposed to 4.1% in the previous year.

Also, the share of the real estate sector’s foreigndirect investment inflows reached $39m in 2006,compared to $16.5m in 2005, a surge of 136%. Amortgage finance law was introduced in 2001, butthere have been technical barriers impeding imple-mentation. As a result of the improving environ-ment, the total value of mortgage finance doubledfrom $187m to $375m between 2006 and 2007, andis expected to climb to $936m by the end of 2008.

The main threat to the market is posed by risingconstruction costs, which estimates suggest have

increased by close to 40% since the beginning of 2008primarily due to the price of steel, which climbed from$565 per tonne in December 2007 to $1400 pertonne according to official estimates. Contractorsoperating in the market say that unofficially, the ratefor steel has climbed to as high as $1800 per tonne.RESIDENTIAL: The rate of population growth hasplaced a large burden on housing provision. Theannual additional requirement for housing is estimat-ed at 570,000 housing units, with production at300,000, creating an unsatisfied demand for 270,000units annually. The government calculates produc-tion will need to be increased to 820,000 housingunits per annum. Under the National Housing Proj-ect announced in 2005, the government has pledgedto construct 500,000 housing units by 2011, 50% ofwhich will be in new cities.

Housing construction has risen by 6-7% in 2007,with a 5.2% increase in rents and a 20% increase inthe initial asking price for residential units. The new-ly prosperous middle class are creating additionaldemand that has not yet been met by developers,despite the introduction of tax exemptions and taxholidays. This price inflation has been concentrat-ed in high-end developments, with warnings that themarket may be reaching saturation point for suchhousing. However, there has been no rationalisationof prices yet, with land continuing to rise significant-ly in 2007, especially in the new districts, 6th ofOctober City and New Cairo.

Appetite for prime residential housing and livingquarters remains concentrated in Cairo. The mostpopular high-end areas for buying and renting havetraditionally been Zamalek and Mohandiseen on thewest bank of the Nile, and Maadi on the east bankof the Nile in the south of the city.

There is a wide disparity in residential pricing. InNew Cairo, for example, it is possible to get a villafor as little as $650 per sq metre. However, in thenew developments with strong marketing, the pricecan be four times higher. Local developers suggestthat demand is concentrated in the $75,000 to$170,000 bracket, which still remains considerablyoutside the means of most buyers. Large-scale devel-opments that are in the $2,800 to $13,000 bracketare still in great demand by as many as 300,000 unitsper year. According to some estimates, costs forhigh-end properties in certain areas have climbedas high as $1800 per sq metre.OFFICE: Egypt has long been characterised by a lackof international-standard office space, with demandconcentrated in the capital. Since 2003 significantmeasures to redress the balance have been madethrough developments such as City Stars and theSmart Village. Whereas previously, local or interna-tional firms would be headquartered in residentialvillas for which commercial licences had beenobtained, or occasionally in colonial-period buildingsin the Downtown area, the trend towards purpose-built, high-technology offices in new communitieson the periphery of the city is emerging in Egypt.

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Egypt: tourism and hospitality indicators, 2006-11


2006 554,049 5.5% 3 1,662,147

2007 584,621 5.5% 3 1,753,863

2008 616,880 5.5% 3 1,850,639

2009 650,919 5.5% 3 1,952,756

2010 686,836 5.5% 3 2,060,507

2011 724,734 5.5% 3 2,174,203

EGYPT

In the period between 2000 and 2006, approximate-ly 900,000 sq metres of grade A office space wereadded to the Cairo market. Such investments haveprimarily been in the areas around Cairo, leading tofears that the historical centre of the city is beingabandoned to decay by international and local busi-nesses and investors.

Even as investments in office space have declined,indications point to continued high demand forgrade A office space through 2013, outliving per-haps the high points of the high-end residential seg-ment. The periphery of Cairo and Alexandria willincrease in commercial significance and the demandfor quality accommodation is expected to continueto rise at approximately 10-15% per annum.

Many are banking on the belief that demand willcontinue to rise at the periphery in the mediumterm. However, it is worth noting that all of the coun-try’s top-ten financial institutions remain headquar-tered in traditional office areas in Mohandiseen,Dokki, Zamalek and Downtown Cairo. RETAIL SECTOR: In recent years the Egyptian retailsector has undergone a period of radical changethat has seen an end to the import substitution poli-cies of the past, as well as a drastic reduction in tar-iffs. Important international retailers are currentlymoving into the market and they need space to dobusiness, spurring the growth of climate-controlledretail centres and shopping complexes.

The catalyst for the explosion of demand for retailspace has been the dramatic reduction of tariffs onmany imported goods since 2004. Industry expertsbelieve that Egypt will need a rapid expansion ofretail space to support the resulting retail surge.

The country’s premier shopping centre is current-ly the Citystars complex, which was completed in2004 and encompasses 150,000m sq metres of retailspace with some 400 retail units. The shopping cen-tre has proved extremely profitable making close to$400 per sq metre per annum. Citystars works on arevenue-sharing basis and takes 12% of the retail-er’s revenues. The competition is increasing, how-ever, with five more malls of more than 20,000 sqmetres planned for Cairo. The main investors forsuch projects have come from the Gulf.

Currently, Citystars is the only modern shoppingmall in Cairo. It is recognised as the preeminent mar-ket leader and has performed very strongly. In 2006the average footfall was 1.6m per month. In 2007average footfall increased to 1.9m per month. In thefirst phase, rents were averaging $350 per sq metreper annum according to Citystars’ management. Inphase two, the average rents for women’s fashionbrands and casual wear will range from $800-1400per sq metre. Average overall rents are currently inthe $600-750 per sq metre range.HOSPITALITY: Tourism is an important contributorto the Egyptian economy, providing 3.5% of GDP and12.6% of employment. Tourist arrivals have per-formed strongly, increasing by 11.6% in 2006-07 andcontributing a total of $8bn. In 2006-07 total stay

lengths reached 96.4m nights, with a long averagestay length of 9.8 nights. The government now tar-gets a further increase to 14m foreign arrivals by2011-12 and has embarked on a correspondingexpansion of tourism infrastructure.

The expansion of the tourism sector has encour-aged a number of international hotel chains intothe market, with the Marriot, Mövenpick and thebudget Easy Hotel chains pursuing expansion plans.

The priority for the Ministry of Tourism is to upgradeEgypt’s infrastructure, creating another 15,000 roomsevery year to accommodate an extra 1m visitors.The hospitality market has stable and consistentoccupancy rates at 70%, although room rates in Cairocontinue to climb from a city average of $120 pernight. Occupancy rates in the capital rise to 95% infive-star hotels during the summer months, with themarket driven by visitors from the Gulf region.

The occupancy rate in the greater Cairo area forthe first six months of 2007 was 75.6%, a 4.6%increase over 2006 statistics. Although these figuressuggest healthy growth in the hospitality sector,most hotels reported a drop in their crucial summerseason. Occupancy during the period between Julyand August, which is traditionally the busiesttime of year for the tourism hospitality segment, isdown in 2008, standing at approximately 80%. Thisis a 10% decrease on the figures for August 2006.

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Egypt: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%)

expenditure ($m)

2006 74,200,000 82,795 17.4 7.24

2007 76,000,000 94,983 14.7 8.55

2008 77,500,000 111,047 16.9 9.41

2009 79,100,000 129,192 16.3 7.80

2010 80,600,000 149,852 16.0 7.70

2011 82,100,000 174,449 16.4 6.70

LIBYA

Libya has the ninth-largest oil reserves in the worldand the economy remains heavily dependent on oilwealth. Hydrocarbons account for more than 95% ofexport earnings. Earnings from oil were estimated at50% of total GDP and 75% of government revenuesin 2007. Flush with this money, the government is nowseeking ways to entice foreign investment into thecountry. Politically, Libya remains heavily controlled,which is likely to prevail in the near future.CONSTRUCTION AND REAL ESTATE: The construc-tion and real estate sector presents some of the bestopportunities for investors seeking to take advantageof Libya’s new economic wealth since both are cur-rent government priorities. The majority of buildingsrepresent old stock, with construction dating to the1970s and 1980s. Built under government tender,the quality of design and construction is not of thehighest standards, with an emphasis on functional-ity rather than aesthetics.

A number of major real estate developers haveentered the Libyan market over the last few years.The majority have formed a joint stock company withLibyan agencies in order to benefit from local com-pany status. Projects range from mixed-use towersin the central business district (Daewoo, Hydra Prop-erties) to larger townships and self-contained ven-tures (Tameer, Emaar), as well as a number of tourismprojects planned in the capital or near popular sites(Beroko, Corinthia). The demand is widespread across

all sectors, but developers who have launched proj-ects in Libya have not always found the endeavoureasy. The process of acquiring permission is opaque,and plans can be subject to sudden and arbitrarychange. With outside interest in the market a newconcept to Libya, pricing can be irrational.

Sale prices for neighbouring buildings of almostidentical design and footprint in prime areas canvary hugely according to the date of construction andthe quality of maintenance. Prices paid for land byforeign investors have recently doubled, as localauthorities test how far Gulf and internationalinvestors will go for market entry.

The growing number of construction projects inthe country reflect the increasing market interest,with 17 new projects in 2000 and 84 in 2005. Inter-national developers with projects now in the plan-ning stages are typically second-tier firms with inter-ests in other economic fields. Local developers haveproven reluctant to take on projects of any scale,and often have ambitions limited to construction ofsingle hotels or residential towers.

The key factor keeping projects small has been alack of funding and access to lending. Internationalbanks are reluctant to lend in the Libyan market, andthe majority of smaller projects, including hotels,residential towers and restaurants, are built on spec-ulation by landowners. The market structure is nowchanging, with increasing numbers of international


64

LibyaReal estate tops the list of lucrative investment opportunities


Libya: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 5,970,000 1.98 49,718 8327 4.50 1,752,000 28.1

2007 6,089,000 1.99 57,064 9372 4.40 1,830,000 31.1

2008 6,210,000 1.99 78,886 12,703 4.40 1,917,000 30.6

2009 6,333,000 1.98 88,359 13,952 4.40 2,014,000 30.5

2010 6,459,000 1.99 98,564 15,260 4.40 2,111,000 30.4

2011 6,587,000 1.98 107,523 16,323 4.40 2,209,000 30.3

LIBYA

developers acquiring land. The presence of big-namedevelopers such as Emaar, Tameer and Majid Al Fut-taim is a new development over the past few years.Major projects include the Zowara-Abu Kemash mega-project city development; Ghazala Towers, a $240mproject in Tripoli; and Tameer’s $20bn planned resi-dential city of Wadi Al Sharqui. Local Libyan compa-nies are unable to deal with the demand for largegrade A construction projects spanning all sectors.Although local costs are significantly lower thaninternational company prices, construction costs arebound to increase as international developers arerecruited to satisfy demand.RESIDENTIAL: The 2006 census recorded the Libyanpopulation at 5.3m and growing at an annual aver-age of 3-4%, while the current population estimatesare in the range of 6.2m. The provision of adequatehousing for all Libyans has been a top priority for thegovernment, and apartment buildings in the city arealmost all state-owned. Building stock in the centralareas is dilapidated, and newer suburbs on the extrem-ities of cities are where the bulk of residential con-struction is now taking place, much of it in the formof villa construction.

Most Libyans prefer living in independent housesand villas, so apartments are common only in thedowntown areas. A large number of new villas arebeing constructed as old buildings are being demol-ished. Despite interest rates being high and devel-opment lending hindering new construction, the res-idential market is undersupplied and in a period ofrising construction. International corporations aretending to build compounds for staff, causing take-up rates on residential compounds to slow.

The monthly cost of buying has been kept artifi-cially low and, even though the government is nowsubsidising less, prices are between $36,000 and$48,000 for a two-bedroom apartment, with month-ly payments of $160 to $320. International develop-ers such as Magna and Hashoo Group are buildingunits targeted specifically towards the luxury mar-ket. Sale prices at the higher end of the residentialspectrum were at an average cost of $1333 sq metre.

A recent decision by the government to supply500,000 new homes has seen a wave of residentialconstruction projects across the capital. Partner-ships with international construction companies haveintroduced realistic tenders and quality governmenthousing stock to the country, which will be offeredfor more realistic prices and rental agreements.COMMERCIAL: Libya is beginning to attract foreigninvestment, and new company registrations are ris-ing. While the chambers of commerce do not releasefigures, they report they receive more than 100 appli-cations in each major town monthly, translating toover 5500 new offices per annum.

The average size of a registered business concernin Libya is still small, but the commercial class is grow-ing rapidly, creating demand for office property. TheTripoli office market is highly diversified, ranging fromstate-owned multi-storey towers, privately owned

low-rise commercial buildings, to villas and apart-ments that have been turned into offices.

Owned office space is rare. All prime supply is cur-rently leased, together with the majority of second-ary and converted villa offices. There are propertiesthat are being developed in this sector, althoughthere are still very few of that are of significant sizeor extent that could have an effect on the currentdemand for office space. Demand is expected toremain at the present high levels and increase in theforeseeable future.

Villa conversions account for the majority of theoffice supply in Libya, with a number of governmentoffices and embassies using this as a solution. Mul-ti-storey buildings account for just over 3% of the totalstock in Libya. The Corinthia Business Centre is theonly genuinely grade A office space available. It is100% occupied and likely to remain so, consideringthat a number of tenants have signed 10-year leas-es. Rents in other office buildings have remainedstable at $30 per sq metre per month compared to$80 per sq metre per month in the Corinthia. The pricegap is more likely a function of poor management ingovernment centres than the market refusing toclimb above $30 per sq metre per month.

The rentals and lease terms in villas are similar tothat of the residential villas and apartments. OBG cal-culates that Tripoli requires over 1.9m sq metres ofoffice space, of which 5% should be prime. It is unlike-

65



Libya: tourism and hospitality indicators, 2006-11


2006 228,980 7.0 2.5 572,450

2007 222,197 -3.0 2.5 555,494

2008 244,417 10.0 2.5 611,043

2009 268,859 10.0 2.5 672,147

2010 295,745 10.0 2.5 739,362

2011 325,319 10.0 2.5 813,298

LIBYA

ly that future office supply will have a marked impacton the market, due to levels of latent demand, withannual additional take-up being just around 2% oftotal demand. Growth in the Libyan economy, and byinference in the office market, will not be exponen-tial, but is likely to operate on a steep curve. Rentsfor new luxury space will be set at more than $100per sq metre per month, and occupiers will pay abovethe odds for large units with an international stan-dard of fit-out and security.HOSPITALITY: The main source of demand for thehospitality market is business visitors who are asso-ciated with oil companies and who account for 70%of the overnight visits country-wide. However, leisuretourism is a government priority. Libya has a widerange of untapped potential in terms of sites, histo-ry and landscape. To this end, a government-focusedtourist development project in key areas such as Lep-tis Magna, Sabratha and Sebha is hoping to boostvisitor arrivals. The government targets a threefoldincrease in tourist arrivals by 2010.

Most visitors, whether on organised tours ortravelling independently, spend an average of twonights in Tripoli. Construction began in August 2007on Tripoli’s second international airport, set tobecome the new air traffic centre for the country,with the capacity to house 100 planes. Vinci of Fran-ce and Turkey-based TAV are the main contractors.

The average room rate (ARR) is relatively low, withthe exception of the Corinthia, whose current monop-oly allows it to charge four-times the average high-end hotel room rate. When new luxury supply entersthe market in 2009, ARR should standardise at $250to $300, in line with surrounding markets. The demandfor hotel accommodation is certain to increase onthe back of the growing oil industry.

There is demand for both four- and five-star hotels,not only in Tripoli but also in Benghazi and othercities, with occupancy rates in the range of 85-90%.According to February 2008 statistics from the Gen-eral Authority of Tourism, there are 13,638 roomsacross 268 hotels in Libya, of which only 10-20% aresuitable to be offered to the international market.Most high-end hotels are state-run and are oftenold, poorly furnished and lack the style and servicecomparable with international standards. However,they still enjoy high occupancy rates and guests areoften turned away because of the lack of vacancy.

A growing tourism market will also create demandfor new hotels. Any new hotel which is managed byan international brand and is of a five-star standardcan command an average rack rate of $400 per nightfor a standard room. Opportunities exist for a qual-ity internationally branded five-star hotel targetingbusiness visitors in Tripoli, as well as a resort hotelon the coastline close to archaeological sites.RETAIL: The retail market in Libya is poised to reactto the new market conditions being encouraged bygovernment incentives. Shopping centres have beensuccessful, with 100% occupancies in the new OasisCentre, Zakher Al Yamama and the Andalus Gate.

Some of the demand drivers include high dispos-able incomes, demand for foreign brands by higher-income groups and a lack of other leisure activities.However, existing laws make it difficult to introduceinternational brands to the market, and the lack ofpopular brands makes it almost impossible to collectsufficient rent to support the cost of shopping cen-tre construction.

In spite of these hindrances, the total number ofretail units increased from 69,845 to 122,821 between1995 and 2006. OBG calculates that 28,000 sq metresof climate-controlled space exists in Tripoli, a totalof 0.013m sq metres per capita, if using a popula-tion of greater Tripoli of 1.1m, as estimated by the2006 census. By 2010 this will have increased to 0.09sq metres, factoring in the compound annual popu-lation growth and the reopening of three of the for-mer government cooperatives, Souk al Juma, Souk alThalatha and Souk Ain Zara, as well as new retailspace inside upcoming mixed-use developments.

Preliminary studies by developers looking at open-ing dedicated malls suggest that they hope to achievemonthly rentals of around LD30-50 ($24-40) per sqmetre. Upcoming retail centre developers would bewise to take cultural norms into account by includ-ing leisure and play areas for children, distinct caféareas for men and women and locating their shop-ping developments centrally, in high-income areas.

66



Libya: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 5,970,000 9389 9.1 3.38

2007 6,089,000 9922 5.7 6.65

2008 6,210,000 10,429 5.1 8.00

2009 6,333,000 11,087 6.3 7.50

2010 6,459,000 11,607 4.7 7.00

2011 6,587,000 12,190 5.0 6.50

MOROCCO

The Moroccan government’s ongoing efforts to diver-sify the economy paid off, with GDP growth of 7.3%in 2006, up from 1.7% in 2005. Due to the droughtthat severely reduced agricultural output, however,the GDP growth rate slowed to 2.1% in 2007.

One of the major challenges that Morocco facesis high unemployment and underemployment. Whileoverall unemployment stood at 7.7% in 2007, urbanunemployment was as high as 33% among urbanyouths. Morocco’s unemployment rate fell to 9.1% inthe second quarter of 2008, down from 9.4% in thesame period in 2007.

Continued dependence on foreign energy andMorocco’s inability to develop small and medium-sized enterprises also contributed to the slowdown.Moroccan authorities are implementing reform effortsto open the economy to international investors.Strong ties with the US, liberalisation of the econo-my, and an inflow of funds from Moroccans workingabroad have all contributed, as have increased lev-els of foreign direct investment – from $2.5bn in 2005to $5.2bn in 2007 – and new laws permitting prop-erty ownership by foreign nationals.

Morocco is a low-income country trying to restruc-ture its economy away from an agricultural base andtowards more stable sources of growth. Sectors tar-geted for growth include industrial development,construction, services and outsourcing. Despite struc-tural adjustment programmes supported by the IMF,

the World Bank, and the Paris Club, the Moroccandirham is only fully convertible for current accounttransactions. In 2000 Morocco entered an Associa-tion Agreement with the EU and in 2006 entered afree trade agreement with the US. REAL ESTATE: The real estate boom, growing at amuch faster rate in Morocco than in the EU, is likelyto continue at least until 2010. Despite high manu-facturing costs, nationally produced cement is amongthe cheapest in the world and will continue to pro-vide a solid foundation for future growth in the con-struction industry. Future expansion and growth ofthe sector is currently constrained by a dearth ofwell-trained human resources. Programmes such asprivate training plans are necessary to ensure ongo-ing development. There is no doubt that future invest-ment success is certainly available in Morocco. Qual-ity construction and renovation could easily transforma town with potential, such as Fez or the ancientnorthern area Chefchaouen, into a success story.

Foreign developers have been attracted by the pri-vatisation and public offering of state-owned land,which initially covered 56,000 ha. The Plan Azur tocreate resorts in Saidia (Berkane), Lixus (Larache),Mazagan (El Haouzia, El Jadida), Mogador (Essaouira),Taghazout (Agadir) and Plage Blanche (Guelmim)has resulted in concessions being awarded to fourinternational developers. There are numerous high-end mixed-use developments, including the 6000-ha

67


MoroccoSeeking more stable growth sources through diversification


Morocco: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 30,436,000 0.97 65,405 3,922 5.30 11,273,000 9.7

2007 30,732,000 0.97 73,429 4,076 5.30 11,053,000 10.2

2008 31,030,000 0.97 84,402 4,385 5.30 11,218,000 9.8

2009 31,331,000 0.97 91,336 4,674 5.30 11,420,000 9.5

2010 31,635,000 0.97 99,079 4,985 5.30 11,586,000 9.5

2011 31,942,000 0.97 107,744 5,332 5.30 11,791,000 9.3

MOROCCO

Bab Al Bahr development in Bouregreg Valley; the$2bn Amwaj project; the $1bn Marrakech ReemInvestments development; Emaar’s $3bn Saphiradevelopment; Al Qudra’s $44m Loukos City; and QatariDiar’s recently launched $600m Al Houra Resort, aluxury resort project in Tangiers.RESIDENTIAL: Morocco is home to some 33.7m peo-ple, and the population is growing at a compoundannual growth rate (CAGR) of 1.53%. The urbanisa-tion of the population is also continuing apace, plac-ing increasing pressure on housing in urban centres.The demand for housing stock breaks down into 10%for luxury homes, 60% for moderate housing and30% for low-cost housing.

As a glut of upmarket homes appear on the mar-ket, and as the government concentrates on encour-aging low-cost housing developments, a gap in themiddle is also opening up. Despite a huge housingdeficit that has spurred real estate deals nationwide,12% of lodgings are empty. Nationwide, owners occu-py 64% of properties in Morocco and renters live inonly 29% of units. Nearly 500,000 units are unoccu-pied, most of which are new and of moderately highstandards. More than 10% of the nation’s housing isconsidered unhealthy. Low interest rates hinder therental market, and many people do not have faith inthe protections offered to renters by a relatively weaklegal framework. The rental market is fragmented

and inefficient, composed of individually built units,mostly non-contract-based, which restricts move-ment. A rent control policy in the form of a “noimprovement work, no rent rise” system, and tax poli-cies have somewhat disenchanted large privateinvestors in the rental market. However, the situationis gradually changing, with some new tax incentivesand the entry of fully fledged property consultancies.

The real estate sector is in the midst of the largestinflux of investment ever seen in Morocco. The indus-try is intent on convincing foreigners to purchasesecond homes and investors to buy into the marketon a large scale.

Upcoming supply is insufficient to meet a decades-old shortfall, and additional demand has, of course,worsened the situation. As a result, prices have morethan doubled over the past five years, rising by anestimated 30% annually in prime locations. Howev-er, prices are still below prevailing rates in other Mid-dle East and North Africa countries. High-end unitscost $1000-1500 per sq metre. Rental yields rangebetween 7% and 9%.

As such, the residential segment is bullish and isanticipated to leap ahead. Major projects include theSaidia coastal project, with 3000 high-end apartmentsand villas to be completed by 2013; the Spanish Fedesaproject in Ayamonte; and Al Houra Resort. Also plannedare the Emaar and ONA Group Bahia Bay golf commu-nity, scheduled for 2011; the Emaar Saphira project,scheduled for 2015, a 330-ha development; and theAl Omrane development, Tasmena, scheduled to becompleted in 2015, which will include 48,000 middle-income housing units and some 1400 low-income units.

Among the industry’s recent success stories is theentrance of Al Qudra Holding, a UAE-based compa-ny that plans to pump some $2.72bn into Moroccandevelopments over the next 10 years.

Strong government support is steadily building thesupply for the low-cost segment on the market. Realestate credit provided by banks has grown by an aver-age of 15% over the past three years, particularly dueto public policy that supports low-income housing.Falling interest rates have also helped – in 2004 theywere up 10-12%, but now developers can finance areal estate development for between 5% and 7%.Public-private partnerships (PPPs) are also stimulat-ing the real estate market, in particular via tax breaksoffered for those in the social housing sector. Devel-opers keen to buy land at knockdown prices can doso as long as they guarantee that 20% of the unitswill be low-cost housing. The government sells theland at reduced prices to public corporation AlOmrane, which sells the land, again at reduced prices,to a series of private developers.COMMERCIAL: The commercial sector is in the ini-tial stages of development, as Morocco has onlyrecently opened up its economy. The country isincreasingly seen as a regional centre for transporta-tion, transit and business. The nascent opportunitiesin real estate, finance, manufacturing, and the cur-rent emerging offshore outsourcing businesses, have

68



Morocco: tourism and hospitality indicators, 2006-11


2006 4,590,833 12.2 3.4 15,608,832

2007 5,095,825 11.0 3.4 17,325,805

2008 5,656,365 11.0 3.4 19,231,641

2009 6,278,566 11.0 3.4 21,347,124

2010 7,000,000 11.5 3.4 23,800,000

2011 7,735,821 10.5 3.4 26,301,791

MOROCCO

created an inflow of foreign companies to Moroccoand an expanded employment base.

Casablanca hosts the traditional central businessdistrict and has quality office space, such as theCasablanca Twin Centre. Casablanca is facing a hugespace deficit; it spreads over 18,000 ha but needs26,000 ha, given its population, and is only expand-ing at a rate of 1000 ha per year. Many developerswant to build vertically, but they are not getting thesupport they need from urban planning authorities.

Vacancy rates have been falling and rents rising inseveral locations. Rates range between $20 and $30per sq metre for grade A space. Commercial yieldsare published at 8-9%. Several projects are underway and are expected to spark the evolution of acompetitive office sector. Among these are Casablan-ca’s Casanearshore, which will deliver a total of250,000 sq metres by 2010 to be followed by RabatTechnopolis, TangierShore and MarrakechShore, alltargeting information and communications technol-ogy firms. The growth of the office sector is direct-ly proportional to the growth of the offshore sector,and the demand for new offices will depend on thegrowth of the outsourcing industry in the kingdom.HOSPITALITY: Tourist development is a part of thegovernment’s “Vision 2010” plan, which aims to attract10m tourists to the country by 2010. Visitor numbershit a record high of 7.7m in 2007, a 13% increase from2006. Provisional statistics also showed a jump of 12%in tourism revenues to $7.6bn. A part of the strategyis the promotion of new beach destinations, with sixseaside resorts already licensed by the Tourism Min-istry. These will increase capacity by 111,000 beds,of which 70,000 will be located in hotels.

The government intends to invest $12bn in orderto achieve these goals. The government is trying toensure a higher standard of tourism facilities byencouraging renovation of existing hotels and reclas-sifying hotels to conform to international standards.Over the past five years, foreign tourist arrivals – pre-dominantly leisure travelers – grew at CAGR of 10%,and 2006 witnessed a dramatic increase of 17%, toreach 3.6m, from 3.1m in 2005. Tourism’s growth was15% in February 2008.

Vision 2010 aims to create 80,000 hotel rooms, ofwhich 65,000 will be located on the coast, and theremaining inland at cultural destinations. Meetings,incentives conventions and exhibitions tourism isbeing developed with the establishment of huge con-vention facilities in the area.

Several hotel establishments have already com-mitted to build in the country; projects in the pipelineinclude a five-star hotel in Amwaj, hotels in MarinaCasablanca, and several other developments. Largereal estate development investments from within theMiddle East will also have a huge impact on Moroc-can tourism. Upcoming supply is not expected to beenough to cater for demand, and therefore the mar-ket has great investment potential.RETAIL: The retail market is building a strong foun-dation in Morocco. Market growth of 22.5% over five

years (2001-05) stems from the emergence of a mid-dle class with higher disposable incomes and new pat-terns of consumption. The arrival of clothing andshoe franchises has expanded the market to 308chains operating within nearly 2000 outlets.

However, the sector is still undeveloped, with onlya few shopping malls, most of which are small in size,and the market remains dominated by street-frontshops. Retailing is concentrated in Casablanca andRabat. The popularity of hypermarkets and supermar-kets is increasing, influenced by the appeal of the one-stop shop concept.

As demand grows for high-end retail space, prop-erty prices are on the rise, with retail spaces inCasablanca and Rabat commanding between $2500and $5500 per sq metre. Facilities are improving.Mega Mall in Rabat offers space for rent in returnfor management, administrative and marketing serv-ices. Banks now offer franchising loans at 6.95% inter-est up to seven years, and will cover up to 70% of thetotal investment, which is expected to boost the mul-ti-chain system, creating potential for new retail space.

Overall, the Moroccan retail property market offerssizable opportunities. However, the large share iscurrently occupied by the informal economy and thecompetition from counterfeit and contraband prod-ucts poses a structural challenge to the industry,despite brand awareness spreading in the population.

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Morocco: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 30,436,000 39,989 19.8 3.29

2007 30,732,000 44,788 12.0 2.04

2008 31,030,000 49,937 11.5 2.00

2009 31,331,000 57,139 14.4 2.00

2010 31,635,000 64,361 12.6 2.00

2011 31,942,000 72,633 12.9 2.00

TUNISIA

In 2007 growth in real GDP accelerated to 6.3%, con-tributing to lower unemployment. With food and oilcosts rising sharply, and the Tunisian dinar weaken-ing against the euro, inflation is expected to reachan average of 5.5% in 2008, easing to 4.1% in 2009.Average annual income per capita in Tunisia isapproaching $3000. Tunisia has a diversified econom-ic base, which includes agriculture, manufacturing,tourism and services, though industrial productionrepresents about 28% of GDP. Manufacturing indus-tries, producing largely for export, are a major sourceof foreign currency revenue along with tourism.Tunisia’s large expatriate population, about 1m, alsomakes a positive and significant contribution.

The Tunisian economy is open to foreign direct invest-ment (FDI), although it screens potential investors toreduce the impact on domestic competitors, certainsectors and the employment market. FDI in Tunisiareached a record $1.8bn in 2007, which was an increaseof 36% over the previous year’s figure. EU countries cur-rently remain the leading provider of FDI to Tunisia andthe country has signed an association agreement withthe EU, which went into effect on January 1, 2008. Theagreement eliminates Customs tariffs and other tradebarriers on a wide range of goods and services.

Tunisia’s population increased from 8.9m in 1994to around 10.4m in 2008 and the current popula-tion growth rate has been estimated to be 0.98%.

REAL ESTATE AND CONSTRUCTION: Several newlarge projects are under way, including Sama Dubai’sCentury City in the capital’s centre and Bukhatir’sTunis Sports City. The largest project coming up out-side Tunis is from Emaar Properties, which announcedthe building of the $4.5bn coastal resort Al Qous-sour. In 2007 other Arab property developers, suchas Al Maabar, Damac and the Gulf Finance House havealso expressed an interest in investing in Tunisia.

Despite the rising price of construction materials,Tunisian construction firms stand to profit from allthese developments and investments, as foreigninvestors are likely to outsource part of their proj-ects. Urbanisation is one of the major drivers for realestate development; the urban population is grow-ing at an annual rate of 2.8% per year. Thus there isa high demand from buyers for higher standard ofbuilding and community design. The key developmentarea in Tunis is the northeast between the downtownand the coastal areas, such as Sidi Bou Said and LaMarsa. Lac Nord has been one of the main areas ofdevelopment for more than a decade.

One of the main issues in the construction sectoris the rising cost of materials as well as labour costs,which have been rising due to industry wages beingset by the unions. The workers’ unions have a stronginfluence on the market.

Out of the 1206 registered private developers in


70

TunisiaHigh demand and an expanding economy drive growth


Tunisia: economic and demographic indicators, 2006-11Population Population GDP ($m at GDP per capita Average Labour force Unemployment

growth (%) current prices) ($ at PPP) household size rate (%)

2006 10,172,000 1.29 30,962 3044 4.50 3,503,000 13.9

2007 10,304,000 1.3 35,010 3398 4.48 3,593,000 13.9

2008 10,438,000 1.3 39,244 3760 4.47 3,676,000 13.9

2009 10,574,000 1.3 43,476 4112 4.45 3,764,000 13.9

2010 10,711,000 1.3 47,128 4400 4.44 3,851,000 13.9

2011 10,851,000 1.31 51,299 4728 4.42 3,935,000 13.9

TUNISIA

the country, only around 100 are currently active onongoing projects. Recently, some major Arab devel-opers, such as Dubai Holding, Bukhatir and Emaar,signed major deals to join the real estate market.RESIDENTIAL MARKET: The government takes a keeninterest in the housing sector in Tunisia, intervening inthe market to help enable families to own housing suit-ing their needs and budget. The state builds 15% ofhomes, most of which are social housing, and this inter-vention has been successful and has led to a decreasein slum housing. Nationwide, 80% of new houses arebuilt by individual house-owners, with state-owneddevelopers making up 3% of construction. Private devel-opers account for the remaining 12-15% of construc-tion. Under the 11th development plan (2007-11), thegovernment aims to build a further 300,323 homes fora cost of $7.79bn. Half of these homes will be for socialhousing, 40% for middle-class dwellings, while theremainder is reserved for luxury apartments and villas.

It is estimated that only 20% of households renttheir houses in Tunisia. For renting the most populardemand is studios, one- and two-floor apartments. Withan emerging trend for wealthy families to move toapartments in central Tunis to avoid long commutes,there is a demand for luxury apartments.

Population growth and a decline in household sizehave fostered growth in demand, with an estimated45,000 new households being created each year. Apotential market also exists in people from neighbour-ing countries. According to the Ministry of Tourism,there are 1m Libyan and 700,000 Algerian visitors toTunisia per annum. Purchase of property for foreign-ers in Tunisia is possible but difficult, requiring per-mission from a district governor, which can arbitrar-ily take two months or seven months. But the legalframework to invest in second homes is becominggradually easier, with the introduction in May 2005of a new land law. The market for foreign investmentis thus underdeveloped, yet shows good potential, par-ticularly for the retirement market.

Tunis’s top residential areas have traditionally beenthe coastal suburbs, such as Carthage, Gammarth andSidi bou Said. Following the rehabilitation of Lac duNord, several new prime suburbs have been created.Prices in Tunis depend primarily on location. Construc-tion of high-end villas can cost $680 to $850 per sqmetre without the land. Recent sales have seen pricesrise as high as $1.9m for villas on plots of 1000 sqmetres. Outside Tunis, most top residential propertiesare located between Nabeul and Sousse, a popularregion for both Tunisians and foreigners seeking a sec-ond home. Prices depend on location, but are gener-ally between 20% and 30% lower than similar proper-ty found in and around Tunis.

The current supply of luxury accommodation is notmeeting current needs. With the completion of Lacprojects and new Emirati developers coming intothe market, for instance the Century City by DubaiHolding and Emaar in Hergla, the supply is predict-ed to increase. Though there will be considerabledemand new construction may lead to oversupply.

OFFICE SECTOR: There is a broad consensus thatbuy-to-let or construct-to-let office space is themost lucrative real estate niche in Greater Tunis.Demand is considerably high, particularly in the smalland medium-sized enterprises bracket of local com-panies, such as call centres and IT firms, and the grad-ually growing number of multinationals setting upin Tunis. Tenants in grade A office spaces comprised50% information and communications technologyfirms, along with 15% financial services, 15% mediaand communications, 10% medical and legal profes-sions and 10% other.

The newest and most burgeoning office area with-in Tunis proper is located northeast of the city cen-tre. Rental prices are some $30-$50 per sq metre permonth. In Central Tunis pricing is relatively low at $16and $30 per sq metre per month. Problems with traf-fic circulation and a lack of parking have encouragedcompanies to move to the emerging office districtof Les Berges du Lac.

New offices under construction in Montplaisir,Les Berge Du Lac and 2500 office spaces announcedin Dubai Holding’s Century city are likely to meetdemand in future. Office space in Les Berge Du Lacis in greatest demand, especially from foreign com-panies. Embassies, banks, oil companies and othersectors are moving their headquarters here. Thearea houses a variety of multinational companies,

71



Tunisia: tourism and hospitality indicators, 2006-11


2006 268,000 4.5 3.5 938,000

2007 280,060 4.5 3.5 980,210

2008 292,663 4.5 3.5 1,024,319

2009 305,833 4.5 3.5 1,070,414

2010 319,595 4.5 3.5 1,118,582

2011 335,261 4.9 3.5 1,173,412

TUNISIA

including LG, Xerox, IBM, British Gas, Arab BankingCorporation, Ericsson and petroleum companies.Office space rents average out at $95-105 per sqmetre per month, and yields are between 3% and 4%.An estimated 80% of rented office space in the LakeI are foreign companies and the remaining 20% areTunisian companies that deal with foreigners. RETAIL SECTOR: Tunisia’s commercial sector lags wellbehind more developed countries in the building ofWesternised shopping patterns and facilities. Onlyrecently large-scale retail distribution appeared, andit is still limited to the Greater Tunis area. Nation-wide, the sector is estimated to employ some 450,000Tunisians. The retail labour force is at least 95% ofTunisian nationality and there is no shortage of aworkforce. The sector is restricted both by an unwill-ingness on the part of the government to allow com-petition from supermarkets and also by politicalpatronage networks which are able to retain keynew developments in the hands of a very small num-ber of politically favoured groups.

Small, often family-owned, shops still dominatethe Tunisian retail sector. Small-scale commercefrom these individual outlets still accounts forbetween 85% to 90% of the turnover of the retailsector, according to government figures. One note-worthy shopping phenomenon in Tunis itself is thecontinued popularity of the traditional medina for

everyday goods, second-hand clothes and hardware.International retail brands are brought to Tunisiaunder licences which are generally awarded to asmall number of politically-privileged groups. Theselicences or franchises are very difficult to obtainbecause of the government’s protectionist policies.

Pricing range for retail varies widely according toprecise location but for a prime spot in central Tunis,$20-$50 per sq metre per month is normal. In LesBerges Du Lac pricing is more expensive than in cen-tral Tunis, at $40-$60 per sq metre per year and thetenant profile is individually-owned boutiques, jew-ellers, and some international brands. Many of themedina shops are family-run and have been passeddown through several generations. Tunisians as con-sumers are becoming increasingly aware of brands,sophisticated in their shopping choices and in gen-eral terms are spending more money on non-essen-tial items. Malls are a relatively new phenomenon inTunisia. Only two of the existing facilities– Tunis Cityand Carrefour – are on the scale of malls elsewhere,and even they are based around the dominant pres-ence of a hypermarket. HOSPITALITY: Tunisia is the leading tourist destina-tion in North Africa. The government aims to attractsome 10m tourists by 2010. However, there has beencriticism of a market characterised by mass tourismand low occupancy rates. The Tunisian hotel sectoris dominated by low-cost seaside hotels often man-aged by integrated tour operators. Roughly a quar-ter of the country’s hotels are in the Djerba-Zarziszone on the eastern seaboard and another quartercan be found in the Nabeul-Hammamet resort area.

Despite the developed infrastructure and copiouscapacity, the sector faces a number of serious chal-lenges including massive seasonal dependence, deepfinancial debt, an oversupply of rooms, mixed cus-tomer service standards and a low rate of return vis-its. Tunisia has an over-capacity of rooms and beds,with occupancy rates of 90% in summer in somehotels, and as low as 22% out of season. With spend-ing per visitor at just over $300, authorities have beenworking to the broaden the country’s appeal to high-er-income segments. While Tunisia’s hospitality sec-tor leans heavily on seasonal leisure tourism, themarket in the capital is orientated towards businessvisits. Tunis has a high volume of five-star hotels incomparison to the rest of the country.

International brand penetration in Tunisia is high,with major players such as a Accor, Sheraton, Mar-riot and Best Western owning and operating prop-erties in the city and its outer suburbs. Tunisianchains El Mouradi and Abou Nawaz own five-star hotels in Tunis, and there is a high volume ofindependent hotels. Around 90% of the country’shotels are managed either individually or by Tunisianchains. Chief amongst these are Abou Nawas, ElMouradi, Golden Yasmin, Les Orangers, Marhaba,Miramar. Most foreign hotel companies active inTunisia do not own their hotels outright but rathersign management contracts with the local owners.

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Tunisia: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 10,172,000 19,556 7.0 4.5

2007 10,304,000 21,030 7.5 3.15

2008 10,438,000 22,229 5.7 4.7

2009 10,574,000 23,727 6.7 3.5

2010 10,711,000 25,307 6.7 3.3

2011 10,851,000 26,918 6.4 3.1

NIGERIA

The Nigerian economy, oil-dependent for over twodecades, is moving towards diversification. Oil has madeNigeria rich, even if oil funds have been unequally dis-tributed. However, overdependence on hydrocarbonshas led to problems in the Niger Delta, declining ratesof production and the low rate of employment.

Non-oil sector growth has been increasing steadily,allowing the economy to consistently outstrip targetsestablished under the IMF’s Policy Support Instrumentprogramme, which has been operational since 2005.Total external debt fell steeply from more than $22.2bnin 2005 to $6bn in 2007, reflecting substantial debt reliefas well as the accelerated repayment of debt by theNigerian authorities themselves. Government capitalspending more than doubled over the same periodand $1bn of debt relief was allocated to a virtual pover-ty fund in both 2006 and 2007.

The current account balance has seen some partic-ulary healthy improvement from -2.7% of GDP in 2003to 9.7% in 2007, and the surplus is expected to growduring 2008-12 due to exceptionally high export earn-ings, mainly from petroleum, since it accounts for morethan 90% of foreign exchange earnings.

Despite the healthy rate of growth, a number ofproblematic economic issues have yet to be resolved.Corruption is a key problem, and one that the govern-ment is working to address. The World Bank estimatesthat due to corruption, approximately 80% of all oil rev-enues benefit only 1% of the total population.

Forecasts for the Nigerian economy by most inter-national agencies are positive. Oil and non-oil growthare both expected to grow in 2008, with an increasein oil production and economic reforms encouragingthe non-oil sector. Forecasts of GDP growth in 2008are at 7.4%, while foreign direct investment in the oilsector should remain above $2bn in2008. Nigeria isexpected to make the list of the 20 largest economiesby 2025, overtaking Italy, Canada and Korea by 2050. REAL ESTATE AND CONSTRUCTION: The real estatesector has seen sustained growth since the beginningof 2000, with developers beginning to build homes foraffluent Nigerians. Abuja is dotted with many of theseestates, as are Lagos and Port Harcourt. As such, thevalue of real estate and business activities grew by a30% compound annual growth rate from N167bn($1.6bn) Naira to N809bn ($6.51bn) from 2000 to 2006.The development of the real estate market has beentriggered by an increase in the number of projectsapproved and under construction in Nigeria. Accord-ing to the central bank’s housing construction index,from 1998 to 2005, approved projects in residential,commercial and industrial segments have increased byan average of 29%, 15% and 27%, respectively.

Buildings under construction exhibit a similar upwardpattern with residential construction climbing 145%,commercial up 46% and industrial up 47% over thesame period. A contraction in actual construction activ-ities from 1997 (the HCI base year) occurred and is

73


NigeriaA diversifying economy spells a bright future


Nigeria: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 140,004,000 2.75 146,889 1049 5.10 49,621,000 11.0

2007 143,854,000 2.75 166,778 1159 5.16 50,129,000 11.0

2008 147,810,000 2.75 219,937 1488 5.23 51,299,000 10.0

2009 151,874,000 2.75 250,626 1650 5.29 52,418,000 10.0

2010 156,051,000 2.75 273,118 1750 5.36 53,596,000 10.0

2011 160,342,000 2.75 292,326 1823 5.43 54,581,000 10.0

NIGERIA

attributable to a preparatory period for democratictransition when political tensions affected the realestate market, as developers were reluctant to build inview of political and economic crises at that time. RESIDENTIAL MARKET: Massive urban migration (5.3%)has placed pressure on the number of available hous-ing units in the country, especially in Lagos and, morerecently, Abuja. The Federal Housing Authority calcu-lates that there is a deficit of 12m homes in Nigeria.

Over 120,000 housing units per annum are neededto meet the immediate needs of those who seek to buytheir own house in Nigeria, while official estimatesplace the requirements at 1.5m houses annually toattain the goal of “housing for all” as spelt out in thefederal government’s housing policy. At present, justas oil funds are inequitably distributed, with approxi-mately 80% of oil wealth going to just 1% of the pop-ulation, there is significant disparity in housing.

The lack of housing is most apparent in Abuja, withthe Federal Capital Territory having been selected asthe capital and government employees moved to thenew city before an adequate supply of housing couldbe assured. Infrastructure provision has also laggedbehind, with the result that apartment rentals areincreasing more than 10% and villa rates more than 17%annually. Costs per sq metre can reach up to $1700.OFFICE SECTOR: Lagos remains the commercial cap-ital of Nigeria, even though the political capital was

moved to Abuja almost 30 years ago. Most large pri-vate sector national and international companies stillhave their head offices in Lagos.

Office space in Nigeria is often of a poor standard,with unreliable infrastructure and a lack of proper fit-ting. A new generation of dedicated office buildings areunder construction in Lagos, Port Harcourt and Abu-ja, but very few reach international standard. Interna-tional firms frequently choose to construct their ownspace. This means that sales of office space are rare.Minimum lease periods in the rental market are twoyears, but some leases extend up to five years, with rentpaid in advance for the entire period of lease.

The lack of dedicated historic supply means that res-idential to office conversions are common. Most villaconversions are located in high-end residential areasoccupied by international firms or embassies and highcommissions. Commercial rents in residential areas arehigher than those payable in central business districts,though some international tenants prefer to use villasrather than the low-quality space available in commer-cial buildings. In the capital, villas usually rent on theresidential market for $40,000 per year, while commer-cial tenants have to pay $120,000 per year, or $600 persq metre, which is five times higher than the averagerent in dedicated commercial buildings.

In the capital commercial rents have been risingsteadily with the average rent in the CBD more thandoubling since 2001 and increasing 20% since 2006.RETAIL SECTOR: Despite a sizeable natural consumerbase, rising disposable incomes and stable growth inconsumption pattern, growth in the retail sector hasbeen disrupted by inconsistent governmental policy,which includes importation bans on some consumerproducts and the disruption of retail projects in freezones. The 40,000-sq-metre Tinapa Shopping Mall Proj-ect, with free zone status, for instance, is currently sus-pended during Customs investigations, despite beingnamed as a government pioneer project. The 23,000-sq-metre Palms in Lagos remains the only enclosedshopping centre of any size, although up to 20 proj-ects of similar size are under planning.

The retail market is in the early stage of its evolution,with the first categorically branded regional mall, the23,000-sq-metre The Palms (Lagos), established in2006, the 40,000-sq-metre Tinapa Shopping Mall (Cal-abar, Cross River) in 2007 and the 6000-sq-metre Ced-di Plaza (Abuja) in 2004. Mall space is typically absorbedduring early phases of construction and even the Tina-pa project is 50% leased by a mix of local, regional andinternational retailers, despite high-profile difficulties.

With formal retail supply new to the market, Nigeriaretail remains concentrated on street trading and localmarkets. International brand penetration is minimal,and restricted only to Lagos, as Abuja has no retailspace acceptable to international retailers. This struc-tural deficiency ensures that an estimated $5m leavesNigeria every day as affluent locals travel to shop in Dubaiand the EU. Industry players estimate that around 500Nigerians travel to Dubai every day, spending anywhereup to $10,000 each on travel expenses and shopping.

74



Nigeria: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 140,004,000 90,387 15.7 8.34

2007 143,854,000 101,265 12 5.47

2008 147,810,000 114,784 13.3 8.59

2009 151,874,000 129,654 13 8.5

2010 156,051,000 150,926 16.4 8.5

2011 160,342,000 172,180 14.1 8.5

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Asia & Far EastIndiaSri LankaPakistanIndonesiaMalaysiaThe PhilippinesSingaporeThailand

INDIA

In 2007-08 the Indian economy continued to expandat a robust pace for the fifth consecutive year,although there were signs of moderation in thegrowth momentum. GDP grew by 9% in 2007 to reach$1099bn, compared to 9.4% in 2006. The industrialsector grew by 8.1% and the services sector, whichaccounts for nearly 63% of GDP, grew by 10.7%.

The overall growth of the service sector has beenlargely driven by the performance of the trade, hotels,transport and communication services sub-sectors,which have registered double-digit year-on-yeargrowth rates over the last four years. In addition, thefinancial services sector registered year-on-yeargrowth rates of 13.9% and 11.8% in years 2006-07and 2007-08, respectively.

Economic performance has been accelerated byhigh rates of investment, credit growth with gener-ous domestic savings (34.8% of GDP), robust exportearnings, as well as strong fiscal consolidation. Withthe economy reasonably open to foreign investors,foreign direct investment has increased by 47% fromaround $22bn in 2006-07 to $32bn in 2007-08, andis set to continue increasing substantially.

The sheer size of the market remains a key sourceof strength. A report by Goldman Sachs has suggest-ed that rates of growth over 5% annually could per-sist in India for an extraordinary 50 years. With 1.14bnconsumers and a middle class estimated at close to

250m people, demand for residential, commercial,retail and hospitality space will continue to grow.Income is also rising, with an estimated 6.2m house-holds now having an annual income of over $5400.

Inflation based on the wholesale price indexincreased to 11.9% in July 2008 compared to 5.77%in 2007, reflecting the impact of higher internation-al crude oil prices and strong demand for commodi-ties. Against this backdrop, the Reserve Bank of India(RBI) was forced to reduce the liquidity within theeconomy. It hiked up the cash reserve ratio by 125basis points to 8.75% during April-July 2008 in fivestages of 25 basis points each. The repo rate, underwhich it finances commercial banks, was raised twiceduring the same period by 75 basis points to 8.5%.

India ranks amongst the top economies on mostindices maintained by international consultants,including those maintained by OBG. There are signs,however, that a greater attention to market realitiesmay be creeping into the Indian dream. Firstly, returnsare forecast to fall to 12% to 20% in future years, downfrom past yields as high as 30%. Secondly, the mon-etary interventions by the RBI have had a directimpact on the real estate industry, as indicated bythe lending figures. Government statistics suggestthat in the year up to May 2008, credit to commer-cial real estate rose by just under 32% year-on-year,while housing credit increased by less than 14%,


76

IndiaA very large market continues to expand


India: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 1,112,996,000 1.55 877,224 2406 5.30 506,920,000 7.8

2007 1,129,978,000 1.53 1,098,945 2659 5.30 516,430,000 7.8

2008 1,146,936,000 1.50 1,232,946 2886 5.30 525,940,000 7.8

2009 1,164,148,495 1.50 1,357,232 3129 5.30 535,490,000 7.8

2010 1,181,619,304 1.50 1,499,135 3396 5.30 547,260,000 7.8

2011 1,199,352,305 1.50 1,654,288 3694 5.30 558,910,000 7.8

INDIA

down considerably from 2007, which showed growthin lending to the real estate sector to be just under90% and over 30% for housing alone.

Despite increasing land prices, in 2007 the sec-tor saw sustained interest from a growing numberof foreign investment firms, such as CapitaLand,Deutsche Bank, Goldman Sachs and Merrill Lynch,resulting in a number of deals. Some are even financ-ing riskier projects involving land parcels with exist-ing tenants who need to be resettled, while somefunds have tied up with local developers in the re-development of the Dharavi slum area. Partnershipsinclude HDIL with Lehman Brothers, Akruti Nirmanwith Limitless and Oberoi Constructions with ShimaoGroup, a major Chinese developer.

However, a number of the deals by foreign fundswere made during a period when the real estate sec-tor in India was on a high-growth trajectory, whichhas been stabilising from the end of 2007 onwards.Thus, despite the line-up of substantial funds, high-cost entry barriers are prompting some firms to notdeploy all of their resources. KEY DEVELOPERS: Given the size of the country andits regional variations, major developers are actingon a regional rather than national basis. But in thelast couple of years, a handful of developers, suchas Ansals, DLF, HDIL, India Bulls, Parsvnath, Sobha andUnitech have listed their companies on Indian sharemarkets in a bid to raise funds for expansion acrossIndia. These developers, while strong in their ownhome markets, have had to rely on regional tie-upsto get projects moving.RESIDENTIAL: India has the second-largest popu-lation in the world, growing at an annual rate of 1.6%,with 32% of the population below 14 years of age.According to the government’s 11th five-year plan,which expires in 2012, India is facing a housing short-age of around 24.7m units. This shortage has led toan additional annual housing requirement current-ly estimated at 360,000 units by the end of 2012.At present the government estimates that $84bnworth of investment will be needed to reach targetsfor housing the growing population.

In 2007 the total stock of residential units was esti-mated at around 58.8m. Defined as households withan annual income of over $2250, the middle- andupper-income population showed a 14% and 21%compound annual growth rate (CAGR), respective-ly, between 1996 and 2006 and is forecast to increasefurther by 15% and 22% CAGR by 2012. Demand forhousing in the middle- to upper-income sector isexpected to hold at around 1m units annually until2012. This has sparked a plethora of apartment proj-ects, especially in major cities like Mumbai, Delhi,Chennai and Bangalore, with vacancy rates remain-ing low at between 5% and 8%.

Prices and capital values have appreciated by ratesas high as 50% to 150%, and property prices current-ly range between $1500 per sq metre and $6400 persq metre in prime locations. Rents have risen by 50-100% and now range between $45 per sq metre to

$190 per sq metre per month for prime apartmentunits in primary cities. However, recent reports sug-gest that rising interest rates have slowed down theoff-take of residential units and developers havebeen forced to reduce prices or hold on to them.COMMERCIAL: Both rental values and capital val-ues for office spaces in the CBD and surroundingareas have showed an appreciation of approximate-ly 45-50% in 2007. Nevertheless, in 2008, excludingCBD and off-CBD micro-markets, rental rates andcapital values in micro-markets have remained rel-atively stable. The global market slowdown has alsohad an effect on the local real estate market withtenants deferring or re-evaluating their long-termplans. Earlier commitments are now being down-sized, which has directly affected the demand situ-ation in some micro-locations.

There is a substantial likelihood of a marginal cor-rection in some micro-markets on account of theupcoming supply in the second half of 2008 andbeginning of 2009. The development of a numberof special economic zones (SEZs) around the coun-try should make surplus office space available atcompetitive rates in the future. It is expected thatthe focus of office activities may shift from the CBDsto SEZs on the outskirts of cities due to the avail-ability of better infrastructure and quality of con-struction, as well as cheaper rents and tax benefits.

77



India: tourism and hospitality indicators, 2006-11


2006 3,648,019 1.5 3.4 12,403,263

2007 4,038,790 10.7 3.4 13,731,887

2008 4,796,988 18.8 3.4 16,309,761

2009 6,835,224 42.5 3.4 23,239,761

2010 7,897,716 15.5 3.4 26,852,233

2011 9,217,554 16.7 3.4 31,339,684

INDIA

Sales prices now range between $10,000 and$13,500 per sq metre for prime locations. With costsrising, rents are also increasing and reached $1100to $1500 per sq metre in CBDs. Yields remain com-paratively stable at 10-12%.

Primary cities studied by OBG anticipate a doublingor tripling of high-end stock by 2011-12. However,modelled demand suggests that this supply may beabsorbed depending on the performance of the ITand outsourcing industries during the period.RETAIL: India is regularly ranked as the most appeal-ing market for retail development, having topped ATKearney’s Global Retail Development Index for thepast three years. According to the Ministry of Com-merce and Industry, organised retail supply is increas-ing at a rate of more than 25% annually and is in stepwith population growth, which sees 20m to 25mpeople enter the middle class each year.

Retail analysts have called for the developmentof 600 shopping centres in India over the nextdecade, of which at least 200 are planned or alreadyunder development. However, there is concern thatincome and spending simply may not be able to sus-tain this level of development. Shopping patterns willalso need to change, with land availability and acomparatively low incidence of car ownership impact-ing appetite for large out-of-town centres.

Throughout India total mall space remains lessthan 6m sq metres, 1m sq metres of which is con-

centrated in Bangalore, Chennai, Mumbai and Del-hi. New supply will also be concentrated in thesecities, with expected supply close to tripling by 2010,and very little formal retail space in the 784 townswith populations of more than 50,000 people.

Following the liberalisation of investment laws,interest among international retailers such as Car-refour, Wal-Mart and Tesco has increased. Howev-er, regulations demand a joint-venture with a localpartner, so Walmart joined with AV Birla Group in2007 and Tesco with the TATA group in 2008.

The average rentals in investment-grade retailventures has been increasing since 2005, rising by25-30% in 2007 alone, primarily because of limitedsupply and improvement in terms of tenant profile,mall management and facilities offered. Averagerents in the malls in prime locations in the largestcities are in the range of $1050 to $1500 per sq metre.Given the current economic scenario, coupled withthe anticipated increase in the total retail mall space,there could be a rise in vacancies and a stabilisationin rentals in the near future.HOSPITALITY: Approximately 5m foreign visitorstravelled to India in 2007, up from 4.4m in 2006.Tourism revenues in 2007 showed a substantial rise,having increased by 33.8% to reach almost $12bn,up from the $8.93bn recorded in 2006.

Compared to developed leisure markets such asMalaysia (20.97m in 2007) or Thailand (14.46m),the number of foreign arrivals remains compara-tively low. However, these figures do not take intoaccount domestic tourism, which accounts for morethan 75% of hotel stays and business visits accountfor around 60-80% of demand. This part of the mar-ket is now being exported, with high room rates inMumbai, Bangalore, Delhi and other cities making itcost-effective for businesses to transfer events andconferences to surrounding countries.

The total number of hotel rooms was reported tobe around 110,000 in 2007, of which over one-thirdare in the four- and five-star categories. Occupan-cy rates in the high-end hotel segment averaged73% in 2007, but are over 90% in commercial cities.The average room rate for four- and five-star hotelsin primary cities is around $230. In 2007 hotel ratesin Mumbai climbed by 30% over a six-month period,ending at more than $300 and placing India’s com-mercial capital on the list of global cities where roomrates are growing most quickly.

With an undersupply and comparatively low oper-ating costs, the hotel sector has attracted a largenumber of developers and as many as 100,000 newhotel rooms are expected to be released onto themarket by 2010. This supply will again be concen-trated in India’s commercial centres and room rates,which have increased by 8% annually since 2002,are expected to stabilise.

This reaction has already been observed inBangalore, where slowing hospitality demand,connected to the IT sector, caused average roomrates to decline by as much as 10% during 2007.

78



India: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%)

expenditure ($m)

2006 1,112,996,000 512,267 9.4 6.20

2007 1,129,978,000 567,611 10.8 6.40

2008 1,146,936,000 625,003 10.1 5.20

2009 1,164,148,495 690,362 10.5 4.00

2010 1,181,619,304 761,361 10.3 3.90

2011 1,199,352,305 840,320 10.4 3.90

SRI LANKA

In spite of the fractured peace process between theSri Lankan government and the Liberation Tigers ofTamil Eelam (LTTE), the country’s economy contin-ues to witness a growth rate of above 6%. Socialinstability and rising inflation, which continues to beabove 25% per year, remain the major concerns forthe government. Recently the government allocat-ed 18% of its Rs925bn ($8.59bn) budget to defencespending, after quitting an internationally brokeredceasefire and pledging to destroy the LTTE in Janu-ary 2008. Against this backdrop, the country hasexperienced strong economic growth, which reached7.4% in 2006. However, 2008 witnessed a slowdownin which expansion fell back by 1.4% to 6.2% in thefirst quarter compared with 7.6% in the fourth quar-ter of 2007. A contributing element to the country’sfairly good growth rate is the unexpectedly strongincrease in foreign direct investment (FDI), whichaveraged $282.2m per annum in 2002-06 and isestimated to be equivalent to 14% of GDP in 2007.

Real estate and construction remain comparative-ly stable. Construction has consistently accountedfor 6% of the Sri Lankan economy since 2003. Sec-tor growth has begun to pick up only over the pastthree years, with 9% growth recorded since 2004.Housing developments, particularly in the post tsuna-mi reconstruction phase, have also been hamperedby spiralling construction costs, which have increasedby more than 30% per year. The industry has lost out

on investment, however, as the result of prohibitivereal estate investment regulations, which include a100% property tax for foreign buyers of freeholdreal estate. Therefore, few foreigners purchase prop-erty and expatriates tend to restrict themselves toleased property. The biggest driver of the real estatesector is the tourism and second-home market.Despite the 2004 tsunami and the prospect ofrenewed civil war, the number of tourist arrivals hasremained steady since 2003 at about 550,000 visi-tors per year. However, the second-home market islargely driven by expatriate Sri Lankans looking toinvest in their country and planning for their futurereturn. The UK is a key market for these potential buy-ers, with approximately 10% of demand for residen-tial property in Sri Lanka coming from Britain. Manynew condominium properties in Colombo are beingmarketed aggressively.RESIDENTIAL: Sri Lanka has a population of 20.3m(2007) and an annual growth rate of 1.1%. Over 46%of Sri Lankans are under 25 years old, indicatinghigh levels of future demand. A supply gap of approx-imately 284,330 residential units was exacerbatedwhen more than 78,000 homes were destroyedacross the country as a result of the 2004 tsunami.

The capital is now seeing a trend away from thecentral city areas as land there has become tooscarce and expensive. Outlying suburbs, such asNawala and Rajigiria, have become increasingly

79


Sri LankaDespite considerable challenges, real estate continues to grow steadily


Sri Lanka: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 19,773,000 0.78 26,963 1364 4.10 8,080,000 7.6

2007 19,928,000 0.78 30,012 1506 4.10 7,500,000 7.6

2008 20,085,000 0.79 34,787 1732 4.00 7,875,000 7.6

2009 20,242,000 0.78 38,318 1893 4.00 8,268,750 7.6

2010 20,401,000 0.79 42,053 2061 4.00 8,682,188 7.6

2011 20,541,000 0.69 46,268 2253 4.00 9,342,034 7.6

SRI LANKA

important residential and commercial centres. The2004 tsunami caused the price of coastal land toplummet, and land acquisitions are now controlledby government restrictions. Foreign interest has alsodeclined since the introduction of a 2007 law thatset the land tax at 100% for foreign acquisition,although condominiums with four floors or moreare excluded from taxation. The option of taking outa 99-year lease to evade property taxes is unpopu-lar due to the bureaucracy and length of time requiredfor the administrative procedure of gaining exemp-tion. As a result, a minimal number of foreigners arenow purchasing property. Foreign purchases account-ed for less than 5% of the market in 2008, comparedwith 15-20% three or four years earlier. Land pricesin the city can reach up to $1600 to $2600 per sqmetre. Cinnamon Gardens and Kolluptiya are themost exclusive residential addresses.

The government is focusing on providing low- andmiddle-income housing. As part of the 2006 hous-ing programme, the government pledged to build10,000 housing units clustered in villages, therebyinvolving local communities in the development. Inaddition to this, the package features an awarenessprogramme, community planning, provision of infra-structure facilities and a per-household financialpackage of $573. The government has also sug-gested providing 2000 serviced land plots by 2009.

COMMERCIAL: Demand for office space in Colom-bo is limited. It is estimated that Sri Lanka attracted$300m in FDI in 2007, making it the smallest recip-ient of FDI in South Asia. This is reflected in the lim-ited presence of international offices in the capital,with many of the non-Sri Lankan offices belongingto Indian affiliates. The Sri Lankan economy remainsdominated by productive, export-oriented indus-tries, such as agriculture and textiles. The relative-ly small size of the services industry also affectsdemand for office space. However, growth in thecountry’s workforce was 9% from 2001 to 2006 andaveraged around 5% from 2005 to 2007.

Sri Lanka is lacking in grade A office space, withmost demand for prime space absorbed by the WorldTrade Centre (WTC) towers. In Colombo the Fort areahas traditionally been considered the central busi-ness district as it is home to the WTC, the Ceylincohigh-rise and the Bank of Ceylon building. Howev-er, as a result of the security issues affecting the cap-ital, its Fort area has now become a high-securityzone, with many buildings in a poor state of repair,with the exception of the aforementioned three.

The capital has limited alternative office space, withthe Access Towers and Hatton National Bank (HNB)towers, both located in the Colombo 2 district, pro-viding the only other high-end purpose-built space.Alternatively, the Cinnamon Gardens area in Colom-bo 7 has some residential converted office space usedby a number of local companies, and the LibertyPlaza and Majestic City shopping malls have com-mercial space above them. In total, the central dis-tricts of Colombo have less than 150,000 sq metresof grade A space. Occupancy in the grade A spacesegment is extremely high, with HNB and Accesstowers turning away potential customers. The WTC,the largest commercial space in Sri Lanka, with65,000 sq metres, has 90% occupancy. There will belimited supply in the market within the next threeto four years. In the central districts, the construc-tion of the second Access Tower is the only confirmedlarge grade A commercial development in thepipeline. Suburban areas, such as Nawala, Rajigiriaand Battramulla, are earmarked for development tocomplement the strong supply of residential prop-erty being constructed in these areas.HOSPITALITY: The hospitality sector is particularlyimportant for the Sri Lankan economy. Tourism is thecountry’s fourth-largest foreign-exchange earner.Sri Lanka’s tourism industry has remained resilientin the face of political instability and natural disas-ters, and the number of foreign visitors to the islandnation has been consistent over the last five years.

Nevertheless, the industry is currently goingthrough a testing time, especially after the break-down of a ceasefire between the government andthe LTTE in January 2008. The number of tourismnights increased by 21.9% and tourism receipts by11.7% in 2006. However, this could be drasticallyaffected in the near future if civil unrest continuesto dominate the nation’s politics. However, there

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Sri Lanka: tourism and hospitality indicators, 2006-11


2006 223,841 1.9% 10.4 2,327,948

2007 232,784 4.0% 10.1 2,351,120

2008 235,023 1.0% 10.1 2,373,735

2009 240,375 2.3% 10.1 2,427,787

2010 246,171 2.4% 10.1 2,486,330

2011 256,547 4.2% 10.1 2,591,122

SRI LANKA

have been highlights in the industry, including arecent agreement between the World Bank and theSri Lanka Tourism Board. According to this agreementthe World Bank has agreed to provide funds to theSri Lankan government for a tourism initiative amongsmall entrepreneurs and rural communities. Thefunding will make use of private sector expertiseand resources wherever possible in private-publicpartnerships as well as community-based initiativesto empower local communities and small business-es. The agreement also aims to cover human resourcecapacity building in government tourism institutions.Also, the assistance may include policy development,compliance and regulatory mechanisms, as well asmarketing and promotion strategies for positioningSri Lanka's tourism offerings in key markets.

The majority of visitors to Sri Lanka are leisuretourists who are attracted to the range of picture-perfect beaches, temples and hill districts that thecountry offers. The south-west coast below the cap-ital of Colombo is heavily developed, boasting a largevariety of leisure hotels and resorts. Colombo hastwo international hotels, the Hilton and the HolidayInn. The city also has a large number of local andregional operators. All hotels in the capital are heav-ily reliant on business guests, as there are fewtourism-related activities in Colombo itself. Indeed,many tourists bypass the capital altogether, choos-ing instead to go directly to the resorts in the south.

These resort hotels garner as much as 60% oftheir business from package tours. The meetings,incentives, conventions and exhibitions segment isbecoming increasingly important, with hotels attract-ing corporate guests and reporting occupancy ratesthat are considerably above the market average.With corporate rates rising in India’s commercialcities, Sri Lanka has become an attractive alterna-tive, a fact the Sri Lankan Tourism Board reinforceswith an aggressive marketing campaign in India. Themajority of hotels in the Colombo area also reportstrong revenue from banqueting, which at certaintimes of the year exceeds room revenue.

Occupancy rates across the country averaged47.8% in 2006, which was down from a high of 59.3%in 2004. This trend continued in 2007 with most ofthe hotels reporting their occupancies at just about50%. The average length of stay is relatively high at10.4 nights in 2006, up from 8.7 nights in 2005. SriLanka’s hotel occupancy rates dropped despite thefact that the tsunami had caused hotels to reducetheir prices and rates. The city centre hotels in par-ticular have suffered to some degree or another, asa result of the heightened security that surroundedthe capital following an escalation in violencebetween the LTTE and the government.

Hotel supply is increasing slowly but steadily, withthe government registering 12 new hotels and 48guesthouses in 2006. According to the Sri LankanTourism Board, the country had 248 hotels with atotal room capacity of 14,511. The government fore-cast of total room stock of 25,000 rooms by 2010.

RETAIL: Despite having a comparatively high per-capita income in relation to India, Pakistan orBangladesh, Sri Lanka is still classified as a low-income country. The World Bank estimates real annu-al per-capita income to be $1355. However, incomedisparity is considerable and a wealthy upper- andmiddle-class population exists, particularly in thecapital. Indian shopping tourism plays a key role inthe retail economy, bringing in an estimated 100,000tourists in 2006, an increase of 22.5% on 2005. Cli-mate-controlled space is limited, however, and high-end retail is restricted to high-profile districts, suchas Cinnamon Gardens and Kolluptiya.

Colombo is dominated by street-facing retail activ-ity and organised retail is fairly underdeveloped. Thecity has five major shopping centres, all of which arelocally managed. The Galle road has emerged as theprime retail destination with many upmarket storesopening in recent times. Among the larger malls,the Crescat Boulevard, Liberty Plaza and Majestic Citytarget the luxury market. Majestic City is the largestshopping centre in the country and Crescat Boule-vard is part of a large, mixed-use development thatincorporates a 30-storey luxury residential tower, afive-star hotel and the luxury mall. Although a num-ber of shopping malls are currently under develop-ment, market forecasts suggest that retail space willremain in undersupply in the short to medium term.

81



Sri Lanka: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 19,773,000 19,261 15.6 9.50

2007 19,928,000 21,666 12.5 19.70

2008 20,085,000 24,459 12.9 11.50

2009 20,242,000 27,901 14.1 9.00

2010 20,401,000 31,742 13.8 8.50

2011 20,541,000 35,965 13.3 8.00

PAKISTAN

The Pakistani economy slowed down in 2007-08, withGDP growth falling to 4.6% from an average of 7.5% peryear during the preceding four years. The increasedpolitical tensions have had a considerable negativeimpact on the economy – making Pakistan a high-riskinvestment destination at the moment. The future,however, looks brighter. The Economist IntelligenceUnit is forecasting growth at more than 5% and strongermacroeconomic fundamentals in 2008-09.

Pakistan’s real estate market underwent an intenseperiod of growth post-September 11, 2001. At that time,investors from the Gulf and the Pakistani diasporapulled billions of dollars out of Western markets. Yet,political instability in 2007 has prompted developersand buyers to hold back on making investments, opt-ing to wait for conditions to stabilise. There are alreadysigns that momentum has returned to the real estatemarket, with property prices in prime areas of Islam-abad and Karachi beginning to climb back.

Real estate and construction in Pakistan has been adirect beneficiary of the return of capital. Overseasremittances jumped from $1.5bn to $4bn in 2002.Increased liquidity helped real estate prices to rise con-sistently from 2002 to 2005. The Central Bank alsotook a role in promoting real estate investment, asinterest rates declined to historic lows of 3-4% fromas high as 22%, resulting in greater use of credit andfinancing options. Until recently the property surgehas mainly been confined to the major cities and, as a

result of high-risk activities there, the urban marketbegan to turn in mid-2005. Institutional investors movedout of property investment, causing a decline in pricesby as much as 40% between 2004 and 2006. Undevel-oped plots were the worst affected portion of the mar-ket, with prices in certain areas declining by 40–50%across key cities. Although interest rates have beenraised to contain inflation, property prices and rentalshave been increasing steadily for the past year.

Pakistan’s real estate sector is now seeing a numberof large-scale projects from Gulf investors. The largestinvestments include Nakheel’s $68bn Sugarlands City,the Karachi Waterfront development by Limitless,Emaar’s Crescent Bay in Karachi, the Highlands andCanyon Views projects in Islamabad, and the Bundaland Buddo Islands project worth $43bn.RESIDENTIAL: While Pakistan has seen a flurry of con-struction activity in the high end of the market, thereremains a significant national shortage of housing –an estimated deficit of 500,000 units. For instance,Karachi, Pakistan’s fastest-growing city, is experienc-ing an annual shortfall of 80,000 housing units peryear. Around 26,700 new housing units are producedeach year in the formal sector in Karachi, yet it is notenough to meet the demands of the sector. The remain-der of the housing requirement is met by building semi-official housing, which is usually built on agriculturallands that are bordering the city limits or in theconsolidation of land in low-income inner-city areas.


82

PakistanMomentum returns to the market


Pakistan: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 155,400,000 1.88 127,002 817 6.17 47,920,000 9.8

2007 158,170,000 1.78 143,766 909 6.15 49,180,000 10.2

2008 160,942,000 1.75 160,152 995 6.12 50,580,000 10.3

2009 163,714,000 1.72 175,452 1072 6.10 51,840,000 10.2

2010 166,485,000 1.69 192,350 1155 6.07 53,150,000 10.0

2011 169,253,000 1.66 211,351 1249 6.05 54,410,000 9.8

PAKISTAN

The low- and middle-income segments of the sec-tor remain short-supplied. Unofficial settlements or“katchi abadis” account for up to 35% of all of Pakistan’surban housing stock and are a particular problem inKarachi, where demand for low-cost housing far out-strips supply. The government believes the currenthousing crisis in Pakistan dates back to a populationsurge in the 1980s and 1990s when the total popula-tion in Pakistan increased from 84.2m in 1981 to 130.6min 1998 – an increase of 55%.

Pakistan currently has a population of 165m, mak-ing it the world’s sixth-most-populous nation. Urbanpopulation has increased by thirty-seven times sincethe Second World War and is now growing at the rateof approximately 5% per annum. The UN PopulationsFund estimates that the population of the country willincrease by around 80% between 2002 and 2025,reaching more than 260m and potentially 318m by2050. This is a significantly high growth rate compa-rable only to that of Nigeria, Iran and Ethiopia.

OBG modelling estimates the total number of resi-dential units across Pakistan at 19.3m, while the esti-mated demand was for 26.4m units, with a yearlyrequirement for 570,000 additional houses. Annualproduction was 300,000 units in 1998, and it is notbelieved to have risen significantly since that time. Asa result of this supply stagnation, an annual unsupplieddemand of 270,000 units emerged. This situation hasessentially created a housing crisis in Pakistan.

Gated communities and master-planned develop-ments have become an extremely important trend inthe Pakistani real estate market over the past decade.Home buyers, particularly Pakistanis returning fromoverseas, have become increasingly security conscious.According to OBG modelling, the demand for high-end housing will remain higher than the supply through2013, particularly in Karachi, even with all the large-scale projects under construction or in development.

Clear demand remains for housing by low- and mid-dle-income groups. Current developments with phas-es targeting overseas Pakistanis, such as Lake CityLahore (a golf development) and Bahria Town caterexclusively to high-income groups. Wealthy Pakista-nis, both at home and abroad, see cities like Islamabad,Lahore and Karachi as a potential second home mar-ket, often due to the presence of relatives in these citiesand the opportunity to make good investments. Theinterest from overseas investors in property acrossPakistan is varied but huge in some sectors. Areas suchas that of the Defence Housing Authority develop-ment in Lahore have seen huge interest in their prop-erties. The values of plots have rocketed up to morethan 20 times their worth pre-September 11, 2001. COMMERCIAL: Pakistan’s strong economic growth isdriving the demand for office space. There is a markedshortage of grade A office space in Pakistan’s majorcities, especially in Islamabad, where demand is so highthat rentals have risen to levels comparable to pricespaid in New York and London. The average occupan-cy rate in commercial towers in Islamabad is 96%, andthe lack of supply has forced many companies to estab-

lish their offices in villa conversions in residential areasof the city. Lahore has virtually no grade A commercialspace, but a growing number of companies are look-ing to set up offices in the city, particularly in the IT,telecoms and textiles sectors. Average occupancy ratein Lahore’s existing commercial stock is 79%.

Blue Area in Islamabad, Shahrah E Faisal in Karachiand Main Boulevard in Gulberg Town in Lahore arehome to most businesses. Rental prices in these areasrange from $100-$400 per sq metre with new devel-opments asking for rent up to $750 per sq metre. Saleprices range between $1000 and $3000 per sq metre,and up to $10,000 per sq metre in new developments.

Companies are struggling to find adequate officespace in all three of Pakistan’s major cities. However,there is a high volume of office space currently underconstruction in Lahore and Karachi, which should resultin a drop in rental prices. It is estimated that in Karachithe gap between supply and demand in this marketwill be largely reduced by the year 2010, yet the sec-tor will still be undersupplied. Islamabad also has ahigh volume of office space under development, witha further 965,000 sq metres set for completion by2013. In Lahore, 2.7m sq metres of commercial spaceis being developed. The markets in Lahore and Islam-abad may become oversupplied when all the new unitsarrive, despite the projected requirements of econom-ic growth in several sectors such as IT and telecoms.

83



Pakistan: tourism and hospitality indicators, 2006-11


2006 429,273 4.7 1.2 515,128

2007 403,645 -6.0 1.2 484,374

2008 442,634 9.7 1.2 531,161

2009 469,181 6.0 1.2 563,018

2010 497,633 6.1 1.2 597,160

2011 525,061 5.5 1.2 630,074

PAKISTAN

HOSPITALITY: Pakistan’s ability to attract foreigntourists has been constrained largely by the country’sreputation for political and social instability. The north-ern region of Kashmir has long been a point of inter-est and insecurity. There is very little internationalawareness of Pakistan as a tourism destination, despiteits diverse cultural heritage, opportunities for shoppingand exceptional outdoor activities.

Statistics from the government show that 839,500tourists were registered as having visited Pakistan in2007, down 6.6% from 898,400 in 2006. Data from theMinistry of Finance shows that 2008 has also startedon a negative note with tourist arrivals down by over5% in the first four months compared to the same peri-od in 2007. The decline has certainly been a result ofthe unstable political situation in the country, eventhough the numbers are still high when compared to2003, when there were just over half a million tourists.

In spite of the low visitor numbers, Pakistan’s con-struction surge has spilled over into the hospitalityindustry, with several major hotel brands entering themarket for the first time. Islamabad is a particular focusfor international brands, with more than 2500 roomsslated for completion by 2013. The high-profile Cen-taurus Project will feature Pakistan’s first seven-starproperty and will contain a 350-room hotel operatedby Hilton Group. In Lahore, there are 800 hotel roomsscheduled for completion by 2010, distributed among

two Hyatt properties, an Intercontinental and a Mar-riott. These accommodations are being built as partof Expo Centre Lahore, a project currently under con-struction and set to open by March 2009. In Karachi,new projects will increase the number of four- andfive-star rooms 42% by 2009. In addition to that, thereare 10 more hotels being planned around the city.

French hotelier Accor has announced plans to build12 Ibis hotels across Pakistan over a period of fiveyears. Major developers are establishing properties inGwadar – the Hashoo Group opened a Pearl Continen-tal and plans to establish a Marriot in the near future.Occupancy rates have struggled to remain high in Pak-istan’s major cities, with a national average of 69.2%in three-, four- and five-star properties. Due to thehigh volume of supply that is set to hit the market by2010, further investment in hotel properties in Karachi,Islamabad or Lahore seems ill-advised for the nextthree to four years. Good opportunities are insteadconcentrated in secondary cities.RETAIL: Domestic demand has been the cause of retailexpansion in Pakistan in the recent past, with dispos-able incomes rising and international brands cautious-ly entering the market. Retail and wholesale tradeaccounts for more than 19% of GDP, and the sector isgrowing at a rate of 9% per annum. More than 97% ofretail trade takes place in private or family-ownedstores, meaning that the lion’s share of the sector isinformal, unmapped and not easily quantifiable. Atpresent, Pakistani consumers have shown a strongpreference for street-facing retail over malls or “plazas”– tower blocks with retail on the first two floors andoffices and apartments in the remainder of the build-ing. This is particularly apparent in Lahore, which isPakistan’s most dynamic retail market.

In Lahore, the most expensive retail space is locat-ed at Fortress Stadium, a street-facing developmentattached to a sports stadium. Even though retail spacein the city is expected to double by 2013, the sectorwill remain severely undersupplied, such is the level ofdemand. However, retail in the capital city, Islamabad,remains fairly undynamic. Most activity is concentrat-ed around sector markets such as Jinnah Market andSuper Market. Units in these markets are street-fac-ing and predominantly occupied by small private oper-ators, although some international brands, such asBata, have managed to open outlets.

The Centaurus Project will also feature Islamabad’sfirst international standard mall. The project is beingbuilt by Pak-Gulf Construction and will be construct-ed as part of the same complex as luxury apartments,modern offices and the aforementioned seven-starhotel. The mall will boast five storeys, parking, a cine-ma and air-conditioning. There is still plenty of roomin Pakistan’s market for more international-standardmalls of this kind, particularly in Karachi and Lahore –where the retail sector is strong but undersupplied. Forpotential investors and developers, rental yields forretail property in these cities are low, around 4%. Thisis because they are generally purchased for use by theowner who can make a larger profit by not renting out.

84



Pakistan: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure (m)

2006 155,400,000 120,438 14.2 7.92

2007 158,170,000 143,221 18.9 7.77

2008 160,942,000 169,863 18.6 8.50

2009 163,714,000 200,209 17.9 7.50

2010 166,485,000 235,046 17.4 6.50

2011 169,253,000 277,815 18.2 5.50

INDONESIA

Indonesia is the world’s fourth-most-populous coun-try with nearly 225m people inhabiting over 17,000islands. The Indonesian population that resides in Java,Bali and the few neighbouring islands comprise 60%of the total population of the country, yet the islandsmake up only 7% of Indonesia’s land mass. An esti-mated 9m people live in Jakarta, but it is said thatduring the day there are up to 12m people there dueto the volume of visitors. This makes Jakarta the mostdensely populated city in Indonesia.

In 2007 GDP grew 6.3%, elevating it to a per-capi-ta average of $3725. That growth is forecasted tofinish slightly lower in 2008 at 5.1%, due to the recentglobal fuel prices. Inflation was reigned in consid-erably during 2007, dropping to 6.96% compared tothe 14.55% of 2006. This rather large decrease wasdue to broad government efforts to stabilise therupiah. However, now that the government has madea decision to raise oil prices, inflation could againbounce back as high as 10% in 2008. That scenariodoes not bring cheer for poorer Indonesians who arealready suffering from high energy and food costs.

The tourism and agriculture sectors remain the pri-mary drivers of the economy in Indonesia. Tourismmade up 7.2% of the country’s annual GDP in 2007,and is expected to remain relatively consistent despitea very slight decline to 7.1% in 2008. According tothe World Travel & Tourism Council, real GDP growthfor the travel and tourism economy in South-east

Asia is expected to average 6.3% per annum until2017, while that for Indonesia is projected at 6.4%over the same period. However, the current shakymarket situation is largely due to the lack of bothconsumer and investor confidence in the market. Ifthe upcoming 2009 elections run smoothly, the lat-ter should return to the market. RESIDENTIAL: One of the issues requiring the atten-tion of the government in Jakarta is that the citysuffers from a huge undersupply of affordable hous-ing. The government has plans to address this issueat first by constructing 1000 low-cost residentialbuildings around the city. The goal is to have theseapartments built by 2011, as well as at least 1.35mlow-cost houses from 2004-09 in order to accom-modate the needs of low-income earners.

In the short term the government is pro-activelydeveloping plans for affordable housing that includesubsidies for homes and financing options to low-income groups. Some major players that are gettinginvolved in these plans are the Agung PodomoroGroup, the Gapura Prima Group, the Artha GrahaGroup and Bakrieland Development – all of whichare Indonesian companies.

However, sales for apartments and condominiumsintended for the other end of the income ladder stoodat 55,223 units in the first quarter of 2008. Of these,43% were lower-middle grade, 49% were middle gradeand the remaining 8% were higher grade units, accord-

85


IndonesiaStrong fundamentals override worries


Indonesia: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 222,051,000 1.30 364,379 3456 4.08 107,625,000 10.3

2007 224,938,000 1.30 432,944 3725 4.08 109,860,000 9.6

2008 227,862,000 1.30 488,149 3979 4.08 111,950,000 9.2

2009 230,824,000 1.30 536,168 4251 4.08 113,940,000 8.7

2010 233,825,000 1.30 587,509 4552 4.07 115,830,000 8.4

2011 236,865,000 1.30 645,793 4896 4.07 117,620,000 8.2

INDONESIA

ing to Jones Lang Lasalle. A further 29,803 units areexpected to be completed by the end of 2010. Thisrate of construction is currently on pace to lead to anoversupply of high-end units. Most condominiums inJakarta offer strata-title ownership, which is availableto foreigners but is based on leasehold titles that arevalid for 20-50 years of ownership. Sales of high-endapartments in Jakarta have been impressive over 2007and 2008, with 70% of new units selling out in advance,according to Provis. Expatriate workers are the tar-get market for this higher-end segment , however itis unlikely that their numbers will be substantial enoughto sustain the high volume of supply that will be madeavailable over the next two years. Occupancy rates arealready below optimum levels, at 75% in the CBD and72.7% elsewhere in the city.

Statistics show that foreigners prefer only to leaseapartments in Jakarta instead of purchasing prop-erty, due in part to the leasehold titles that are validfor a limited period. There are a total of 7032 serv-iced and non-serviced purpose-built apartments inJakarta, which had 84% occupancy in 2007.

The real estate market in Surabaya, Indonesia’ssecond-largest city, has also been growing at a note-worthy pace over the past few years and is emerg-ing as another major Indonesian business centre.

Unlike Jakarta, Bali is very popular with foreignersseeking to purchase property either as an investment,

second home or as a retirement home. Beachsidedevelopments in key areas are increasingly popular.Like Bali, Lombok is also catching the attention ofinvestors as being ripe for development. Emaar hasrecently begun a joint venture with the Bali TourismBoard to develop a 1200 ha plot of land on the coast.The project’s estimated cost is over $600m.

Indonesian cities are rapidly urbanising. By 2010the population living in the cities is predicted to riseby about 50%. The past decade has seen Jakarta’sworkers move to neighbouring cities in the Bodetabekarea (Bogor, Depok, Tangerang and Bekasi) to avoidhigh property prices in the capital. This trend, how-ever, is quickly becoming obsolete and people arenow moving back into the capital, as both poor cityinfrastructure and increasingly congested roads makethe commute almost impossible.OFFICE: The steadily decreasing unemployment ratereveals that jobs are being created and the econo-my is seeing growth. This is leading to an increaseddemand for office space. There is a total supply ofapproximately 5.4m sq metres of office space inJakarta, of which 1.9m sq metres is grade A officespace. A further 725,183 sq metres is under con-struction, scheduled to be completed by the end of2010. Occupancy levels at the end of 2007 were atan average of 87.8% in the CBD. Slightly lower thanthe 2007 figure of 88.2% overall, but strata-titleoffices common to agreements with foreign com-panies are more in demand than in previous years.

Due to the stiff competition for premium officespace in Jakarta, older buildings are undergoingrefurbishment and large companies are paying moreto move into bigger, better quality office space.Rental prices for prime office space in the CBD inJakarta are also increasing. They now stand between$10-15 per sq metre per month, yet it appears thatrentals are going to stabilise within the next fewyears as more stock comes on board.

Building office space outside the CBD is becom-ing an increasingly popular trend with developerssince most people live in suburban areas and traf-fic poses a huge problem in the city. The cost ofbuilding office space outside of the CBD is much less,due to lower land prices, yet presents a traffic issue.

Over 1m sq metres of new office space will be com-ing to the market within the next three years. In themeanwhile, however, the market in Jakarta will getmore competitive. New and higher-quality buildingswill have the advantage. They will be able to providetenants with more efficient, well-equipped andsecure office space. The demand for grade A officespace in Jakarta due to oil, mining and finance com-panies will remain high over the next few years.RETAIL: With a middle class estimated to be over50m within a population of 225m, there is certain-ly a market for retail in Indonesia. International brandtenants have a significant presence in the countryand enjoy a large consumer market with an elasticappetite for shopping. The majority of retail spacesupply is concentrated in Jakarta and its satellite

86



Indonesia: tourism and hospitality indicators, 2006-11


2006 3,312,519 -2.6 2.5 8,281,297

2007 3,746,800 13.1 2.5 9,367,000

2008 3,839,488 2.5 2.5 9,598,720

2009 4,039,872 5.2 2.5 10,099,681

2010 4,138,390 2.4 2.5 10,345,974

2011 4,309,122 4.1 2.5 10,772,804

INDONESIA

towns. However, the past year has seen the con-struction of shopping centres completed both inSurabaya, and on the island of Java. With Surabaya’sincreasing urbanisation and its residents becomingmore at ease with the city’s development, Surabayais said to be rivalling Jakarta in terms of construc-tion and as a business centre. Some notable shop-ping centres and malls that have become landmarkswithin the city include Surabaya Plaza, Mal Galaxy,Mal Surabaya, Tunjungan Plaza, Maspion Square,Jembatan Merah Plaza and Plaza Marina.

Developers are also looking at Bali as a locationto build shopping malls and retail space. The island’ssole large-scale shopping centre, Discovery Mall, hasvery high occupancy and is currently undergoingexpansion to accommodate retailers that wish toenter the market. Retail trade increases, along withthose of tourism, mean that Bali is becoming moreand more popular not only as a holiday destinationbut as a place for second homes.

The amount of retail space on the market is antic-ipated to grow by 28% by 2011. By 2009 1.2m sqmetres of new gross leasable area (GLA) will be puton the market. This will bring the total stock toapproximately 5.5m sq metres, of which Jakarta alonewill account for 74%. The total stock of retail space(both leased and strata-title) in Jakarta is nearly 3.1msq metres. A further 688,289 sq metres of space isscheduled for completion at the end of 2009. Occu-pancy rates at the end of 2007 were at an averageof 84%, almost 7% higher than the end of 2006.Although with the new stock coming on board, occu-pancy rates are set to decline slightly.

At the end of 2007 average gross rental rates wereup. However, rental rates for premium grade A spacehave dropped slightly since 2006, leaving it at $130per sq metre and in Jakarta at $72 per sq metre.HOSPITALITY: Despite setbacks, such as the 2004tsunami and terrorist attacks, the Indonesian tourismindustry has remained stable. The number of touristswho visited Indonesia rose 13% to 5.51m in 2007, from4.87m in 2006. In Bali alone there were 1.74m touristarrivals. Most tourists hail from East Asian countries,such as Japan, China and now increasingly the Mid-dle East. The Indonesian government is promotingIndonesia to Arab countries in the Gulf and puttingemphasis on Islamic links between the cultures.

Tourism represents the second-largest source offoreign capital in Indonesia, amounting to 9% of GDP.Indonesia has considerable tourism potential, beinga country of diverse terrain, such as islands, moun-tains, jungles and beaches. However, much of thispotential has been under-exploited because of alack of resources, poor infrastructure and little-to-no development strategy. To attract private sectorinvestment in tourism development, the Indonesiangovernment has adopted a fiscal incentives policyfor development projects, such as hotels, touristresorts, recreational parks and convention facilities.Already the government has successfully targetedinvestors from the Middle East. In particular, the

number of UAE tourists visiting Indonesia has sig-nificantly increased, growing annually at a rate ofbetween 10-13% for this group alone.

A new airport under construction in Lombok isscheduled for completion in 2009. It will have a pas-senger capacity of 2.4m people, three times that ofthe existing airport. This means that Lombok will bemore accessible to visitors, of which fewer will haveto fly to Denpasar Airport for a connecting flight.

Bali tourism has continued to recover despite freshtravel warnings and, in the first half of 2007, achievedthe region's highest revenue per available roomgrowth at 58.6% . Improvements have been largelydriven by a 37.6% rise in occupancy, reflecting areturn in public confidence. Direct foreign arrivalsreached an all-time high in the first quarter of 2007,a fact that injected capital and more market confi-dence into the area. The average value per five-starhotel room in Bali is $169,000, significantly higherthan that of five-star rooms in larger Jakarta wherethe average is $114,000.

In Jakarta, there are 14,518 hotel rooms of four-and five-star quality, with a further 2440 rooms tobe built within the next two years, yet overall occu-pancy rates were low – 67% at the end of 2007. Thisis because of increasing demand for hotels andthe number of available rooms remaining stagnantdue to the closure of a few older hotels in Jakarta.

87



Indonesia: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%)

expenditure ($m)

2006 222,051,000 228,473 24.2 13.10

2007 224,938,000 257,921 12.9 6.41

2008 227,862,000 296,057 14.8 7.12

2009 230,824,000 347,226 17.3 5.94

2010 233,825,000 399,262 15.0 4.90

2011 236,865,000 461,888 15.7 4.28

MALAYSIA

In 2007 Malaysia experienced GDP growth of 6.3%,which exceeded the government’s forecast of 6%.However, the figures for 2008 are not nearly as opti-mistic, with a forecasted growth rate of 5%. The pro-jected decrease is due to the government’s decisionto stop providing fuel subsidies, which will cause asignificant rise in prices as they begin to match glob-al fuel prices. The price hikes are expected to put adamper on private consumer spending and overalleconomic growth. At the same time, however,Malaysia is experiencing the benefits of the world-wide increase in fuel prices in the export marketsince the production of hydrocarbons is one of thecountry’s main economic drivers.STEADY GROWTH: In spite of the losses associat-ed with the end of the fuel subsidies, the Malaysianeconomy is growing steadily and rapidly diversifying.In the past, the country’s economy was mainly driv-en by agriculture and the production of raw mate-rials. However, in the past decade, the governmenthas managed to transform the economy into anemerging multi-sector market with tourism, servic-es and manufacturing playing more important roles.

The government has introduced a number of neweconomic development corridors since the imple-mentation of the Ninth Malaysia Plan, with specialattention being given to specific regions: East CoastEconomic Region (ECER), Northern Corridor Eco-nomic Region (NCER) and the Iskandar Malaysia.

Foreign direct investment (FDI) plays a large rolein the country’s economic development. Accordingto Malaysian trade minister, Rafidah Aziz, FDI soaredby almost 69% in 2007. The government complete-ly sanctioned FDI in 2007, resulting in RM125.3bn($35.9bn) in the manufacturing and services sector.At the end of 2007 Malaysia was ranked the 14thmost attractive in the world to FDI, according to UNConference on Trade and Development statistics. YOUNG PEOPLE: Malaysia has an estimated popu-lation of 27.7m people, with a population growthrate of 1.74%. The median age is 24 years, while 32%of the population is under the age of 15 years.

Up to 80% of the country’s residents live on themainland of western Malaysia, with just under 30%living just in the Klang Valley (which is also knownas the Kuala Lumpur Metropolitan Area). This urbanarea has an estimated population density of 7388people per sq km. Rural Malaysia has yet to experi-ence many of the benefits of the nation’s econom-ic growth. There are approximately 5m people livingin the eastern states of Sabah and Sarawak in Bor-neo, with most coming from the indigenous tribes(15% of Sabah and 40% of Sarawak) who live in ruralareas. Malaysia has the highest income disparity inSouth-east Asia. Wage gaps between income groupsand even ethnic groups have been an issue in thepast and a system of more even wealth distributionis one of the goals of the Ninth Malaysia Plan.


88

MalaysiaSteadily growing and rapidly diversifying


Malaysia: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 26,392,000 1.70 156,091 12,404 4.31 10,682,000 3.3

2007 26,841,000 1.70 186,482 13,315 4.28 10,941,000 3.2

2008 27,297,000 1.70 207,583 14,023 4.25 11,180,000 3.4

2009 27,761,000 1.70 222,196 14,776 4.22 11,380,000 3.2

2010 28,233,000 1.70 240,238 15,685 4.19 11,630,000 3.2

2011 28,713,000 1.70 259,745 16,695 4.16 11,870,000 2.9

MALAYSIA

In 2007 the real estate market was estimated tobe worth over $29bn. The capital city, Kuala Lumpur,has a huge amount of new developments comingonline each year. Outside of Kuala Lumpur, citiessuch as Penang and Johor Baru are up and coming,with numerous new residential, commercial, retail andmixed-use developments under construction.

Laws restricting the purchase of residential realestate in Malaysia by foreigners virtually no longerexist. Since the end of 2006 foreigners have beenallowed to purchase residential property valuedabove RM250,000 ($71,750) per unit. The numberof properties that can be purchased is unlimited.Previously, foreigners were only allowed to own prop-erty to be used strictly for personal use and not forany type of investment purposes. Local financing isnow available to foreigners as well.

Property-related tax in Malaysia includes a stampduty, which varies. The percentage can increase toup to 3% depending on the sale price of the prop-erty. In April 2007 the capital gains tax was repealedin Malaysia. Previously, the tax was as high as 30%for properties sold within a year and gradually lessfor properties held for longer periods.RESIDENTIAL: As of September 2008 there were27.7m people living in the country, with the major-ity of the population living in the major cities, suchas Kuala Lumpur, Johor Bahru and Penang. Just under30% of the population resides in Kuala Lumpur andits metropolitan area, making the city and the sur-rounding region the main focus of most developers.

In 2007 the high-end condominium market per-formed well in terms of take-up rates, occupancy andrising capital values. Some developments had anincrease of 50%-70% from the initial launch price.Despite this, the demand for premium condomini-ums remained high with some developments sellingout within a month from the launch date. Averageoccupancy rates were at 83% in the city centre andup to 90% in popular suburban areas.

Capital values for high-end condominiums thisyear were between $2500 and $3120 per squaremetre in the city centre and between $1300 and$2350 per sq metre in suburban areas. Rental yieldsin Kuala Lumpur range between 6.5% and 7.5% butrentals are not increasing at the same rate as capi-tal values. However, Malaysia is still one of the mostaffordable options in Asia in terms of luxury hous-ing, especially when comparing Kuala Lumpur torivals such as Singapore City or Hong Kong.BUYING PROPERTY: Among some of the other areasof interest for purchasing residential property inMalaysia are Penang and Johor Bahru. Penang has alarge expatriate community that is mostly made upof British and Japanese expatriates who bought intothe Penang property market during the “Malaysia,My Second Home” campaign, which was launchedsix years ago to attract foreigners to buy propertyin Malaysia and to spend their retirements there.Johor Bahru has also attracted many foreigners, par-ticularly Singaporeans and Indonesians, who have

bought property in the area as an investment, a sec-ond home or a retirement home.OFFICE: There is a shortage of prime office spacein the capital’s central business district. Prime officebuildings have occupancy rates as high as 95%, withthe Petronas Towers and the Menara Maxis at almost100% occupancy. This is expected to relax slightly in2008, with new stock coming on board, but therewill still be a huge demand for prime office space.This is driving many developers to construct officespace in the city centre. Meanwhile, to cope with theacute shortage of prime office space and stiff com-petition, many older buildings are undergoing ren-ovation and refurbishment.

According to a survey by DTZ, a global real estateadviser on costs, it takes approximately $3120 peremployee to establish a workstation in Kuala Lumpur.This is five-times less than what it would cost to setup a workstation in Singapore and nine-times lessthan Hong Kong. This makes Malaysia still one of thecheapest places in Asia to establish an office.

The total amount of office space in Kuala Lumpuris 3.7m sq metres, with another 1m sq metres of officespace in the rest of the Klang Valley. An additional120,000 sq metres to enter the market by the endof 2008. According to Knight Frank, an indepen-dent global property consultancy, office spacesupply is expected to grow by 20% by the year 2011.

89



Malaysia: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 26,392,000 65,101 14.2 3.59

2007 26,841,000 71,918 10.5 2.11

2008 27,297,000 80,117 11.4 2.43

2009 27,761,000 89,776 12.1 2.50

2010 28,233,000 100,639 12.1 2.50

2011 28,713,000 112,763 12.0 2.50

MALAYSIA

Although capital values of office space are not ashigh of those of high-end condominiums per sqmetre (which can range from an average of $2000per sq metre in 2006 to $2800 at the end of 2007),rents for office space in Kuala Lumpur at the end of2007 stood between $15 and $23 per sq metre andare expected to rise by the end of 2008. RETAIL: Although Malaysia’s GDP growth forecastwas a low 5%, the central bank – Bank NegaraMalaysia – registered a 7.1% growth in the first quar-ter of 2008. Despite this, personal disposable incomehas not increased as salaries have remained stag-nant and the cost of living continues to rise. It isexpected that consumer spending will drop dramat-ically due to global fuel price hikes and the govern-ment’s decision earlier in 2008 to cut fuel subsidies.Economists have forecast that there will be a signif-icant change in consumer patterns and lifestyles. Theretailers that will be most affected by this changein spending behaviour will be those whose productsare not considered to be necessities.

However, as a result of increasing tourism toMalaysia and a huge portion of retail sales comingfrom upper-income residents and tourism spend-ing, the retail market is expected to remain stable,according to the Malaysian Retailers Association.

In 2007 retail sales grew by 8% due to highertourist and consumer spending. Although GDPgrowth is predicted to slow in 2008 and the retail

market will likely follow suit, the retail market is stillexpected to perform well, although it will clearly notexceed the previous year’s sales.

Due to the large amount of retail space that wascompleted in 2007 and the projects that are stillunder construction, the Klang Valley area has becomealmost completely saturated with large shoppingcentres. Occupancy rates for shopping centres inKuala Lumpur were at 86.4% at the end of 2007. Atotal of 4.2m sq ft of retail supply was released in2007, bringing the total supply up to 315,870 sqmetres in the Klang Valley. In 2008 so far only 26,000sq metres of space is set to be released.HOSPITALITY: Tourism continues to be a vital indus-try for Malaysia, both as an important foreignexchange earner and as a source of domestic employ-ment. Growth has been strong in recent years, andit looks set to continue, despite the extremely com-petitive region in which the country lies. Malaysiahas not just held its own in this field, but has con-sistently increased its arrival numbers.

The year 2007 saw 20.97m visitor arrivals, whichis a 9.6% increase over 2006. With the success of thegovernment’s “Visit Malaysia” campaign in 2007(which was extended to the end of August 2008),Malaysia aims to further increase that figure to22.5m visitor arrivals. The total tourist receipts wereover $14.7bn. Statistics from the Ministry of Tourism’spromotion organisation, Tourism Malaysia, show thatthe largest number of tourists was from countriesbelonging to the Association of Southeast AsianNations, followed by Japan, China, Australia, the Mid-dle East and India. In line with this, the state gov-ernments of Terengganu, Kelantan and Kedah areaggressively promoting their states as leading touristdestinations in 2008 with their own campaigns.

According to Tourism Malaysia, Kuala Lumpur cur-rently has 232 hotels, a slight increase over the 2007figure of 229. The total number of available rooms,however, dropped slightly from 31,576 rooms in2006 to 31,334 in 2007 as a number of hotels wereunder renovation. Some 15,843 rooms in KualaLumpur are in four- and five-star hotels.

Average room rates in 2007 were RM330 ($97) forfive-star hotels in Kuala Lumpur and RM183 ($54)for four-star hotels in the capital. According to HVS,a global hospitality industry consulting organisation,the average value per room of a five-star hotel inKuala Lumpur was $166,000 in 2007, which is a 26.7%increase from the previous year.

Malaysian hotels saw an increase in occupancyrates from 2006 to 2007 with the occupancy rate inKuala Lumpur rising from 70.5% in 2006 to 77.2% in2007. Other cities that saw a significant increase inoccupancy rates between 2006 and 2007 includeKedah, Putrajaya and Selangor, with 6%, 21% and5.4% increases, respectively. Putrajaya in particularsaw a significant increase due to its rising popular-ity with business visitors due to its close proximityto Kuala Lumpur. Five new hotels are expected toopen in the area between the end of 2008 and 2009.

90



Malaysia: tourism and hospitality indicators, 2006-11


2006 2,440,437 8.0 7.04 17,178,089

2007 2,576,253 5.6 7.27 18,736,582

2008 3,704,438 43.8 7.52 27,844,439

2009 4,258,670 15.0 7.77 33,089,397

2010 4,829,966 13.4 8.03 38,784,793

2011 5,415,828 12.1 8.30 44,949,076

THE PHILIPPINES

The economic slowdown in the US was expected tohave an adverse impact on the economy in the Philip-pines, worker remittances were expected to fall,business-process outsourcing (BPO) operations wereexpected to lose business and inflation was expect-ed to skyrocket due to the high prices of essentialimports, such as rice. However, the economy hasshown its resilience by growing at a rate of 7.3% in2007 and growth in the first quarter of 2008 hasbeen reported at 5.2%. Although growth is expect-ed to slow to 4% toward the end of 2008, it is antic-ipated that inflation will be curbed at 5.8%. The serv-ices sector has continued to drive growth, nowaccounting for almost 55% of the country’s GDP.INVESTMENTS SLOWING: The impact of the weakglobal financial market and the downturn in the USeconomy has impacted the inflow of foreign directinvestment (FDI) into the country. FDI grew by 26%in 2006 and the beginning of 2007 also saw stronggrowth. Data from May 2008 has shown that the netFDI in the first five months of the year was $725m,well below the net inflow of $2.3bn during the sameperiod in 2007. Also, the central bank has cut its 2008estimate for total FDI from the $4.2bn that was orig-inally forecast to $2.6bn.

Surprisingly, this has not resulted in a reductionin remittances from overseas foreign workers. Remit-tances reached $12.8bn in 2006 and $14.4bn in2007. Remittances in the first quarter of 2008

reached $4.7bn, which is a 35% increase from thesame period in 2007. In 2008, worker remittancesare expected to reach a total of $15.6bn.

This has helped revive the real estate and construc-tion sectors. After several years of stagnation, thereal estate sector started recovering and witnessedescalating capital values, prices and rents over thepast couple of years. Demand has been expandingand absorbing all of the upcoming supply leadingto reduced vacancy rates of between 3% and 6%,compared to nearly 18% in 2000-01. The servicessector, which has been growing at a compoundannual growth rate (CAGR) of 6.9% between 2001and 2007, is the fastest-growing sector in the Philip-pines, with growth in 2007 reaching 8.7%. The thriv-ing BPO segment – including contact centres – andinformation technology (IT) industries, as well ascontinued low interest rates and overseas remit-tances, are the main contributors to this.TECHNOLOGY SERVICES: There has been signifi-cant development in the IT, IT-enabled services andBPO industries, as well as interest from foreigninvestors and growth in the tourism sector. The sec-tor is set to develop further with the introductionof the real estate investment trust law and the ratio-nalisation of the laws concerning foreign ownershipof land. Currently foreign investments are limited to40% equity on land and leaseholds of up to 75 years,100% equity is permitted for condominium units

91


The PhilippinesRemittances and IT services are key


The Philippines: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 86,973,000 2.01 117,562 1352 5.00 34,095,548 7.9

2007 88,712,000 2.00 144,129 1625 5.00 34,572,204 7.9

2008 90,486,000 2.00 173,332 1916 5.00 35,056,460 7.9

2009 92,296,000 2.00 186,863 2025 5.00 35,547,231 7.9

2010 94,142,000 2.00 202,230 2148 5.00 36,045,603 7.9

2011 96,025,000 2.00 219,068 2281 5.00 38,893,205 7.9

THE PHILIPPINES

and retail establishments. Outright ownership ofland is not permitted and the situation is unlikely tochange in the near future.

A number of projects are now under construction,with local developers such as Ayala Land, Robin-sons Land, Megaworld and Citiland leading the wayin development. Sizeable projects that are underdevelopment in Manila include the Rockwell Cen-tre, The Fort and others that are located in theMakati business district and Ortigas Centre.RESIDENTIAL: The Philippines has a population ofover 90m with growth at a compound rate of 2.2%over the last decade (1999-2008). Up to 62% of thepopulation is between the ages of 15 and 64 yearsand as much as 10% of the population lives andworks overseas.

Demand from Filipinos who are living overseashas provided a stimulus to the residential market,with the majority of high-end units being sold toabsentee owners. Condominiums units, accommo-dation near the business district and community-type townhouses are all seeing increased levels ofdemand in the Manila area.

Strong macroeconomic indicators have causedinterest rates to drop considerably, making it easi-er for individuals to finance the purchase of homesand condominiums. Buoyancy in the sector is reflect-ed by rising capital values as a result of dominant

high-end projects from Ayala Land and Rockwell. In2007 the prices paid for developed land in the areaswithin the CBD ranged between $4000 and $5400per sq metre. In other areas the prices were lowerand generally fell between $1200 and $3000 per sqmetre. Average land rates in 2008 stood at $6700per sq metre in the Makati CBD and $3000 per sqmetre in Ortigas.

The stock of grade A residential units is increas-ing, although not at the aggressive rates seen insome other Asian markets. The stock of condomini-um units supplied by the Makati business districttotalled 11,170 in 2007 with the number reportedto have grown by 2% in the first quarter of 2008.The increase is much higher in newer locations likeFort Bonofacio, Rockwell and Eastwood, with FortBonofacio alone expected to add another 8523 unitsby 2011. Residential prices are expected to rise by8% in 2008 to end at an average rate of $2300 persq metre compared to an average of $1833 per sqmetre in 2006. Rents are also reported to have risenby 15% in 2007 with a slower growth of 4% expect-ed in 2008 as a result of the increased supply.

Although the saturation will be visible in the high-end residential sector, housing for the upper mid-dle class and middle class is expected to continueto remain in demand for some time. COMMERCIAL: The growth of the outsourcing sec-tor has stimulated the office segment. The numberof companies registering climbed and the quantityof new jobs being created has risen. In 2006 theindustry employed 235,000 workers and earned rev-enues of $3bn. As many as 300,000 people in thePhilippines are currently employed in the BPO andcontact centre industries, and the government hopesto increase this by at least 40% over the next cou-ple of years to meet the growing demand worldwide.

The Philippines now ranks second to India as thedestination of choice for BPO companies. Local mar-ket analysts have said that the sector has been grow-ing at a rate of 100% per annum on average overthe last five years and 50% annually in the last twoyears. Statistics released by the Business ProcessAssociation of the Philippines shows that the coun-try has a 5% share of the $45bn worldwide IT-enabledservices market. By 2010 the industry aims to havea 10% share of the worldwide market, which isexpected to result in around 900,000 employeesand about 1.2m-1.5m indirect jobs. This growth isexpected to result in a huge demand for office space.

Total office stock has been estimated at 2.65m sqmetres at the beginning of 2008, with forecastsputting it at 2.72m sq metres by the first quarter of2009. In 2006 vacancy rates fell below 2% for gradeA spaces with prices going up by 20%. In the last quar-ter of 2007 vacancies have been reported at 2.3%,with vacancies rising slightly in the first quarter of2008 to 3%. Prices rose by 2% in the first threemonths of 2008 to reach $2600 per sq metre. Thisgrowth is slow compared to the 6% rise during thesame period in 2007, which was mainly the result of

92



The Philippines: tourism and hospitality indicators, 2006-11

Year Tourist Arrivals Tourist arrivals growth Average stay length Total stay-nights(4- & 5-star guests) (%) (days)

2006 1,137,334 8.4 2.5 2,843,335

2007 1,309,705 15.2 2.5 3,274,263

2008 1,508,200 15.2 2.5 3,770,501

2009 1,736,779 15.2 2.5 4,341,947

2010 2,000,000 15.2 2.5 5,000,000

2011 2,137,770 6.9 2.5 5,344,426

THE PHILIPPINES

a dearth of new supply. However, prices are stillexpected to continue to rise to around $2800 dur-ing 2008. An eventual slowdown will occur as aresult of an additional 800,000 sq metres of spacethat is expected to come on-line by 2009.

Rents increased by 30% per annum in 2006 andin 2007. Rentals in the Makati CBD have risen by over50% in the last year and now range between $25and $29 per sq metre per month. Rental prices areapproaching pre-1997 Asian financial crisis peaklevels, but these are not expect to be sustainable inthe long term. There have been reports that somelandlords in Makati’s grade A market have reducedrents by 6% to 8% in the last quarter of 2007, bring-ing the average to $20 per sq metre per month.

Developments in the Makati CBD include Del Rosa,with 41,000 sq metres; Glorietta, with 14,000 sqmetres; and SM Cyberzone, with 12,000 sq metres.Meanwhile, the expansion of the GT Tower addedaround a total of 7000 sq metres of new space.

While the market is currently undersupplied, manylocal real estate experts say that they expect thatthe new supply coming into the market will slowdown price rises in the medium term, although thehigh-end segment will continue to pick up.HOSPITALITY: Composed of 7107 islands, the Philip-pines has a number of natural attractions, includ-ing beaches, forests, mountains and waterfalls,together with a diverse cultural heritage and trop-ical climate. Tourist arrivals in the first six monthsof 2008 went up by 6.9% to reach 1.6m. This is anincrease compared to the 2.8m visitors in 2006 andthe 1.5m in the first six months of 2007. Partial dataon tourist spending for the first six months of 2008reached $1.87bn. By 2010 visitor receipts are pro-jected to rise to $4.59bn. Tourism is a pillar of thegovernment’s five-year development plan and it ishoped that increased investment in the sector willgenerate billions of dollars and millions of jobs.

Metro Manila has over 42,000 hotel rooms, ofwhich 55% fall in the deluxe-quality category. Occu-pancy rates have remained stable at around 74%between 2007 and 2008, while the average lengthof stay ranges between 2.3 and 2.5 days. Resort-typeaccommodations, such as beaches and golf cours-es, run on a seasonal basis during the rainy seasonsand exhibit annual occupancy of around 50%. Roomrates vary considerably between destinations.

Most international hotel brands are present inthe country and include Shangri-La, Hyatt, Sofitel,InterContinental, Dusit and Crowne Plaza. TheDepartment of Tourism has embarked on an inten-sive tourism campaign to attract a projected 5mtourists by 2010, which has encouraged a numberof new hospitality developments. Projects that arein the planning or construction phase include the300-room Marriott Hotel; Ayala’s beach resort com-plex in Bataan; and several hotels in Fort Bonofacio. RETAIL: Disposable income is climbing due to eco-nomic growth and the rising value of remittancesfrom Filipinos working overseas. Retail development

has been modest in the past with stock growing at9% CAGR between 2001 and 2006. The year 2007saw an even slower growth with supply rising from4.53m sq metres in 2006 to 4.6m sq metres in 2007.The pipeline is not very large and 2008 will seeanother very small increase in retail space, while2009 is expected to see a 3% increase. The amountof gross leasable area per capita stood at 0.053 sqmetres in 2008 and is projected to increase to 0.057sq metres by the end of 2010.

In the first quarter of 2008, retail vacancy rateswere reported to be around 13.7%, which is a 10%decline from the same period in 2007. In the absenceof substantial new supply, vacancies are expectedto fall further to 11.1% by the end of 2008.

In spite of the dropping vacancy rates, annualrents per sq metre have fallen from $322 in 2007to $315 in 2008 at the Ayala Centre and from $254in 2007 to $259 in 2008 at Ortigas. In 2009, rentsare expected to rise slightly to $329 and $270,respectively in Ayala Centre and Ortigas.

Recent openings include SM Group’s Mall of Asiaat 391,000 sq metres and Ayala Land’s Trinnoma at195,000 sq metres. Henry Sy’s SM Centres, whichdominates shopping centre development by hold-ing around 2.7m sq metres of current stock with 28shopping malls across the country, has also startedintroducing hypermarkets under the same name.

93



The Philippines: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 86,973,000 82,372 20.3 6.23

2007 88,712,000 94,257 14.4 2.77

2008 90,486,000 109,799 16.5 4.44

2009 92,296,000 128,529 17.1 3.78

2010 94,142,000 149,084 16.0 3.50

2011 96,025,000 173,702 16.5 3.50

SINGAPORE

Singapore attracts more than $7000 in foreign directinvestment (FDI) per capita per year. GDP per capi-ta was estimated at $48,900 in 2007 and has grownby 7.5% over the past three years. The economicexpansion has been attributed to increased exportsand growth in the knowledge economy. Unemploy-ment rates in 2008 are expected to fall below 2%.Singapore is also known for the size of its fiscalreserves, with more than $110bn invested overseasand a generous account surplus.

According to the Ministry of Trade and Industry,the growth forecast for Singapore’s economy for2008 is between 4% and 6%. Domestic inflationreached a 26-year high of 7.5% in April and May2008, due to external price pressures. However, infla-tion should ease in the second half of the year.

Singapore has a population of 4.6m and it isincreasing at an annual rate of 1.1%. With a landarea of just 690 sq km, population density across theisland is more than 7000 people per sq km, butdespite this, significant areas of land are still beingreserved for green space, military and governmentpurposes. However, as a result of government poli-cy discouraging large families through a system offinancial bonuses and support, Singapore’s birthrate is now one of the lowest in the world.REAL ESTATE AND CONSTRUCTION: The majorityof Singapore’s citizens live in apartments, 85% ofwhich are government constructions. Singaporean

citizens and permanent residents, a status grantedto expats staying in the country over the long term,have the right to apply for subsidised housing, pro-vided that combined household income remainsbelow government-imposed limits and that apart-ments are not going to be sold within five years.

The Housing Development Board’s (HDB) publichousing is offered as a 99-year leasehold. Theseapartments are not cheap by international stan-dards, but cost less than Singaporean averages. The2008 HDB releases were priced at $500,000 forsmaller units. In the private market apartments aremore expensive, normally starting at around $1m.

Corresponding to the healthy economy and a lim-ited room for development, the real estate marketin Singapore remains healthy. The construction indus-try is growing by more than 20% per year. Landremains at a premium and there is little space avail-able for redevelopment. In the beginning of 2008prime plots attracted up to $2663 per sq metre. Intotal, land sales in the first quarter in 2008 reached$8.3bn, a slight increase in comparison to $8.17bnin the last quarter of 2007.RESIDENTIAL: Market activity in the residentialproperty sector revived towards the second quarterof 2008, which was due to the launch of a largenumber of projects. The volume of launches increasedby around 35.5% by mid-2008 to an estimated 1820units from 1343 units in the first quarter of 2008.


94

SingaporeA healthy economy, but still room for development


Singapore: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 4,401,000 3.16 209,991 46,863 3.99 2,594,000 2.7

2007 4,589,000 4.27 229,548 49,713 3.95 2,751,000 2.1

2008 4,668,000 1.72 248,231 51,829 3.92 2,810,000 2.3

2009 4,750,000 1.76 269,381 54,194 3.88 2,860,000 2.7

2010 4,832,000 1.73 292,703 57,368 3.85 2,890,000 2.5

2011 4,916,000 1.74 317,404 60,869 3.82 2,930,000 2.6

SINGAPORE

The number of new high-end and luxury unitslaunched in the quarter (measured by units locatedin the core central region) increased by 70% by Juneas compared to the first quarter. Whereas the mid-tier category units (measured by units located inthe rest of central region), soared by a massive 182%.The volume of new mass-market units launched out-side of the central region actually fell by 26% fromthe first quarter of 2008.

In Singapore the pricing of real estate is highlyaffected by location. For instance, developmentsnear Mass Rapid Transit (MRT) stations are morevaluable. Dakota residences are located near thefuture Dakota MRT station and are priced at $10,545per sq metre. Clover by the Park is located near tothe Bishan MRT station and Junction 8 ShoppingCentre and the units are priced attractively at an aver-age of $8070 per sq metre. There still remains latentdemand for luxury homes. The 100-unit Nassim ParkResidences at Nassim Hill, priced at an average of$32,280 per sq metre, had 77% of the units, launchedin May 2008, sold within two months.

In 2007 developers resorted to aggressive pric-ing strategies in order to increase sales, which final-ly showed a rise by the second quarter of 2008. Nowthe developers do not need to resort to any morestrategic pricing policies. Such market activity hasgiven way to muted growth in home prices in the sec-ond quarter of 2008. The Urban RedevelopmentAuthority’s estimates showed that in 2008 the risein home prices throughout Singapore was 0.4% inthe second quarter, which was very low in compar-ison to 3.7% in the first quarter.

Rents have begun to decrease in spite of a resist-ant behaviour by multinational companies due to thehigher costs of living resulting from the rising infla-tion rate. Due to a slow sales market there is a delayin demolition works of several collective sale sites.With many major condominium projects being com-pleted, pressure on the supply in the leasing markethas eased. This resulted in the fall of average month-ly gross rents of luxury apartments by 6.9% in thesecond quarter of 2008, from $77.68 per sq metreper month in the first quarter down to $72.41 persq metre per month as of June 2008.

Although unfavourable macroeconomic situations,like the slowdown in the US economy and risinginflation, will continue to depress the residentialproperty market, recovery in the US economy any-time in the second half of the year, will lead to a hikein the home prices. For the year as a whole, the costof housing could still potentially climb to an overallincrease between 4% and 8%.OFFICE: Towards the second quarter of 2008 the rap-id pace of office rental growth since the middle of2006 finally eased due to reduced pressure on sup-ply. Firms continued to show an increasing accept-ance of alternative and non-traditional businesslocations such as retrofitted state buildings, transi-tional offices, high-tech industrial spaces and busi-ness parks. Additionally, the Ministry of Finance

recently issued a directive to government ministriesand statutory boards to review their office spaceneeds and look at the possibility of compacting theiroffices and relocating outside the central businessdistrict. All this will help to further lighten pressureon supply. This has also helped to ease the averagecombined occupancy rate of grade A and grade Boffice space, which in turn, helped to keep rentalgrowth in check in second quarter of 2008.

Average monthly gross rents of grade A officespace in Raffles Place, which is an area just south ofthe Singapore river and home to many key commer-cial buildings, moved up by a modest 1.7% in thesecond quarter to $191.74 per sq metre, while aver-age monthly gross rents of grade A office space inother micromarkets saw moderate increases, rang-ing between 0.6% and 1.3% in the same period.

Institutional investors remained interested inacquiring office buildings in the second quarter of2008, even despite concerns over the subprime cri-sis in the US and the slowing economy in the US andEurope. Altogether, capital values of grade A officespace have remained flat at $30,280 per sq metreon average in second quarter 2008.

In addition, it is expected that the demand foroffice space will continue with the current trendand remain healthy, with 40% of financial servicesfirms indicating intentions to increase staff over the

95



Singapore: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 4,401,000 53,069 8.4 0.97

2007 4,589,000 56,423 6.3 2.10

2008 4,668,000 60,142 6.6 4.70

2009 4,750,000 64,443 7.2 2.47

2010 4,832,000 68,817 6.8 2.04

2011 4,916,000 73,672 7.1 1.72

SINGAPORE

next six months. In the year ahead more multination-al companies can be expected to set up offices ormake plans to use Singapore as their regional cen-tre, which will potentially also contribute to thedemand for office space.

Looking at the immediate future, the average occu-pancy rate of grade A office space is expected toremain above 95% and rents are forecasted toincrease slightly to a maximum of 2% on an averageper quarter for the remainder of 2008.RETAIL: There was an increase in retail sales, exclud-ing motor vehicles, by 1.2% as compared to 2009’s5.9% growth. The average 4.1% growth in retail salesbetween January and April 2008 was, however, some-what slower compared to the 7.2% growth for thesame period the previous year.

The second quarter of 2008 saw a great deal ofrenovation work for retail malls, as well as the rede-velopment of properties for retail purposes. FrasersCentrepoint Trust, which is a developer-sponsoredreal-investment trust specialising in retail, has justcompleted the $13m makeover works and the suc-cessful relaunch Anchorpoint. It then announcedthat it would soon start with a $40m expansion ofNorthpoint, situated in Yishun town centre, which isdue for completion in mid-2009. The combined netleasable area (NLA) will be 21,553 sq metres, anincrease of some 56% over the centre’s current NLA.

In addition to Orchard Road, which is a retail, enter-tainment and tourism centre, there are a number ofgrowing luxury retail outlets and areas in the finan-cial districts. The Fullerton Hotel at Raffles Place hascreated its own luxury retail cluster, turning its under-utilised conference rooms into some 464.51 sqmetres of retail stores. Retail rents reflected mod-erate increases during the second quarter of 2008.Average monthly gross rents of prime retail spacein Orchard Road rose to 1.5% to average at $460 persq metre per month. Rents for prime retail spacelocated at regional centres grew by 1.9% as comparedto the first quarter of $355 per sq metre per month.

Due to sound economic fundamentals and con-tinued tourists arrivals, retail sales are expected toremain at healthy levels for the rest of 2008. A num-ber of upcoming visitor-generating events, includ-ing the opening of the two integrated resorts, as wellas the hosting of the Youth Olympics in 2010, willhelp the demand for retail space remain buoyant.The retail sector will also greatly benefit from stronggrowth in intra-regional travel, which has been giv-en a considerable boost by continuing expansion ofroad and air routes throughout Asia.

The increasing demand implies that retail rents aregoing to strengthen further, although the growth inrents will be moderated due to an increased supplyof units. Rents for prime retail spaces are forecast-ed to rise 3-5% for the whole of 2008, which will bea fall in growth rate from the annual average of 5.4%achieved for the last two years.HOSPITALITY: The hospitality sector is consideredto be one of the economic pillars of Singapore. Morethan 10m tourists visited Singapore in 2007, bring-ing close to $9.94bn into the country. The govern-ment is targeting 17m tourist arrivals and $21.3bnin tourist earnings by 2015. The government is pro-moting several key projects, such as the Marina Bayand Sentosa integrated resorts, in addition to focus-ing on meetings, incentives, conferences and exhi-bitions facilitated for business travellers, FormulaOne racing and health care tourism to attract a widerrange of visitors and achieve the set targets.

At the end of 2007 average occupancy stood at88%. Average room rates climbed almost 22.8% tothe end of 2007, reaching $158 per night. By May2008 average daily rates for the five-star segmenthad increased by 20%, compared with 2007. The rev-enue per available room for four- and five-star hotelsin 2007 was the highest for 10 years, with a growthof 22.4% for four stars and 18.8% for five stars.

The sector is optimistic on hotel rates for 2009and the demand is forecasted to grow 5% and sup-ply 4% per annum. Since August 2006, 14 sites havebeen selected for development, and will togethercontribute a further 4800 rooms to the market.

It is believed that hotels catering to business trav-elers are better positioned to benefit from thetourism boom. There should also be strong demandfor serviced and leisure hotels, as more of the abun-dant future supply would cater to leisure travelers.

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Singapore: tourism and hospitality indicators, 2006-11


2006 2,087,362 38.6 3.4 7,097,030

2007 2,052,040 -1.7 3.6 7,387,342

2008 2,192,182 6.8 3.6 7,964,484

2009 2,324,430 6.0 3.7 8,556,036

2010 2,453,021 5.5 3.7 9,188,232

2011 2,609,802 6.4 3.8 9,964,670

THAILAND

Despite the turmoil that has stricken the economyover the past decade, such as the 1998/99 Asianfinancial crisis, the tsunami in 2004 and the militaryissues in 2006, Thailand has managed to maintain asteady GDP growth over the past few years. The num-bers stood at 4.8% in 2006 and a slightly lower fig-ure of 4.5% in 2007. At the end of 2007 GDP percapita was a healthy $8000, which when comparedto neighbouring Association of Southeast AsianNations (ASEAN) countries, ranks the fourth highestamong them. Economic growth in 2008 is estimat-ed to be about 5.6%, with the increase mainly due tothe recovery in domestic demand.

Inflation was 2.3% in 2007, but it is on the rise inline with the increase in global food and fuel prices.Inflation rates are forecasted to rise to 8% by the endof 2008. Interest rates, however, are likely to remainstable in support of economic growth. Since 2000the poverty rate in Thailand has decreased by over2%, mainly due to the increase in agricultural prices,and the unemployment rate has also seen a reduc-tion down to 1.7%. Increases in income were seen mostin families involved in farming but those involved innon-farming activities were affected badly.

Exports from Thailand account for some 60% of GDP,making exports one of Thailand’s main economicdrivers. The industry is forecasted to do well in 2008,with the diversification of Thailand’s export destina-tions high on the political agenda. Domestic demand

is also expected to recover in 2008 with the newlyrestored faith in the political situation.

The new, democratically elected government hasbegun to bolster investors’ faith in the market butmany investors are still weary. The government hasannounced clearer policy directions, which should givea considerable boost to investor confidence.

There are, however, other sources of concern. TheIslamic secessionist movement in the southernprovinces of Yala, Pattani and Narathiwat has becomeincreasingly violent, with a series of coordinatedbombings against tourism targets. Across Thailandthe attitude toward tourism is increasingly ambigu-ous, with foreign arrivals blamed for negative impactson the social structure, and particularly for the spreadof HIV. To combat these attitudes and the interna-tional opinions towards tourism in the country, thegovernment has introduced policies designed to fos-ter a more select, high-end tourist demographic.

Under Thai law foreigners may only hold land if theyhave permission from the Interior Ministry or have aregistered business promoted by the Board of Invest-ment. This directive has traditionally been set aside,with foreigners able to buy land through shell com-panies. However, in 2007 foreign buyers were warnedthat they would no longer be able to hold real estatein this manner – something that has become a mat-ter of great concern for owners of second homes.The newly elected government, however, has

97


ThailandThe country bounces back from a series of challenges


Thailand: economic and demographic indicators, 2006-11Population Population GDP ($m GDP per capita Average Labour force Unemployment


2006 65,280,000 0.26 206,703 7397 4.27 36,400,000 1.5

2007 65,740,000 0.70 245,659 7900 4.27 36,900,000 1.4

2008 66,398,000 1.00 272,494 8401 4.27 37,250,000 1.2

2009 67,061,000 1.00 294,173 8942 4.27 37,670,000 1.1

2010 67,732,000 1.00 31,933 9550 4.20 38,160,000 1.2

2011 68,409,000 1.00 345,204 10,234 4.16 38,720,000 1.4

THAILAND

announced that these legislations will be changedover the course of 2008.

The newly elected government has also recentlyannounced its plans to resume public infrastructureprojects in 2008 and has set aside a bigger budgetfor this purpose and for public investment.

Thailand has a population of over 65m people, witharound 8m of them living in the capital city. The annu-al population growth rate is currently 0.64%. RESIDENTIAL: At the end of 2007 the condomini-um supply in downtown Bangkok was just under60,000 units. Of these units, 20,000 units were com-pleted in 2007, sending the market toward an over-supply. Due to a shortage of land in the CBD, mostcondominium projects are developed in suburbanareas outside the CBD, such as Ratchadapisek andRatchayothin, which can still be easily accessedthrough the mass rapid transit trains. According toKnight Frank research, the number of condominiumprojects launched in 2007 is lower than in 2006, dueto the market slowing down and reaching an over-supply in the second home and upper-class markets.

The economic slowdown has also put a damper onthe take-up rate of condominiums in Bangkok, withinvestors slowing down and being more careful interms of the purchase of property. This trend is alsodue to the political unrest in Thailand, which hasmade the market slightly volatile. Although the situ-

ation has calmed down, investors are still weary. Take-up rates are decreasing slowly.

Despite decreasing take-up rates, prices for unitsare increasing slightly. At the end of 2007 the aver-age price per sq metre in Bangkok was $2517. Rentalsalso remained stable and are expected to remain sta-ble throughout 2008. A great many developers havebegun to slow down the launch of new condomini-um projects in Bangkok, mainly due to the currentmarket situation of an oversupply of units.

Although overall demand has declined, this is notso with high-end, luxury apartments. Demand for thehigh-end market is still going steady, as buyers andinvestors continue to be interested in the uniquedevelopments situated in prime areas. However, dueto increasing cost of living, some high-end buyers arebeing slowly pushed into the mid-range market.

Phuket, on the other hand, is receiving increasinginterest from investors, and as more and more touristsvisit Phuket each year, the demand for holiday homesincreases. The biggest market is the condominiummarket, with almost all completed units taken up andup to 50% sales on projects under construction. Vil-las are popular as well, with a higher percentage ofmarketed villa projects being sold.

Pattaya is receiving increasing interest in the con-do market, with many Bangkok residents buying sec-ond homes in Pattaya, one of the popular weekendgetaway destinations. Pattaya is only a short driveaway from the capital (145 km south).

The residential market in resort locations is high-ly dependent on the tourism industry. In 2005, afterthe tsunami hit, the residential markets on the coastalregions were affected badly. In Bangkok, however,the political situation in early 2007 also affectedinvestor behaviour, as they chose to wait out theperiod of unrest and put most transactions on hold.OFFICE: In 2007 the total supply of office space inBangkok was approximately 4.8m sq metres. Averageoccupancy rates stood at a strong 91.5%, with occu-pancies remaining stable year-on-year (y-o-y), dueto investors choosing to wait out the period of unrest.The re-election of a democratic government has sta-bilised the market now and it should see more activ-ity in 2008, provided the political situation stabilis-es. A total of 154,000 sq metres is set to enter themarket by the end of 2008.

Grade A office space in Bangkok is currently 1.38msq metres and the total supply in Bangkok metropol-itan area is presently 7.49m sq metres.

Rentals in 2007 increased only slightly from 2006and at the end of the year stood at $222 per sq metreper annum, showing a 2% y-o-y increase.

Although locally, concerns surrounding the polit-ical situation had more or less died down for the timebeing, investor concerns have now shifted focus tothe current global economic situation and the sub-prime crisis in the US. According to CB Richard Ellis,due to the recent hike in construction costs, officerentals will have to rise from the relatively inexpen-sive rates to provide incentives for new development.

98



Thailand: retail indicators, 2006-11Year Population Household consumption Growth rate (%) Inflation (%) expenditure ($m)

2006 65,280,000 115,695 14.9 4.64

2007 65,740,000 129,388 11.8 2.23

2008 66,398,000 145,250 12.3 3.52

2009 67,061,000 163,024 12.2 2.46

2010 67,732,000 182,726 12.1 2.04

2011 68,409,000 205,877 12.7 1.99

THAILAND

Although rents went up in 2007, the net take-uprate, like in the residential sector, was slightly less thanthe previous year. Demand is expected to rise in 2008provided that the political situation remains stable,but vacancy rates could likely increase due to thehigh volume of new leasable space that is expectedto be completed by the end of 2008.RETAIL: The retail consumer market is beginning torevive, provided the political situation stabilises. Totalstock of retail space in Bangkok at the end of 2007was 4.93m sq metres, with over 260,000 sq metresto be completed by the end of 2008.

Vacancy rates decreased in 2007 but by the endof 2008 conditions were looking up and retailerswere slightly more optimistic. Rentals increased in2007 due to slightly higher vacancy rates. Early 2008saw a decrease in vacancy rates of 1%, however, pro-viding the political situation remains stable.

Current market research estimates are that theprice of rental for retail space will rise by the end ofthe year to $512 per sq metre per year.

The retail consumer market has begun to reviveitself, and will continue to do so, providing the polit-ical situation in the country remains stable.

Total retail sales in Thailand are expected to reach$78bn in 2008, with multinational chains absorbingan increasing share of the market, the retail environ-ment in Thailand is also under review, with the gov-ernment introducing legislation in late 2007, whichwas designed to protect smaller retailers.

Tourism is a rather large and important factor inretail sales. According to Euromonitor International,an independent provider of business intelligence,tourism receipts totalled at a little over $10bn. Primeretail centres in the city centre continue to focustheir marketing attention on attracting tourists.

Locally, however, due to spending behaviourchanges caused by inflation, the global fuel hike andthe recent increase in food prices, major retailersare looking at focusing more on building smaller-scale trade centres around Bangkok, which will caterto different clientele rather than starting construc-tion on more large-scale shopping centres in the city.HOSPITALITY: In 2007 there were 14.46m interna-tional tourist arrivals in Thailand, with over 50% ofthat number coming from Asian countries and 24%from ASEAN countries. That was a growth of 4.65%from the previous year. The average length of stayfor international tourists also increased from 8.62 daysin 2006 to 9.19 days in the following year.

In Bangkok there is a total supply of 24,080 rooms,with 40% of the supply located in downtown Bangkok.Some 4000 rooms are expected to be delivered bythe end of 2008. The occupancy rates for high-endand luxury hotels in the first quarter of 2008 was 76%,which was an increase of 2% from the same periodof the previous year. Average room rates in Bangkokincreased from $123 in the first quarter of 2007 to$194 in the first quarter of 2008, a 58% increase.

Top tourist destinations include Pattaya, Phuketand Samui, with 4.38m, 3.16m and 897,000 interna-

tional tourist arrivals in 2007, respectively. The mostpopular of these resort destinations is Pattaya, witha total of 6.2m visitor arrivals in total (local and for-eign). Pattaya attracts many visitors because of itsproximity to Bangkok and is, in fact, a very popularweekend destination with Bangkok residents, manyof whom own holiday homes in the city.

Phuket is another very popular destination. Withover 4.7m local and international visitor arrivals. In2005 visitor arrivals dropped drastically to only 2.4marrivals due to the damage inflicted by the tsunamiin 2004. Since then however, the tourism industry haspicked up and the number of visitors has nearly dou-bled. The total stock of high-end hotel rooms inBangkok is 7991, with that number currently fore-casted to increase by almost 50% by 2010.

Samui had just over 1m visitors in 2007. In 2008Thai Airways launched flights to Samui, making it theonly airline operator to operate international flightswith stopovers in Bangkok to the island. The airportis also aiming to become the second internationalflight centre of Thailand. This is expected to createmore tourism interest in the island and to attractmore visitors to the island in the next few years.

Thailand is also promoting itself as a destinationfor the meetings, incentives, conventions and exhibi-tions market as an economical alternative to moreexpensive cities such as Hong Kong and Singapore.

99



Thailand: tourism and hospitality indicators, 2006-11

Year Tourist arrivals Tourist arrivals growth Average stay length Total stay-night(4- & 5-star guests) (%) (days)

2006 5,804,400 20.0 8.62 50,033,928

2007 6,062,245 4.4 8.66 52,476,429

2008 6,439,045 6.2 8.69 55,946,663

2009 6,990,259 8.6 8.78 61,341,962

2010 7,458,466 6.7 8.90 66,349,811

2011 7,965,613 6.8 9.01 71,780,881

INVESTMENT LAWS100


Investment laws

COUNTRY LAW PROVISION FOR REAL ESTATE ACQUISITION

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

- Investors can purchase real estate in specific zones.

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

value of the investment.

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

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

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

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

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

for up to 50 years renewable within the investment areas.

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

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

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

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

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

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

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

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

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

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

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

projects and 10 ha minimum land area for plotted developments.

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

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

for real estate projects.

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

(Special Economic Zone Act, 2005)

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

foreign investment company.

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

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

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

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

or allow for ownership of land or real estate.

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

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

INVESTMENT LAWS 101


Investment laws


Kuwait Foreign Investment - Foreign land ownership is permitted only to GCC nationals. Kuwaiti joint-stock companies with foreign equity can own land,

Law (No. 8/2001) provided it is used for business operations (e.g. office space).

- Real estate investment is not restricted to GCC-nationals. Other foreign investors can subscribe to Kuwaiti shareholding

companies for real estate investment.

- Other foreign nationals are not permitted to own property in Kuwait.

Note: Kuwait is considering permitting foreign ownership of property, which may boost optimism in the market.

Lebanon Law number 296 - Non-Lebanese persons can own real estate in Lebanon.

in 2001 (amendment) - Property taxes and registration fees have been reduced for overseas real estate buyers from 16% to 5%.

- Individual purchasers may not procure more than 3000 sq meters of real estate unless they have

special permission to do so.

Libya Foreign Investment - Foreign investors are given right to land ownership only for use, rent, or project development. Land ownership for

Law No. 5 of 1997 investment is still unclear.

- Foreign nationals are allowed to own or lease property, but the law does not indicate whether the property can be used as

collateral or can be transferred.

- The minimum capital needed is left to the discretion of the public officials and is not specified by law. The Board often

requires a minimum of €600,000.

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

- All foreigners except for Israelis and Serbians are allowed to invest in residential property.

- Stamp duty can be up to 4% and up to 0.5%is also payable on loans.

Morocco Investment Charter of 1995 - Residential investment is encouraged by offering fiscal incentives for social housing developments of more than 2500

units over a period of 5 years, with public land granted to developers.

- Privatisation of urban and rural land holdings provides leeway for investors in other residential segments

and developments. Agricultural land can also be purchased provided it will be used for tourism projects.

- Foreign nationals can own property either for residence or investment.

- No minimum capitalisation is required but incentives are applicable to capitalisation of above $21.5m investment.

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

Northern Localised Property Laws - Freehold property ownership is offered in Ras Al Khaimah, Ajman and to a limited degree in Fujairah.

Emirates - Leasehold properties are available in Sharjah. Property law in Umm Al Quwain limits foreign ownership to property

(not land).

Oman Royal Decree 12/2006 - Land ownership rights were initially granted to GCC national and corporate entities (wholly owned by GCC nationals).

Ownership rights have since been extended to non-GCC nationals within integrated tourism zones,

either for residential

or investment purposes.

- Foreign nationals can own real estate in designated integrated tourism-related areas.

Pakistan Foreign Private Investment - Foreign entities are permitted to purchase land in Pakistan, but are required to develop within four years on pain of

(Promotion & Protection) forfeiture.

Act of 1976 - Non-resident Pakistani, overseas Pakistani and foreign nationals may also purchase immovable property in Pakistan.

- Minimum foreign equity for investments has been reduced from $500,000 to $300,000.

The Philippines Foreign Investment Act of 1991 - Investment requires 60% equity from either a Filipino national or company.

- Land ownership is limited to 40% equity and can be leased for 50 years, renewable for another 25 years.

- Foreign nationals can purchase condominium units and retail establishments, as well as commercial units.

INVESTMENT LAWS102


Investment laws


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

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

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

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

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

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

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

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

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

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

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

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

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

from the Minister for Law to purchase any of these.

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

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

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

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

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

subject to 7% tax.

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

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

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

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

ownership in a lease on Thai land.

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

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

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

The Investment Code - Foreign ownership of property is permitted.

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

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

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

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

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

provided such acquisition is legal for a Turkish national.

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

restricted areas.

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

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

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

than 3-star category.

CONSULTING SERVICES

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

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

OBG SERVICES

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

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

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

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

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The Market 2008