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Kuwait skyline

Kuwait may have a lock on the world's oil and gas reserves, but when it comes to its own real estate industries, the Middle Eastern country needs someone to prime the pump, according to a new analysis released by DTZ, an international real estate advisor.

The report covers Kuwait's commercial office, retail and residential sectors.

"The Kuwait real estate market faces some key challenges," says   Martin Cooper, DTZ's head of consulting and research for the Middle East.

"There are substantial volumes of supply in the commercial and residential investment sectors and significant under supply of private residential housing."
 
Office Market

In the office sector, demand has been "significantly curtailed by the ongoing global economic crisis but also the ongoing disputes between parliament and the government which is restricting Kuwait's ability to diversify and expand its economy beyond the oil and gas sector," Cooper says.

Martin Cooper of DTZ Middle East

In a stark contrast to the pre-credit crunch period, commercial office supply now outstrips demand, according to the report published by AMEinfo.com.

In Kuwait City, rental levels have fallen by as much as 50% from peak headline rents in 2007. With many companies failing or consolidating their operations, demand has flattened while office supply has continued to come to the market.

This has had a noticeable impact on rents, especially for new build properties.

"Tenants are putting pressure on landlords to review rents in the context of the current market conditions," Cooper says.

"DTZ believes there will be a continued pressure on office rents although landlords will seek to stabilize this by offering other forms of incentives to new and existing tenants."

In the last 18 months, more supply has come to the market which has resulted in a broader choice of accommodation for potential tenants.

Demand has "noticeably softened due to a large extent to world economic conditions and continuing domestic politics which are causing the local economy to stagnate," according to the report.

Currently, DTZ estimate there is approximately 184,000 square meters (1.98 million square feet) of new office space within 28 buildings in Kuwait City which is either complete or available to rent or is expected to complete in the next 3 months and is currently in the leasing/marketing phase.

There are also "a significant number "of projects currently under construction and due for completion between 2010 and 2013.

DTZ estimates a further 28 such projects in Kuwait CBD which will add a further 439,000 square meters (4.72 million square feet) of new floor space to rent.

"In addition, there are at least nine other projects which DTZ is aware of at an advanced design/feasibility stage, although no dates have been provided as to when they expect to commence construction," the report notes.

"If they are built in their current form, they could provide an additional 291,000 square meters (3.13 million square feet) of office space to rent in Kuwait CBD."

(1 square meter = 10.7639104 square feet)
 
Residential Market

DTZ's report sets out two clear markets in the residential sector. Non-Kuwaiti citizens cannot own land or properties in Kuwait, the report states.

The Kuwaiti freehold market (referred to as private residential) which is typically characterized by villa type accommodation. In this sector, there has been recent recovery in land prices after falls of between 25 percent to 35 percent from peak levels in 2008.

There has also been "significant growth" in land rates in new areas where the Kuwait Government has granted construction permits.

DTZ believes that the housing shortage for the Kuwaiti population will remain "until Laws 8 & 9 are further reviewed to extend the amount of land being available to the private sector and extending their involvement in meeting the housing requirements of the Kuwaiti population."

The rental sector (referred to as investment properties) is dominated by expatriates and is typically characterized by apartments.

Villa's are also available (either as a whole or as floors) to rent but these are generally directly from a Kuwaiti individual rather than a real estate company and represent a small proportion of the total rental sector.

"The investment sector relies heavily on the expatriate population for demand, given that non Kuwaiti's cannot own a freehold," according to the report.

"DTZ believes the increasing supply and impact of the economic crisis, which has seen the number of expatriates falling, will continue to have a negative impact on the sector.
 
Retail Market

According to DTZ's report, Kuwait has more than 50 covered malls of varying age, scale; quality and tenant mix with leasable floor space of approximately 675,000 square meters (7.26 million square feet).

These malls are predominately located in the City Centre, Hawally, Salmiya and Fahaheel. Jahra, which lies to the west of Kuwait City and is somewhat detached from the main urban area, is also seeing new retail development.

The report outlines that, in general, rents for prime retail locations in established malls range from KD20 to KD45 ($68.72 US to $154.61 US) per square meter per month.

In many of the secondary locations, prices range from between KD15 ($51.84) to KD20 ($68.72) per square meter per month.

(1 Kuwait dinar (KD) = $3.44 US)

The ongoing economic situation has had a direct impact on retail sales and retail operators are now being more selective on the locations they chose, Cooper says.

DTZ believes The Avenues will continue to be the dominant retail destination in Kuwait for the foreseeable future and will be enhanced by the planned Phase 3 extension.

Smaller malls will continue to see rental pressure, with rental growth likely to be limited to established and proven locations.

DTZ, with a company history dating back to 1784 and representatives in 43 countries, has its global headquarters in London. Its Middle East offices are in Abu Dhabi, Dubai, Bahrain, Kuwait, Qatar and Saudi Arabia.  

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