Middle East real estate: when will the boom end?

To start with Dubai, the liveliest market: On the residential side Colliers notes a continued skew towards high-end residential apartments and highlights the results of its Q2 2007 Occupancy Rate Survey that found that only 70 per cent of the Dubai Marina was occupied compared with 94 per cent at the nearby, less high-end Greens development.

Thus residential market weakness is emerging first in high-end apartments. In the Dubai office sector occupancy rates are 97-99 per cent and rents are sky-high. But Colliers is bearish about the outlook because of the volume of new office space being released onto the market between now and the end of 2009 - with the total supply advancing from 1.6 to 5.6 million square metres!

It is a similar story for retail space with the completion of several new huge mega-malls and mall extensions set to impact heavily on existing older malls.

Dubai hotel projects have been hit by long delays, but again the flow of new properties is about to turn into an avalanche - no less than 30 new four and five star hotels are under construction and the total number of rooms will grow by 33 per cent from 2007-2011.

Doha

In Doha over 16,000 new apartments will be available by 2010, say Colliers, provided developers can keep on schedule. But demand fundamentals are so strong that demand will outstrip supply for the medium term. Office space is also at a premium, particularly with flexible floor plates and parking.

However, on the retail side the amount of space now under construction will result in a big increase from 450,000 to 1.13 million square metres between 2007 and 2012, according to Colliers, and tip the market into oversupply. Hospitality will go the same way with 4,353 rooms in the four and five star categories expanding to 17,000 by 2012.

Riyadh

The capital of the region's biggest economy also exhibits strong growth in the residential sector with occupancy at 92 per cent, according to Colliers, and most developments involve the sale of sub-divided development plots to individuals. But data is not as readily available as in some Gulf cities.

Commercial rents are up by an average of 15 per cent and yields have compressed as the market has strengthened from its previously stagnant condition. Newer office space now coming on stream will encourage tenants to move to better grade accommodation.

Meanwhile, the retail sector's delivery of the highest level of rental return has also attracted the strongest level of investment into retail space in Riyadh. Colliers expects retail space to total 2.5 million square metres by the end of 2007. But agents report that the recent uptake of new space has been sluggish. In the hospitality sector upcoming supply will hit short term performance.

Amman

Jordan's capital city has been undersupplied with residential property over the past couple of years due to the influx of Iraqis, putting pressure on rents and prices. Colliers estimates that 7,000 apartment units will be completed in 2007 which will not be enough to meet demand, especially for lower end units.

Office occupancy rates of 95 per cent are also high and dedicated office buildings in the upcoming Abdali project are anxiously awaited. But in the retail sector rents remain too low to attract major mall developments of international standard, although the forthcoming Baraka Mall aims to fill this gap.

Hotel occupancy rates have been high despite the 2005 terrorism attacks, and two hotels are currently under construction in Amman.

Damascus

The exodus from Iraq has also put pressure on residential accommodation in Damascus, with a 20 per cent boom in selling prices and 30-40 per cent surge in rentals. And inward investment from the UAE and Kuwaiti groups into residential projects is strong.

However, developers are reluctant to construct purpose-built offices despite burgeoning demand, out-of-date office buildings and increasing sales and rental prices for commercial space.

Retail is very important to the Syrian economy, employing 27 per cent of the labour force and comprising 17 per cent of GDP. Shopping malls of modest size are popular with nationals and cross border shoppers and two smaller malls opened this summer.

In the Damascus hotel sector demand is expected to outstrip supply for the next five years as it was only last year that the Four Seasons became the first new five-star hotel in 30 years.

See also:
Dubai's Palm and World Islands - progress update
Property buyers face lengthy but profitable wait
New law eases access to housing for lower and middle classes
Saudi Arabian residential projects need $20bn cash injection