Kuwait Real Estate Report Q3 2012

The outlook for Kuwait’s real estate sector remains positive. The market is recovering, backed by increased government spending and robust economic growth. The most recent full year data from 2011 corroborates our prior forecast that 2011 would see a stabilisation in the market, and although the top line figures hint at slight volatility, contractions were in line with market correction, and gradual growth returned as the main course of the market. The National Bank of Kuwait estimates that the commercial real estate sector grew in value by 3% in 2011, far below the 32% growth in the residential sector. In the short term, the office market – in spite of historic oversupply – is posting steady growth rates, which although nowhere near their pre-crisis peak, have settled into a positive growth trajectory. Of the three sub-sectors that we analyse, BMI believes that retail holds the greatest potential in the longer term due to positive underlying fundamentals.

Key Opportunities

• The KWD37bn Kuwait Development Plan is expected to stimulate growth in the residential sector, while the Kuwait Investment Authority will invest KWD1bn in the commercial and investment segments. Projects being developed include the construction of the business hub Silk City at an estimated cost of US$77bn. Large infrastructure projects in the pipeline, such as a new railway and metro system, will also be a springboard for further sector expansion.
• Kuwait’s robust economic outlook – driven by increasing hydrocarbons prices, rising oil export revenue and a strong diversification policy – underpins the sector. We forecast real GDP growth of 4.5% in 2012, down only modestly on estimated growth of 5.7% last year.
• Long-term opportunities in the retail sector through tourism, the high number of expatriates, urbanisation and increased consumer spending power. New shopping centres continue to open across Kuwait, drawing in high-end retail brands such as US delicatessen Dean and DeLuca and UK department store Harvey Nichols.

Key Risks

• There remains an outside chance of political instability in Kuwait. However, generous government expenditure at a time of high oil prices is likely to head off this outcome.
• The most recent parliamentary elections, in February 2012, were largely contested on the issue of corruption, but there is little likelihood that the political bickering, which has dominated parliamentary proceedings in recent years, will end. As a result, there is a strong risk of continued policy stasis, worsening the outlook for economic reform.
• If demand does not improve in accordance with the scheduled increase in gross leasable area (GLA), market conditions will soften further, worsening the glut in the office and industrial rental sub-sectors.

Contents

Executive Summary
SWOT Analysis
Kuwait Real Estate/Construction SWOT
Kuwait Political SWOT
Kuwait Economic SWOT
Kuwait Business Environment SWOT
Real Estate Market Overview
Market Analysis – Office
Rents And Yields
Table: Historic Office Rents, 2010-2011 (KWD per m2/month)
Table: Net Office Yields, 2010-2012 (%)
Table: Terms Of Office Rental Contract/ Leases, Mid-2011
Supply and Demand
Industry Forecast Scenario
Table: Forecast Office Rents, 2012 (KWD per m2/month)
Table: Forecast Net Office Yields, 2008-2016 (%)
Market Analysis – Retail
Rents And Yields
Table: Historic Retail Rents, 2010-2011 (KWD per m2/month)
Table: Net Retail Yields, 2010-2012 (%)
Table: Terms Of Retail Rental Contract/ Leases, Mid-2011
Supply And Demand
Industry Forecast Scenario
Table: Forecast Retail Rents, 2012 (KWD per m2/month)
Table: Forecast Net Retail Yields, 2008-2016 (%)
Market Analysis – Industrial
Rents And Yields
Table: Historic Industrial Rents, 2010-2011 (KWD per m2/month)
Table: Net Industrial Yields, 2010-2012 (%)
Table: Terms Of Industrial Rental Contract/ Leases, Mid-2011
Industry Forecast Scenario
Table: Forecast Industrial Rents, 2012 (KWD per m2/month)
Table: Forecast Industrial Net Yields, 2008-2016 (%)
Construction Industry Outlook
Table: Kuwait Construction And Infrastructure Industry Data & Forecasts, 2007-2016
Table: Kuwait Construction And Infrastructure Industry Long-Term Forecasts, 2012-2021
Construction And Infrastructure Forecast Scenario
Macroeconomic Outlook
Table: Kuwait – Economic Activity, 2011-2016
Real Estate Risk/Reward Ratings
Real Estate/Construction Risk/Reward Ratings
Table: Middle East And North Africa Risk/Reward Ratings
Kuwait’s Risk/Reward Ratings
Table: BMI Business And Operation Risk Ratings
Institutions
Table: BMI Legal Framework Rating
Infrastructure
Table: Labour Force Quality
Market Orientation
Table: Middle East & Africa - Annual FDI Inflows, 2008-2010
Table: Trade And Investment Ratings
Table: Top Export Destinations, 2000-2008 (US$mn)
Operational Risk
Competitive Landscape
Company Monitor
National Real Estate Company (NREC)
Pearl Of Kuwait Real Estate Company
Salhia Real Estate Company
Tamdeen Group
United Real Estate Company (URC)
BMI Methodology
How We Generate Our Industry Forecasts
Construction Industry
Bank Lending
Real Estate/Construction Business Environment Rating
Table: Weighting Of Indicators
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