Manama: Mahmood Rafique, Editor: With real estate value of transactions reaching $64.9 billion in 1H of 2021 which represent 26% and 32% of the full year figures of 2020 ($90.5billion) and 2019 ($ 96.5 billion) respectively, the GCC real estate sector is on the rebound.
Kamco Invest in its research report titled “GCC Real Estate Update – August 2021”, stated that although on a y-o-y basis, the H1-2021 estimate already represents strong growth, actual growth is expected to be higher, since an accurate like-for-like analysis was not possible as certain markets were yet to report Q2-2021 and June-2021 transactions.
Saudi contributed to over 44% of the aggregate value transacted, while UAE added 26% to the region’s H1-2021 transactions. The number of transactions in H1-2021 reached 321,936 from to 568,586 for full year 2020. The higher transaction activity y-o-y in H1-2021 was largely due to opportunistic buying of bargain-priced properties, as property prices reached multi-year lows from the impact of Covid-19 since early 2020.
Ongoing remodeling of office and retail real estate landscape: The drivers of demand and preference of tenants in GCC real estate market continued to transform in 2021. In the office space market, operators continue to optimize their portfolios between traditional and flexible spaces, while occupiers negotiate hard and look for higher quality spaces. Occupiers are likely to prefer sustainable built environments, as more companies start incorporating Environmental, Social and Corporate Governance (ESG) strategies. Technology, Media & Telecom (TMT) is another sector that is likely to witness growth in their contribution towards new office space demand. In the industrial segment, growth in demand from themes such as e-commerce and 3PL logistics witnessed in 2020 should normalize, and focus should return towards more conventional sources of demand such as construction and industrial materials, white goods etc. Competition amongst spaces could intensify, and will potentially lead to downward pressure on rents, as landlords look to preserve market share. Separately, the transformation of retail mall spaces deriving a higher footprint from entertainment and F&B tenants is expected continue in 2021. Event-specific spikes in footfalls and sales conversion from events such as Expo 2020 Dubai should provide temporary respite to mall space owners.
Residential prices may have bottomed; but a late-stage cycle rental recovery is required for a more structural argument: GCC real estate value transacted in H1-2021 reached USD 64.9 Bn and has approached within 26% and 32% of the full year figures of 2020 (USD 90.5 Bn) and 2019 (USD 96.5 Bn) respectively. The higher transaction activity y-o-y in H1-2021 was largely due to opportunistic buying of bargain-priced properties, as property prices reached multi-year lows from the impact of Covid-19 in early 2020. Moreover, a higher average value per transaction was achieved in H1-2021 for key markets, when compared to pre-pandemic levels of H1-2019, pointing towards the investment appetite for attractively priced real estate. While our view on the residential real estate market in the GCC has become more constructive than from our previous update (Dec-2020), we still require rents to move towards a late-stage recovery phase in the cycle, before establishing the segment as the clear leader amongst real estate segments.
RE equities already pricing in a sustainable rebound: Real estate equity indices in all GCC markets barring Qatar witnessed strong double-digit percentage gains in H1-2021. The Refinitiv GCC Real Estate Total Return Index gained by 22.0%, while the MSCI GCC index moved up by 22.6% over the same period. At current market levels (H1-2021), we believe that GCC RE equities prices are not just pricing in a cyclical recovery from Covid-19, but a broader structural rebound. Real estate rents and prices in all sub-segments remain in different stages of recovery and would need significant growth in fundamental performance indicators from here on to warrant a further rerating in the stock prices of developers and REITs, in our view. Apart from project IRRs and cashflow visibility, developers are seeking portfolio investments into PropTech and Property Management companies in order to capture more recurring and diversified revenues.
Residential real estate prices and buyer sentiment in major GCC markets have bottomed out from the impact of Covid-19, and the lows of 2020. Prices and investor sentiment continued their momentum in H1-2021, and transaction activity remains strong. However, the drivers were different, as Dubai real estate witnessed opportunistic buying from investors, especially at the higher end of the apartment and villa market. Further, developers capitalized on the demand, and offered rentto-own schemes, fee waivers, and lucrative post hand-over payment plans during the period. Saudi Arabia real estate prices recovered and was driven by government support in the form of mortgage financing and housing initiatives to achieve the Vision 2030 objective of increasing the homeownership rate to 70% by 2030. Residential yields compressed as a result of higher prices by H1-2021, as was witnessed in Dubai where yields compressed 40bps-50bps across apartment types since H1-2020.
