BMI View: Over the long term the Kuwaiti real estate sector continues to provide enticing opportunities. The country enjoys immense oil wealth and high GDP per capita, while government initiatives are supporting an increasingly dynamic private sector. H owever , we believe that forecast growth in the sector will be pushed back several years due to developments in 2014. The drop in the price of oil and political instability in the region surrounding Kuwait has meant that the Kuwaiti economy is not growing as quickly as previously forecast, and thus supply continues to outpace demand in the real estate sector.
Demand for commercial real estate is set to grow in Kuwait, as the country has a stable government and generally offers a supportive business environment to investors. Due to the country's vast oil wealth, the populace enjoyed a per capita GDP of USD54,341 in 2014. This provides consumers with ample purchasing power to support the rapidly developing retail sector. However, this also means that recent declines in the price of oil will have a particularly great impact on the Kuwaiti economy, as exports, overwhelmingly dominated by oil, amount to 68.8% of GDP. The price of oil fell by over 20% in the four months after peaking in mid June 2014. In the past the government of Kuwait has made efforts to diversify the economy, such as 2010's USD102bn plan to expand the private sector, however benefits have been slow to materialise, a fact which many blame on the country's bloated bureaucracy.
Additionally, although Kuwait itself is politically stable and is considered one of the most democratic states in the GCC, business in the country is nevertheless put at risk by the region's less stable states. In 2014 Iraq has been ravaged by its internal conflict with the Islamic State (IS), while Syria remains in a state of civil war. If the conflict with IS shows signs of spreading beyond Iraq's borers, it could pose serious risks to the economy of the wider region.
BMI estimates that the Kuwaiti economy grew by 2.9%, and we are now forecasting growth of 2.7% for 2015. We expect the economy to continue to grow at a moderate pace between 2.5% and 2.7% for the next several years, supported by the many advantages that Kuwait continues to possess, but held back by instability in the wider region and lower demand for oil internationally. In terms of commercial real estate, this will mean that supply will continue to exceed demand for the next several years as projects currently under development reach completion, and we are forecasting rents to remain constant through 2016 before beginning to rise again in 2017.
Declining oil revenues pose the greatest risk to the retail real estate sector. Although we are projecting rising incomes to support a buoyant retail sector over the long term, the short term outlook is quite different. If falling government revenues result in declines in transfer payments and other benefits to Kuwaitiu citizens, they will be forced to make corresponding reductions in their spending habits. Regional instability and violence may also deter a portion of the expats who make up 80 per cent of Kuwait's workforce, also driving down consumer spending, although it is worth noting that roughly one third of them come from other countries within the region and thus may not have any safer alternatives.
Demand for office real estate in Kuwait is primarily driven by the growing financial industry. As a centre for financial services in the heart of a region economically dominated by oil production, the industry will surely suffer some knock-on effects from declines in the price of oil. On the other hand, Kuwait has one of the lowest break-even prices in the world for its oil production, at USD60.5 per barrel, and the government has over the years accumulated a substantial sovereign wealth fund, leaving the country in a sound financial position even in the case of prolonged low oil prices. Lower oil prices will encourage the government to further expand its initiatives to develop the private sector beyond extractive industries, with the financial services industry a likely beneficiary.
Industrial activity within Kuwait benefits from the abundant supply of petroleum products available within the country. Companies will benefit greatly from declining oil prices, and particularly the effects that US shale gas production is having on various hydrocarbon based industrial inputs. However, as energy was already heavily subsidized in Kuwait for both Kuwaiti nationals and expats, companies located there stand to gain less from falling oil prices than do their international competitors, and as such, relatively speaking Kuwait may become a less attractive location.
The Gate Mall, still under construction, is set to be completed late 2014/early 2015. It will be Kuwait's second largest shopping area with 275 shops, and as of September 2013 was already over 70% leased.
The 4 th phase expansion of The Avenues is nearing the end of the design stage. It will include two five star hotels, additional shopping space, and a ballroom.
Kuwait opened its largest hypermarket to date, the 21400 sq m Lulu Hypermarket, in Dajeej in Q1 2014.
Key BMI Forecasts
We forecast rents for office space to remain flat over the period of October 2014 to March 2015
We forecast rents for retail space to stay the same over the period of October 2014 to March 2015
We forecast rents for industrial space in all 3 cities to remain the same over the period of October 2014 to March 2015
We forecast yields for office space to reach 9-10% in Kuwait City in 2015
We forecast yields for all 3 cities to remain constant in the industrial and retail segments in 2015
The Kuwait Real Estate Report features BMI Research's market assessment and independent forecasts of major construction projects in the residential and commercial markets, plus rental prices and yields in major cities. The report critically analyses the prospects for real estate within the broader economic and financial context - both domestic and global - via our econometrically-modelled and clearly explained banking and economic forecasts and follows this through to evaluate the implications for REITs.
BMI's Kuwait Real Estate Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the real estate industry in Kuwait.
- Benchmark BMI's independent real estate industry forecasts for Kuwait to test other views - a key input for successful budgeting and strategic business planning in the Kuwaiti real estate market.
- Target business opportunities and risks in Kuwait through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
- Assess the activities, strategy and market position of your competitors, partners and clients via our company profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering real estate and construction, regulatory changes, major investments and projects and significant national and multinational company developments.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the real estate sector and within the broader political, financial, economic and business environment.
Industry Forecasts Outlook
Historic data series (2010-2013) and forecasts to end-2019 for the domestic real estate industry and for the local and global finance industry.
- Real Estate: Office, retail and industrial real estate yields for all major cities (%); short term forecasts on minimum and maximum real estate rental prices by sub-sector (USD per square metre and local currency per square metre).
- Construction: Industry value (USDbn); contribution to GDP (%); employment (‘000); real growth (%).
- economy: Economic growth (%); nominal GDP (USDbn); unemployment (%); interest rates (%); exchange rate (against USD).
BMI’s Real Estate Risk Reward Index
BMI’s Risk Reward Indices provide investors (real estate vendors, construction companies and financial investors) looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide an indices of highest to lowest appeal to investors, with each position explained.
Overview of the real estate sector, including analysis of existing/planned real estate developments and emerging industry trends in the office, industrial and commercial sectors
Features detailed city-level data and analysis on rental prices, yields, contract terms and real estate availability with separate chapters covering the office, retail and industrial sub-sectors.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.