KUWAIT – market experiences further correction
1 December 2014
Throughout 2014, Kuwait’s residential sector witnessed both an increase in sales prices as well as transaction volume, mirroring the continued domestic demand for housing in the Gulf state.
According to the latest real estate report by the Kuwait Finance House, the state aims to build more than 36 thousand housing units by the end of 2017, while the number of accumulated residential applications has increased to about 112 thousand applications since the year 1985 until 9th of July 2014.
Commercial real estate properties also witnessed a slight rise in the shadow of the continuous improvement in occupancy rates, especially in commercial buildings and towers in the metropolitan area. However, the office sector still remains in a significant sate of oversupply, as Ian Gladwin, CEO of Cluttons Middle East, explained:
“Prior to 2003, Kuwait was stable market with limited development. After the fall of Saddam in October 2003 however, there was a massive influx of Kuwait investors wanting to catch up very quickly. The result was a massive development boom as the market tried to catch up with other markets around the region,” Gladwin said.
With the global economic downturn in 2008, the explosive development came to a halt and with it, the delivery of close to 500,000 sqm of office space was naturally going to create a significant scenario of oversupply, Gladwin explained.
“Although office take-up has increased, there still isn’t enough international or regional interest to drive the office market to the extent that is needed to take up those half a million of square metres of new space,” Gladwin said. Kuwait’s largest office project is the Al Hamra development in Sharq which currently sits at about 50 percent occupancy; prices sit at around 8 or 9 KWD per square metre.
STRONG ASSET CLASSES
Due to the high spending power of Kuwaitis, the retail sector has always been very strong in Kuwait, Ian Gladwin said. “The first generation malls with a size of up to 15,000 smq are holding their asset value very well. The new developments such as 360 Degrees Mall and the Avenues Mall are the powerhouses of retail in Kuwait and are doing extremely well,” he commented.
According to Gladwin, Kuwait sits second right behind Dubai in terms of retail demand in the region, with the difference being that Kuwait’s demand is indigenous whilst Dubai’s retail sector is highly driven by tourism.
In addition to retail, the residential sector is quite strong; land values are as high as they’ve ever been, Gladwin explained and development is picking up.
OUTLOOK FOR 2015
For the coming year, Gladwin expects to see a further phase of correction as the market approaches the pre-2003 levels.
“In 2015, developers will continue to assess gaps in the market while the commercial sector will still remain significantly oversupplied,” Gladwin said on a final note.
Kuwait 2014 highlights
- Rise of domestic demand in the residential sector
- Real estate transaction volumes have increased by 24% y-o-y in Q1 2014 compared with the same period last year
- Commercial real estate prices have witnessed a stable average of the in all of Kuwait’s Governorates and have increased by a limited percentage of 1% during Q2 of 2014 compared to an increase of 3.2% during Q1 of 2014