28 OCT 2021
Demand for available commercial property stabilises across the Middle East and Africa following months of over supply for the market points to an encouraging development, according to the latest RICS Commercial Property Monitor for the Middle East and Africa.
Looking at the Occupier and Investment Sentiment Indices, this quarter, they both improved slightly to -8%. For the Occupier Sentiment Indices this is up from -15% and for the Investment Sentiment Indices this is up from -11% and although these are still in negative territory it points to a more stable picture ahead.
What’s more, 55% of respondents report that investors consider climate risk when making investment decisions and is up from This is likely being driven by the Middle East, where anecdotally some respondents are pointing to EXPO2020 influencing the market as well as increased oil prices.
Looking at the main sectors, demand for the Middle East and Africa’s industrial sector continues to improve at a faster rate than office and retail where there remains an overhang of supply for sale/rent. This influx of supply was a trend that started to come through in 2019 and was exacerbated by the pandemic and is still impacting overall sentiment.
Some countries are still showing some weaknesses. Whilst Saudi Arabia stands out at displaying the strongest recovery, and closely followed by Turkey and the UAE, which is possibly driven by wider economic impacts, such as access to oil and improved tourism, or even Expo2020, conditions remain challenging in South Africa and Oman where demand continues to fall across office, industrial and retail sectors.
As a result of the slightly improved investor demand, almost half of respondents now believe the market to be in an upturn phase and only 25% of Middle East Africa respondents feel the market is in a downward phase.
Looking ahead, with stabilised demand and investor appetite, capital value expectations have strengthened in Saudi Arabia, the UAE and Qatar. Once again, the industrial sector is offering the greatest returns, but office and retail space is anticipated to see growth in the next twelve months. In South Africa and Oman, where demand is expected to fall, capital values are expected to fall in office and retail yet industrial space is bucking that trend.
Alternative assets, such as data centres are expected to deliver the biggest returns in terms of rents and capital values for the year ahead too. As more students return to universities too, projection for student housing have improved with rents expected to rise by 3%. Multifamily residential and aged care facilities also posted positive returns. However, looking at hotels, rents could marginally grow for the year ahead, but capital values are flat across the entire region.
Tarrant Parsons, RICS Economist, commented: “There appears to have been a more favourable shift in the tone to the results coming through from the Middle East and Africa over the quarter. Although the headline indices capturing current conditions are still being weighed down to a certain extent given the overhang of supply, much of the negativity of previous reports has dissipated, with demand on both the occupier and investment sides of the market now stabilising at the all-sector level. This is feeding through into a positive assessment for capital values and rents across prime sectors over the year to come, with industrials set to deliver amongst the strongest growth. Also supporting the outlook, the economies of the large oil producing nations across the region will be boosted to some degree by the recent rise in oil prices, with growth in 2022 set to receive a more significant boost. Meanwhile, Expo 2020 in Dubai has gotten off to a positive start, attracting close to 1.5million visitors in the first 24 days, and these numbers are anticipated to continue to rise gradually over the coming months.”
Notes for editors:
* The Commercial Property Sentiment Index is an unweighted average of the OSI and ISI. (See below) Regional indicators are weighted using estimates of the stock of commercial property provided by LaSalle Investment Management and are adjusted on an annual basis.
**The RICS Occupier Sentiment Index (OSI) is constructed by taking an unweighted average of readings for three series relating to the occupier market measured on a net balance basis; occupier demand, the level of inducements and rent expectations.
*** The RICS Investment Sentiment Index (ISI) is constructed by taking an unweighted average of readings for three series relating to the investment market measured on a net balance basis; investment enquiries, capital value expectations and the supply of properties for sale.
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