Middle East Real Estate Still Bears Scars of Arab Spring

04/08/2013 7:00 am EST

Focus: REAL ESTATE

The Arab Spring more than two years ago left countries in the region hoping for a brighter tomorrow. But for the property sectors in several of these nations, there is little on the horizon to spur optimism, writes Lucy Barnard of The National.

More than two years after a wave of violent protests started to sweep over parts of the Middle East, areas of the region are still very much in the grip of the Arab Spring.

Demonstrations that started in Tunisia brought down regimes in Egypt, Libya, and Yemen, all of which remain unstable. Syria has fallen into a bloody civil war. Bahrainis continue to stage demonstrations in and around the capital Manama.

Huge protests continue intermittently in Algeria, Iraq, Jordan, Kuwait, Morocco, and Sudan. And smaller protests have occurred in Lebanon, Oman, and even Saudi Arabia.

With elements of the political map of the Arab peninsula redrawn almost at the stroke of a pen, and power leaching from scores of established administrations virtually overnight, experts point out that property markets in the region—one of the surest indicators of power—could not fail to have been profoundly affected.

"As with any radical regional power changes, the Arab Spring has had a dramatic and mostly negative impact on the property markets across the Middle East," says Craig Plumb, head of research for the Middle East and North Africa at Jones Lang LaSalle.

For those countries impacted, the longer-term implications of this change remain difficult to discern, with upheaval continuing today. In the short term, many investment decisions are on hold, with corporate officers remaining cautious.

For the areas most dramatically affected, such as Syria, Libya, and Yemen, a trail of images of burnt-out and shelled buildings and scenes of fleeing refugees illustrate the havoc the Arab Spring has wrought. In other areas, cranes continue to dot the horizon, as smallholders take advantage of the power vacuum to build house extensions that could otherwise have been prevented by authorities.

Data on property prices and transactions is sparse and unreliable, and few international institutional investors are present in Syria, or indeed the whole region. But according to the Institute of International Finance, Syria's economy shrank by 20% last year and inflation rose to 40%, as the country's civil war claimed as many as 40,000 lives.

Egypt's economy, too, has been hit hard by the Arab Spring. Before its recent revolution, the country was a favorite in the region for tourism, retail, and other inward institutional investment.

Prior to the Arab Spring, the country was benefiting from a flurry of investment in its expanding tourism, retail, and housing sectors. Property developers from the UAE, bruised by the 2008 global economic downturn, flocked to the country in an attempt to spread their risk and add to the country's undersupplied property markets.

Emaar, the developer of the world's tallest building, the Burj Khalifa, invested $5.53 billion in Egypt, including a development in Uptown Cairo and the Cairo Gate, a commercial and residential development. And Damac Properties, based in Dubai, announced a number of ambitious projects in Cairo, including Park Avenue, a mixed-use centre spread across roughly 1,000 acres.

But a first wave of violent protests that brought about the ousting of the long-term president Hosni Mubarak in 2011, followed by a second last year, have put many of those schemes on hold, leaving the country with scores of unbuilt and half-built projects—the future of which hangs in the balance.

According to Jones Lang LaSalle's most recent Cairo market report, property prices and office rents continued to fall in the last quarter of last year, and many development projects remain on hold.

Occupancy rates for hotels—one of Egypt's biggest industries—fell from just under 70% in 2009 and about 66% in 2010 to just 49% in 2011. That improved slightly to 56% last year, as hotel operators slashed rates and offered cheap all-inclusive deals. Average room rates fell from about $130 a night in 2010 to about $56 a night in 2011 and $55 in 2012.

Prime office rents fell steadily from $45 per square meter per month in the second quarter of 2011 to $40 per sq meter in the final quarter of last year. Rents for space in prime shopping centers remains static, and likely to fall if the unrest continues.

Much of the GCC money leaving stricken countries in droves has sought a home in neighboring Arab states. Most notably, Dubai has become the main beneficiary of Egypt's loss of business. The city was hit hard by the financial crisis that saw property prices halve between 2008 and 2011, and where scores of half-built towers still remain mothballed after developers ran out of money.

However, since 2011 an influx of Arab Spring-related tourists and investors has helped to stabilize the market. According to recent figures released by Dubai's Department of Tourism and Commerce Marketing, last year for the first time Dubai welcomed more than 10 million visitors.

Figures show a 30% increase in tourists from Saudi Arabia and a 54% increase in Russian visitors. Average room rates increased from $153 to $160. The boom has prompted the opening of more hotels in the emirate, with hotel numbers increasing from 575 to 599 properties last year.

And according to the realty company Asteco, prices for villas in the emirate increased 23% and apartment prices rose 14%, with sales volumes up by 9% in the final three months of the year alone.

Officials now predict that after five years of falling rents, prime office space could be the next sector to see rental increases in 2013, as the market begins to recover.

Read more from The National here...

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