No new pick-up in current demand for the Middle East and Africa commercial property sector

• Little change in demand for commercial property as countries across the Middle East and Africa lift COVID restrictions
• Forward looking metrics less negative as capital gains set to rise over the coming year
• Middle East and Africa Commercial Property Sentiment Index rose to -22 in Q1 from -25 in Q4 2020

There’s been little short-term change in the Middle East and Africa commercial property market, according to the latest RICS Global Commercial Property Monitor but fewer respondents expect rents or capital values to fall in the coming year in more positive signs. 

Demand for commercial property in the Middle East and Africa has been falling since Q3 2015 at the all sector level. This quarter, -33% more respondents reported a decline in the number of people looking for new commercial properties, which is the least weak reading to the survey since before the pandemic. Office reported the strongest declines, with industrial assets being the least negative.

Inducements – the deals designed to entice more into signing leases – increased slightly this quarter, with more respondents reporting an increase in these deals for all sectors.

Despite activity across the market being subdued, fewer respondents to the survey reported that investment into the Middle East and Africa’s commercial property is falling. -26% more respondents reported a decline at the all sector level, up from -28% in Q4 2020 and the lowest number of respondents reporting a fall since before the pandemic.

A subdued sentiment is echoed across the short-term measures for rental expectations and capital values. For the coming three months, -25% more respondents believe rents will fall at the all sector level. Whilst it is not driving the commercial recovery like other global regions, the Middle East and Africa’s industrial sector is the least subdued of all the market classes, with only -8% more respondents expecting rents to fall (an improvement on pre-pandemic levels). Looking at capital values, a net balance of -9% more respondents anticipate them to fall over the coming three months at the all sector level, but +3% expect them to rise in the industrial sector.

Whilst the short-term activity remains subdued across most of the region, respondents are less pessimistic about the year ahead. The outlook for capital values for the coming year have seen some improvement. Prime industrial capital values are set to rise by +2% with the prime office and retail sectors set to rise by +1%. However, the outlook for capital values across the secondary markets is flat.

Tarrant Parsons, RICS Economist, commented:

“The Q1 2021 survey results across the Middle East and Africa are still consistent with a somewhat difficult backdrop at present, with trends on the occupier side of market slow to recover given the current macro climate. Notwithstanding this, some more encouraging signs can be taken from the feedback regarding the investment market, as the outlook for capital values over the year ahead did move in a more positive direction in Q1. Indeed, prime markets now expected to post modest capital value gains across the whole region, even if there remains a wide dispersion in expectations at the individual country level.”

Christopher Seymour, Chair RICS Market Advisory Panel MENA, commented:

“The positive signals are that some improvement in sentiment was recorded across MENA with industrial assets now being the least subdued. Whilst capital values are forecast to rise slightly in prime sectors, secondary markets will remain flat underlining that a cautious approach is still required.”

-Ends-

Comments from contributors: 

Bahrain Market is slow and it may take time to pick-up. -Manama

Israel Israel has completely reopened as a result of high levels of vaccination. Internal tourism and retail are recovering. Office workers are mostly returning to work. Secondary retail has been hit very hard.. The mall retailers have been using the downturn to restructure their leases and space use in some cases. Major retailers have held their ground. Local investors are back in the market or never left. -Tel Aviv

Oman Very difficult trading conditions in the Oman market. Lack of expat visas and Covid 19 has resulted in an exodus of both companies, professional working people, and real estate demand for each sector. - Muscat

Saudi Arabia Sentiment improving but still someway off the original pre-covid predictions. -Riyadh

UAE COVID-19 has adversely impacted the whole world which has a trickle down affect on each and every aspect of life and business. Recovery will take a bit of time after the pandemic reaches to an end. - Abu Dhabi

Generally the market has seen real pressure on a number of fronts, primarily due to a sustained low oil price and travel restrictions brought about by Covid-19, which are keeping leisure and transactions low. -Dubai

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