The outlook for a number of real estate markets in the Middle East and North Africa remains clouded by the continuing political, economic and social impacts associated with the ‘Arab Spring’.
Tourism and investment have been hit hard and are expected to continue to slump in the near term given the new political uncertainties facing the region, while normal business activities have also been impaired by the crisis.
As a result Global Insight have downgraded 2011 real GDP growth for the MENA region to 3.9%, down from 4.2% in April and 5.3% prior to the crisis.
This process has inevitably meant that international occupiers are showing greater caution in the region, with expansion plans placed on hold until greater clarity emerges about the long term implications for Egypt and North Africa in particular.
Despite the regional troubles, MENA oil and gas exporters — particularly in the Gulf region — are likely to see a bump in economic growth thanks to higher oil output and increased government spending.
The impacts of increased government spending are also being seen in real estate markets such as Saudi Arabia and Qatar, where the Government sector plays a key position in take up figures.
Office markets across the region continue to offer opportunities for occupiers.
Dubai remains massively oversupplied with overall vacancy running at 44% and Abu Dhabi too continues to see vacancy rates trend upwards, rapidly altering the situation of limited modern office space experienced prior to the global financial crisis.
Saudi Arabia is also seeing choice increase for occupiers with a number of large scale developments expected to complete over the next 2-3 years.
Outside of the UAE and Saudi Arabia, choice is generally more limited with the provision of high quality space solutions remaining constrained.
In North Africa there may be some salvation from the development pipeline, although as has been seen in the case of Cairo, recent political unrest will serve to reduce the amount and speed of space delivered to the market.
Tel Aviv has also faced acute supply shortages over the last couple of years, although there are now signs developers are beginning to react with the pipeline likely to deliver new grade A space to the Tel Aviv market by 2013.
Costs for the occupier continue to vary considerably across this diverse region, with the tight supply environment fuelling rental growth in Algiers, Casablanca and Tel Aviv.
Other markets in the Middle East and North Africa continue to see soft rental conditions.
Although prime rents in Dubai remained stable over the quarter, further falls are expected before year end, and the large volumes of completions expected in Abu Dhabi are also expected to put downward pressure on rents.
In those MEA markets with an abundance of supply, occupier-favourable conditions are likely to remain for the foreseeable future.