Global economic crisis results in lower office rentals in 2009
Kuwait’s commercial real estate market faces years of oversupply, with rental prices for office space in Kuwait city centre already at half their 2008 peak and supply easily outstripping demand.
Annual requirements for new office space in the city centre averaged about 40,000-60,000 square metres between 2003 and 2009 according to Douglas Gray, director and country manager of London-based real estate adviser DTZ.
Kuwait commercial rents
- 50,000 sq m - Average annual demand for new office space
- 200,00 sq m - Current office space being marketed
- 450,000 sq m - Additional office space to come to market by 2013
However, approximately 200,000 square metres of new and second-hand space is now being marketed.
DTZ believes that an additional 425,000-450,000 square metres of office space will be available in the capital by the end of 2013 on the basis of ongoing projects such as the $370m Al-Hamra development, a 412-metre-high tower in the city centre due for completion by the end of 2010.
“The level of office supply is [a pretty serious problem],” says Gray says. “There is both new office supply, returning second-hand supply and new buildings nearing completion and already in the marketing phase.”
The oversupply has meant rents have fallen sharply since 2008 levels, when they were about KD12 ($41) a square metre.
“We are seeing falling rents of 50 per cent plus where in Kuwait city centre you can [now] get KD6 per square metre,” says Gray.
International companies working in Kuwait confirm that rents fell substantially during 2009 as the global economic crisis reduced the number of companies opening offices in Kuwait.
“It was up to KD20 per square metre for good luxury office space in the centre until 2008,” says the country manager of one major Western firm based in Kuwait City. “Now, space can’t be filled for more than KD6-10.”
Years of political deadlock and economic stagnation have also held back corporate activity in the emirate, which in turn has affected demand for real estate. Many major Western firms have satellite offices in Kuwait and base their main operations in places such as the UAE, according to several senior executives in Kuwait.
The 2003 US-led invasion of Iraq caused a steep rise in demand in 2003 as logistics and military supply firms set up bases in Kuwait, according to Gray. However recent stability in Iraq has resulted in demand dissipating.
“Before 2003 and the Iraq war there was fairly flat demand and then after the war there was a spike,” he says. “Now, supply has caught up but demand has flattened.”