GCC Real Est Facility Manag PDF

Al Masah Capital: GCC Real Estate and Facility
Management & Support Services
April 2018
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GCC Real Estate and Facility Management & Support Services
GCC REAL ESTATE MARKET

Over the past decade, the GCC region has witnessed rapid economic development and
demographic changes, including the influx of expatriates, which in turn has increased the
region's overall population. This coupled with a rise in per capita income has fueled the
demand for residential units in the GCC region. Post recession, the GCC has emerged as
an attractive destination for global investors and the real estate sector has become a key
economic barometer for the growth in the region. In fact, the GCC real estate sector is
one of the fastest growing sectors across the world, albeit the recent slowdown in the
economic growth due to oil price fluctuations.
After a tumultuous couple of years, the GCC real estate sector has started gaining
GCC real estate sector has traction on the back of stabilizing oil prices, government’s economic diversification
started gaining traction efforts, and rising private investments which are likely to change the face of the
on the back of stabilizing construction industry in the coming years. Additionally, the GCC's strong pipeline of
oil prices projects spanning across the residential, commercial, and hospitality sectors are all set
to provide a major boost to the regions’ interiors and fit-outs sector.
Moreover, regional governments have also played a key role in many of the
opportunities that have popped up as a result of their long-term strategies. Additionally,
the tourism sector is likely to help accelerate growth of the real estate market in the
GCC, especially for the UAE. While hospitality, residential and office markets remain
buoyant, the retail segment is expected to continue its aggressive expansion in the
coming years. Within the residential sector, there is likely to be a continued shift of
activity to the affordable sector.
Exhibit 1: GCC Population Growth (in millions) Share of GCC Expatriates Population (%) International Tourist Arrivals in GCC (in millions)
70 (in mn) 60 (in mn)
UAE 89% 12%
60 50
Qatar 86% 14%
50 40 6.94 10.5
Kuwait 69% 31%
40
Bahrain 52% 48% 30 6.7
19.13 16.34
30 55 GCC 50% 50%
48 20 11.8
20 39 Oman 44% 56%
10 18.76 18.26
10 Saudi Arabia 33% 67% 14.18
0 0
0% 20% 40% 60% 80% 100% 2017 2014 2011
2007 2012 2017
Share of expatriate in total population (%) Saudi Arabia UAE Bahrain
GCC Population Share of locals in total population (%) Qatar Oman Kuwait
Source: The World Travel & Tourism Council, IMF, Gulf Migration, Al Masah Capital Research
Given the relatively young real estate market across the GCC, a very high proportion of
additional space has been in the form of new projects in the recent years. However, this
trend is changing, with increased interest observed in refurbishing and upgrading
existing projects rather than developing new ones.
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UAE REAL ESTATE SECTOR

Overview
The UAE’s real estate sector has been impacted negatively since the global economic
slowdown in 2009, coupled with depressed oil prices since the mid-2014. However, the
market has managed to achieve a swift recovery in real estate as well as the
construction sector, due to pro-active steps taken by the Abu Dhabi and Dubai
governments to reduce the reliance on oil, improving the economy, and favorable policy
decision. Going forward, the UAE government’s strategic initiatives are likely to drive
robust growth in the non-oil sector which will help boost the real estate and
construction industry with several big-ticket projects lined-up in the commercial,
residential and retail space.
Exhibit 2: UAE GDP % Growth by Sector (2011-16)

24%
18.3%
19%
14% 11.2%
8.7%
9% 6.3%
6.4% 6.2%
5.1% 5.8% 3.8%
3.0%
3.3% 2.9% 3.0% 1.9%
4% 2.4%
1.1%
-1%
-3.2%
-5.4%
-6% 2011 2012 2013 2014 2015 2016
Real GDP Growth Construction Real Estate Activities

Source: National Bureau of Statistics, Al Masah Capital Research
Real Estate and The share of real estate GDP as a share of total GDP has continued to dip since 2011 but
Construction sectors has stabilized since 2012. The UAE’s government economic diversification efforts to
accounted for 15% of promote private investment are fueling the growth in domestic sectors. As a result, the
UAE’s GDP in 2016
real estate and construction sectors, collectively accounted for 15% of the UAE's total
GDP in 2016, with individual contribution of 6% and 9%, respectively.
Exhibit 3: UAE GDP Contribution by Sector (2010-16)

12% 11% % share in total GDP
10%
10% 9% 9% 9% 9% 9%
8%
6% 6% 6% 6% 6%
6% 5% 5%
4%
2%
0%
2010 2011 2012 2013 2014 2015 2016
Construction Real Estate Activities
The recovery in real estate market was also supported by increasing Foreign Direct
Investments (FDI) which nearly doubled from AED 55.3 billion in 2010 to AED 103.1
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billion in 2015. Foreign portfolio investments (FPI) also recovered from 2009 economic
slowdown to reach AED 7.7 billion in 2015.
FDI in real estate market Exhibit 4: FDI and FPI in Real Estate Sector (2010-15)
doubled from AED 55.3 120
103.1
billion in 2010 to AED 100
(AED bn)
103.1 billion by 2015 85.0
76.8
80 71.3
55.3 59.8
60
40
20 14.0 10.0
3.9 4.3 7.5 7.7
0
2010 2011 2012 2013 2014 2015
Foreign Direct Investment Foreign Portfolio Investment

Impact of Oil Prices

The decline in the prices since mid-2014 has affected the UAE and Saudi Arabia
economies majorly, bringing the respective real GDP growth to a considerable low level.
Additionally, the slowdown in economies has also resulted in delays, on-holds, and
cancellation of construction and real estate projects. Though the GCC nations faced a
negative impact on the total output due to the economic slowdown, the PMI for both
UAE and Saudi Arabia remained above the 50 mark during the year, suggesting a healthy
expansion in the markets’ private non-oil sectors. Going forward, the UAE government’s
diversification efforts and strategic initiatives to increase in the public-private
partnership (PPP) initiatives under the National Programs are set to benefit the countries
to help offset the slow growth faced during the economic slump.
Exhibit 5: UAE and Saudi Arabia Purchasing Manager Indices (2017-2018 YTD)
60.0
57.0
54.0
57.7
57.5
57.3
57.3
57.0
57.0
56.8
56.7
56.5
56.4
56.2
56.1
56.0
56.0
55.9
55.8
55.8
55.7
55.6
55.5
55.3
55.3
55.1
55.1
54.3
54.3
53.2
51.0
53.0
48.0
Feb/17
Sep/17
Feb/18
Jul/17
Dec/17
Apr/17
Jun/17
Aug/17
Oct/17
Nov/17
Jan/17
Mar/17
May/17
Jan/18
Saudi Arabia PMI UAE PMI

A figure above 50 suggests economic expansion and below implies contraction. 50 means
no change on previous month.
Source: Markit, Al Masah Capital Research
The GCC governments have incurred heavy deficits on their books due to increased
spending and external borrowing. However, the governments will utilize large external
debt along with the huge reserves in funding projects in the construction, infrastructure,
and real estate space. This initiative is set to boost the real estate sector to new heights
as the governments look to promote the non-oil based sectors in the wake of its
diversification initiatives under the National Vision Programs.
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MARKET STATISTICS: UAE VS. REGIONAL PEERS

Office Real Estate Market
Over the last few years, the GCC office real estate market has witnessed a sluggish
growth due to a fall in oil prices and an economic slowdown. However, the regional
governments have taken key initiatives to introduce alternative measures to boost
government receipts and non-oil sectors. The GCC office real estate market has been
benefited from the regional government’s diversification efforts as the regional office
real estate market is witnessing the rise in demand for office space from state-owned
companies, as well as from private domestic and international companies.
GCC Office Supply
As of 2017, Dubai was distinctly ahead in terms of office supply compared to other GCC
Dubai office supply nations and as a standalone, it holds the largest office stock of 8.86 million sqm of GLA in
outperformed other GCC the GCC region. The UAE (including Dubai and Abu Dhabi), cumulatively holds 12.36
markets and registered a
million sqm of GLA in the region. The office market supply has been increasing steadily
CAGR of 4.5% during
2012-17 since 2012 in Abu Dhabi before stabilizing at 3.5 million since 2015. Meanwhile, Dubai
witnessed a better scenario in terms of office supply since 2012, growing at 4.5% CAGR.
While Abu Dhabi continues to offer a good depth and breadth of opportunities for office
occupiers, Dubai's occupier demand remained focused on Grade A office space in prime
locations, with single ownership buildings accounting for the majority of the share.
Exhibit 6: GCC Office Supply (’000 sqm, 2012-19F)
Dubai, UAE Abu Dhabi, UAE

10,000 270 150 4,000 210 60
8,000 3,000
6,000
3,710
9,130
8,860
8,860
3,500
3,500
3,500
8,690
8,560
2,000
3,300
3,200
7,790
3,000
7,400
2,900
7,100
4,000
2,000 1,000
0 0
2018F
2019F
2012
2013
2014
2015
2016
2017
2018F
2019F
2012
2013
2014
2015
2016
2017
Completed Future Supply Completed Future Supply
6,000 Riyadh, Saudi Arabia 1,500 Jeddah, Saudi Arabia Doha, Qatar
4,000
5,000 700 200 110 70
4,000 1,000 3,000
3,649
3,000
3,505
2,000
3,278
4,600
1,100
1,000
1,000
2,763
3,900
3,900
3,700
2,536
3,500
970
3,400
2,268
500
880
2,000
840
742
622
2,100
1,000
1,887
1,000
0 0 0
2018P
2019F
2012
2013
2014
2015
2016
2017
2018P
2019F
2012
2013
2014
2015
2016
2017
2012 2013 2014E 2015F 2016F 2017F
Completed Future Supply Completed Future Supply Office Space
Source: Jones Lang LaSalle (JLL), Colliers International, AlMasah Capital Research
Despite, an economic slowdown in the region, the stability of supply of office units was
maintained. However, tenants majorly sought to take up Grade A office properties for
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rental purposes for the quality and available accessibility. The recently introduced 5%
Saudi Arabia witnessed a
Value Added Tax (VAT) is expected to hamper the demand for offices in Dubai marginally
steady growth since 2012
and supply reached 4.9 and increase the property and real estate services such as Facility Management (FM) and
million in 2017 Property Management (PM). The supply of both Grade A and B office stock in Dubai
stood at 8.86 million sqm in 2017, growing at a CAGR of 4.53% from 7.1 million sqm in
2012. The much-awaited Dubai Expo 2020 is likely to boost demand for the areas around
the expo which was earlier encouraged by the Al Maktoum International Airport and
Jebel Ali Free Zone.
Amongst the other GCC nations, Saudi Arabia also witnessed a substantial growth in the
office supply, bringing the completed aggregate (Riyadh and Jeddah) supply to 4.9
million. Riyadh is the leading office real estate market in Saudi Arabia followed by
Jeddah. Last year, the cut down on government spending on development of
infrastructure projects decreased the demand for office space from international
corporate tenants. Going forward, Saudi Arabia’s 2018 expansionary budget is likely to
help Riyadh to lead the GCC office supply by adding 700,000 sqm in 2018 and 200,000
sqm in 2019, followed by Dubai with 270,000 sqm in 2018 and 150,000 sqm in 2019.
However, Dubai will continue to lead the office real estate market in the coming years,
followed by Riyadh.
GCC Office Vacancy
In the UAE, the improvements witnessed in Dubai and Abu Dhabi vacancy rates were
largely attributable to a spike in the demand scenario with an increase in commercial
Dubai has the lowest
activities in CBD regions. However, the vacancy rates post 2014 remained fluctuating in
office vacancy rate in the
GCC Abu Dhabi, while the vacancy rates in Dubai have been improving constantly. Going
forward, vacancy rates in both of the major hubs are expected to largely remain
conservative with expected subdued demand, implementation of the VAT and lack of
available lenient pricing on the part of the landlords.
Exhibit 7: GCC Office Vacancy Rates (2012-17)

UAE Office Vacancy Rates (%) KSA CBD Office Vacancy Rates (%)
50% 25%
39% 20%
37% 18% 18%
40% 20% 16% 16% 15% 15%
25% 27%
30% 22% 15% 12%
20% 10%
31% 29%
20% 10% 6% 6% 7%
24%
10% 19%
5%
10% 8%
0% 0%
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Abu Dhabi Dubai Riyadh Jeddah
Source: Jones Lang LaSalle(JLL), Al Masah Capital Research
Comparatively, the vacancy rates in Riyadh offices remained stagnant at 15% from 2016
and average rents dropped by a mere 1% Y-o-Y. The market vacancies will increase going
forward with companies trying to cut-down costs via downsizing route. Meanwhile,
vacancy rates in the city of Jeddah rose dramatically to reach 20% in 2017, up from 7% in
2016, due to depressed demand and an oversupply situation in the city. The competition
to attract new tenants going forward will be intense as macroeconomic indicators have
started to find their footing, encouraging businesses and job environment.
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During 2012-17, Dubai outperformed its regional peers with declining vacancy rates
which stood at 8% as of 2017, the lowest amongst all the GCC nations. Additionally, the
government's diversification efforts to promote the private sectors in the country is
likely to attract major international companies to setup bases in Dubai, further boosting
the market. Moreover, the Dubai market is currently offering attractive rental terms to
their tenants, resulting in retaining the existing tenants as well as attracting new
tenants. On the other hand, a continued delay of new construction in Riyadh, has helped
landlords to stabilize or increase office rents in the market, resulting in more tenants
opting for less expansive offices.
GCC Office Rentals
The office market for the GCC nations faced a significant hurdle in its progressive on-
going route, largely due to the oil factor and bearish market sentiments affecting the
Weak economic condition overall demand for offices. Over the last few years, international companies have not
have led to the slowdown been showing strong confidence to expand in the GCC due to the economic scenario
in office rental space being at a vulnerable stage, coupled with political volatility in the neighboring countries
leading to the office rents to slope downwards. However, the economic scenario is
changing on the back of rising oil prices, and government support towards private
sectors which are helping gain investor confidence.
Exhibit 8: GCC Office Rentals (USD per sqm PA, 2012-2017)

600 Dubai, UAE 600 Abu Dhabi, UAE 25 Bahrain
500 500 20
400 400
15
300 300
530
530
21.3
21.3
511
508
504
504
19.9
19.9
479
479
471
18.6
18.1
436
10
419
419
200 200
354
321
321
321
280
280
100 100 5
0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Prime CBD Grade A Grade B Financial Harbour & SEEF (fitted-out space)
Riyadh, Saudi Arabia Jeddah, Saudi Arabia 30 Oman

400 400
300 300
20
200 200
336
332
21.3
300
20.8
20.5
282
281
19.8
264
263
18.2
18.2
18.2
18.2
255
10
15.1
15.1
14.6
14.6
100 100
0 0 0
2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 Q1 2017
Shatti Al Qurum Ghubrah Azaiba
Source: Jones Lang LaSalle(JLL), Cluttons, Al Masah Capital Research
In the GCC region, UAE is the most favorable commercial destination, followed by Saudi
Dubai is the most costly Arabia. Dubai is the costliest commercial destination in the GCC region and attracts a
commercial destination in
large number of companies due to its strategic geographical benefits, coupled with the
the GCC region
presence of major companies from different sectors. Additionally, Dubai has emerged as
the most favorable destination for startups which is also fueling the rising office space
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demand and the rise in rents. However, rents in Riyadh showed more improvement
compared to other GCC corporate hubs. In 2015, office rents in Riyadh reached USD 282
per sqm merely increasing from USD 281 per sqm in 2014, before rising to USD 332 per
sqm in 2017 with a 4-year CAGR of 5.7% on the back of a significant rise in demand and
proactive landlords targeting potential companies as tenants. Interestingly, when
demand declined in other GCC nations, rents dropped in a range of 3%-9% across;
whereas rents in Riyadh fell only 2% comparatively to USD 332 per sqm in 2017.
Exhibit 9: Dubai Average Office Sales (AED per sqft. PA, 2011-17)
2,000
1,500
1,925
1,900
1,875
1,800
1,800
1,000
1,700
1,650
1,250
1,250
1,225
1,075
1,000
975
975
975
975
925
900
500
850
825
800
800
750
750
750
700
550
550
0
2011 2012 2013 2014 2015 2016 2017
Business Bay DIFC Jumeirah Lake Towers Barsha Heights
Source: Asteco Property Management, Al Masah Capital Research
Being the key office real estate market in the GCC region, Dubai’s office sales has also
been impacted due to the regional economic slowdown and witnessed a marginal
decreased in office prices on the back of falling demand. However, the UAE
government’s strategic measures are likely to help bring back the demand for office
sales in Dubai. In 2018, the UAE office rentals are expected to remain stable though
subdued, with further declines in the office rentals due to the impact of VAT. Vacancy
rates will remain under the radar as companies look to cut on property costs and
account for VAT. The VAT is expected to impact marginally on the overall demand for a
short-term period, if not to a greater extent by 2019.
Some of the major ongoing commercial projects in the UAE include Du Biotech
Headquarters (34,500 sqm), Phase 1 of the Motorsport Business Park (6,000 sqm), ADIB
Headquarters, Leaf Tower and the Omega Tower on Reem Island.
Residential Real Estate Market

The GCC region has one of the fastest growing populations in the world, largely driven by
Government initiatives
an active influx of expatriates. The residential sector has remained upbeat buoyed by the
are helping attract
private investment for the positive macroeconomic, regulatory and population factors which continue to drive
regional residential real growth across all the regions. Additionally, over the next few years, the GCC region is
estate market likely to witness a significant rise in tourist arrivals and expats due to global events such
as Dubai EXPO 2020 and the FIFA World Cup 2022 in Qatar. Thus, the GCC nations are
heavily focusing on developing residential infrastructure to cater the upcoming demand
and build affordable housing units for the locals as well as the expats. The UAE has
already commenced on its expansive affordable residential construction project to
accommodate as many as 385,000 expatriate workers in a bid to improve the living
standards for expatriates, who are increasingly returning to South Asia due to the rising
rents. Additionally, the regional government’s initiatives are also helping to attract
private investment for the regional residential real estate market, further driving the
number of units across the nations.
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Residential Supply
In the GCC, Saudi Arabia and the UAE are the largest residential real estate markets,
wherein Dubai, Abu Dhabi, Riyadh, and Jeddah are the key residential hubs which
accommodate the largest population in the GCC. However, major issues such as
affordability of renting out residential properties in mainstream areas still prevail and
create a challenging environment for the property owners in attracting new tenants.
Exhibit 10: GCC Residential Supply (2012-2019F)

800 Dubai, UAE (in '000 units) Abu Dhabi, UAE (in '000 units)
300 8 8
600 40
43
200
400
259
251
251
248
245
244
534
236
225
491
491
477
459
451
434
425
200 100
0 0
2018E
2019F
2012
2013
2014
2015
2016
2017
2018F
2019F
2012
2013
2014
2015
2016
2017
1,500 Riyadh, Saudi Arabia 1,000 Jeddah, Saudi Arabia
(in '000 units) 20 20 (in '000 units) 8 7
800
1,000
600
1,220
1,200
1,200
1,100
1,100
1,100
813
813
813
803
789
770
754
735
400
936
909
500
200
0 0
2018P
2019F
2012
2013
2014
2015
2016
2017
2018P
2017
2019F
2012
2013
2014
2015
2016
Over the last few years, the UAE has witnessed a sluggish growth in its residential supply
on the back of weaker economic conditions, and a slowdown in employment
Dubai is expected to opportunities which has lead to a downfall in demand. However, the residential market
witness additional 43,000 is gaining some traction on the back of key government initiatives such as building
units in 2018 and 40,000 affordable housing units, coupled with private companies' support to develop real estate
units in 2019
infrastructure in the country. Notably, Emaar Properties launched several new off-plan
projects in the UAE during 2017, to further extend the wider residential market base.
As of 2017, Riyadh (Saudi Arabia) remained the leader in residential supply market in the
GCC with 1.2 million units, due to a large population-based in the city, followed by
Jeddah (Saudi Arabia) with 813,000 units. On the other hand, Dubai with 491,000 units
and Abu Dhabi with 251,000 units as of 2017 has started witnessing a push from the
developers to restart the on-hold and delayed projects coupled with the launch of new
ones. Most notably, Dubai stands as the second fastest growing market in terms of
residential supply with a CAGR of 2.9% during 2012-2017, following Riyadh which grew
at a CAGR of 5.7% during the same period. Going forward, Riyadh is expected to witness
an additional 40,000 units by the end of 2019, many of which are expected to be
delivered by the private-sector developers, while Dubai is expected to witness an
additional 43,000 units in 2018 and 40,000 units in 2019. Most notably, Dubai is
expected to witness a rise in residential supply on the back hosting global events which
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are likely to attract an expatriate workforce. Additionally, Dubai has also emerged as the
most popular city for second home buyers due to rising tourism and commercial sectors.
In 2017, the affordable real estate segment in the UAE witnessed a notable growth due
to continued investments. It is expected to continue growing in the coming years on the
back of the impact of rising oil prices, implementation of the VAT and market
rationalization. Subsequently, the top developers from UAE real estate market have
started focusing on affordable property segment. According to the UAE Home Finance
report, around 60% of the top Dubai real estate developers are participating in
affordable property segment and have launched projects, priced within the range of AED
400,000 (USD 109,000) and AED 700,000 (USD 190,600). For example, Al Ghurair
Properties announced a development plan worth USD 1.36 billion, including localities
such as Deira, Bur Dubai, Al Barsha, and Al Qusais. The project is expected to be
completed by 2020, with the development comprising of 58 buildings featuring 8,000
residences and 3.25 hectare of retail space.
Saudi’s Ministry of Housing distributed almost 55,200 homes last year in Riyadh to
facilitate home ownership. Meanwhile, in the Dammam Metropolitan Area (DMA), the
ministry delivered 44,600 units last year, with additional handovers expected in
2018.Some of the major ongoing residential projects in Saudi Arabia include Raffal Living
(350 apartments), the two Damac Towers (440 apartments), Malazak Tower (245
apartments) and Ramlah Tower (249 apartments) in Riyadh; while J-One (242
UAE and Saudi apartments), Diyar Al Salam Residences (140 apartments), Golden Tower (85
governments are
apartments) in Jeddah. Recent initiatives to boost the residential supply in the Kingdom
proactively promoting
affordable housing plans include the release of regulations for the introduction of a 2.5% white land tax on
for both locals and expats undeveloped land plots, the approval of regulations for the use and listing of real estate
investment trusts (REITs), the introduction of a new mortgage law to boost Saudi
Arabia’s home-ownership rate, the development of a home-building programme, named
Sakani, by the Ministry of Housing, the launch of the Wafi online programme, and the
creation of a real estate refinance company by PIF.
Additionally, in February 2016, Saudi Arabia announced plans to spend USD 32 billion
(SAR 120 billion) on subsidized home loans for borrowers, in order to expand the private
sector’s role in a mortgage market that has traditionally been dominated by the
government. The Kingdom’s new housing programme also includes a USD 4.8 billion
(SAR 18 billion) loan-guarantee programme to boost access to funding, and USD 3.4
billion (SAR 12.5 billion) to support home down-payments, to be spent in the period to
2030. The latest financial package is one of many steps being taken by the Kingdom in its
efforts to meet its goal of raising home ownership by citizens. Moreover, demand for
property finance in the Kingdom is expected to rise from USD 74.7 billion (SAR 280
billion) in 2017 to USD 133.3 billion (SAR 500 billion) in 2026. The Saudi Real Estate
Refinance Company (SRC) is expected to refinance up to USD 20 billion (SAR 75 billion) in
the Kingdom’s real estate sector during the next five years.
Residential Rentals
In Dubai, the rents for 2BR apartments increased to USD 35,000 PA in 2017 from USD
26,000 PA in 2012, while there was a marginal increase in 3BR Villa segment to USD
51,000 PA from USD 50,000 PA in 2012. In Abu Dhabi, the residential rents for 2BR
apartments grew at a CAGR of 1.8% during 2012-17, while 3BR Villa segment grew with a
CAGR of 0.9% during the same period.
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Landlords in Dubai are In Riyadh, the apartment rental has stabilized in the last five years to reach USD 9,000 in
adjusting to the declining 2017, while the 4BR Villa segment rentals have increased marginally to USD 34,000 PA in
demand from the tenants 2017 from USD 31,000 PA in 2012. In Jeddah, the 3 BR apartment rentals have remained
stagnant at around USD 10,000 PA, while the villa segment rents have decreased
marginally to USD 31,000 PA. Going forward, the shift from larger homes to a small-sized
reasonably priced residence will continue to prevail in the short term.
Exhibit 11: GCC Residential Rentals (USD ‘000 PA, 2012-17)

80 Dubai, UAE Abu Dhabi, UAE
60
60
40
40
62
60
59
53
52
51
55
51
46
46
50
44
44
42
41
20
38
41
40
36
20
37
33
35
35
26
0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Apartment (2 BR) Villa (3 BR) Apartment (2 BR) Villa (3 BR)
40 Riyadh, Saudi Arabia 40 Jeddah, Saudi Arabia
30 30
20 20
38
37
36
34
33
32
32
31
31
31
31
31
10 10
12
11
10
10
10
10
10
10
9
9
9
8
0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Apartment (2 BR) Villa (4 BR) Apartment (3 BR) Villa (4 BR)
30 Oman Average 2BR Rental Rates 70 Oman Average 4BR Rental Rates
25 60
50
20
40
15
26.1
25.0
23.4
30
55.2
54.6
22.7
58
24
49.1
47.5
46.9
18.9
18.7
44.8
10
20
17
17
20
40
39
16
39
34
13
13
13
12
27
27
26
26
5 10
0 0
2015 2016 2017 2015 2016 2017
Shatti Al Qurum Azaiba Al Khuwair The Wave Muscat Hills Shatti Al Qurum Azaiba Al Khuwair The Wave Muscat Hills
In Oman, although there has been relative stability in the property prices, the demand
for luxurious residential locations have dropped due to tenants preferring low cost,
value-for-money residential properties. The tenants market remained subdued on the
back of an excessive supply and increasing transaction costs.
UAE Apartment Market
The economic slowdown in the country has negatively impacted Dubai’s residential
market, resulting in a low demand for apartments in Dubai’s prime locations.
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Exhibit 12: Dubai Average Apartment Sales Price (AED per sqft., 2012-17)
1,500 Business Bay 2,500 DIFC 1,000 Discovery Gardens 2,500 Downtown Dubai
2,000 800 2,000
1,000
1,500 600 1,500
2,325
1,300
1,300
2,200
2,200
885
1,225
1,210
855
850
1,175
825
1,875
1,875
800
1,900
1,750
1,000 400
1,700
1,000
1,650
1,700
500
900
1,350
1,300
450
500 200 500
0 0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
2,000 Dubai Marina 1,500 Greens 800 International City 2,000 JBR
700
1,500 600 1,500
1,000
500
1,900
1,400
1,375
1,365
1,350
1,000 400 1,000

1,750
1,250
710
700
1,625
688
1,600
675
1,525
650
1,450
1,370
1,300
300
1,250
1,200
950
500
1,050
1,000
500 200 500
100 350
0 0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
1,400 JLT 1,200 Jumeirah Village 2,500 Palm Jumeirah

1,200 1,000 2,000
1,000
800
800 1,500
600
1,250
1,200
1,150
1,150
1,125
2,000
2,000
600
938
925
1,000
900
1,720
1,700
875
800
1,500
400 1,400
750
400
500
500
200 200
0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
The apartment sales price in the premium locations along with other locations have
been falling since 2014 on the back of lower rental prices, coupled with consumer
Dubai apartment sales preferences shifting more towards value-for-money and less costly residential homes.
price in the premium Subsequently, landlords are adjusting to the price declines and attracting tenants by
locations have been fallen
offering discounts, rent-free periods, and other amenities on the property such as car
since 2014
parks, etc. There have been several new projects launched in 2017 which have targeted
majorly the middle-income group consumers. During 2017, Downtown Dubai has
emerged as the most costly residential location in Dubai, followed by the DIFC.
Abu Dhabi residential real estate market is also following the same trend as the
apartment sale prices have been falling since 2014. The average apartment sales prices
were ranged between AED 875-1,600 per sqft. in the Abu Dhabi’s premium locations
during 2017. Raha Beach/Al Bandar is the most costly residential place in Abu Dhabi,
wherein the average apartment sales price was valued at AED 1,600 per sqft. in 2017.
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Exhibit 13: Abu Dhabi Average Apartment Sales Price (AED per sqft, 2012-17)
1,600 Marina Square 2,000 Raha Beach/Al Bandar 1,800 Raha Beach/Al Muneera 1,600 Raha Beach/Al Zeina
1,400 1,600 1,400
1,200 1,500 1,400 1,200
1,200
1,000 1,000
1,000
800 1,000 800
1,375
1,375
1,700
1,500
1,500
1,650
1,300
1,300
1,600
1,425
800
1,250
1,550
1,225
1,200
1,175
1,175
1,425
1,275
1,100
1,175
600 600
600
1,100
965
930
925
400 500 400 400
200 200 200
0 0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
1,200 Reef Downtown 1,800 Sun & Sky Towers 1,800
The Gate
1,600 1,600
1,000
1,400 1,400
800 1,200 1,200
1,000 1,000
600
1,025
1,000
1,500
1,475
1,500
800
1,475
1,400
975
800
1,325
1,375
1,275
875
1,225
825
1,175
1,050
400 600 600

550
400 400
200
200 200
0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
In the UAE’s residential real estate market, Dubai has emerged as the clear winner
compared to the other Emirates. During 2012-2017, the apartment sales prices in the
premium locations of Dubai witnessed higher growth compared to Abu Dhabi’s premium
Dubai outperformed locations. In 2017, Downtown Dubai’s apartment sales price was AED 1,900 per sqft.,
other Emirates in terms of registering CAGR growth of 7.9% during 2012-2017, while Raha Beach/Al Bander (Abu
apartment sales price
Dhabi) apartment sale price was AED 1,600 sqft., registering CAGR growth of 7.8% during
during 2012-17
the same period.
Going forward, Dubai, a premium tourist destination in the UAE, is expected to attract
international buyers and investors. For instance, investors ranging from the far west
(mainly the US and EU countries) to Asian countries (from India, Pakistan and China) are
continuously on a look out for investment opportunities into the Dubai’s residential
segment that can be rented out for profit or held as an investment. Additionally, other
factors such as exemptions of residential property from the VAT and Dubai Land
Department (DLD) legal framework are expected to protect investors, while consumers,
especially expats, are likely to add cushion for the future demand of residential
properties in Dubai.
UAE Villas Market
Villa prices in Dubai dropped consistently from the onset of 2015 due to the economic
slowdown witnessed in the GCC region. Further, in 2017 quarterly decreases in the
average prices for villas were noted at 2% throughout the year. For instance, the average
sale price for Arabian Ranches was AED 1,100 per sqft. in 2017 compared to AED 1,150
per sqft. in 2014. Meadows and Springs were the only developments which experienced
a marginal increase in the villa sales prices compared to the decline in prices since 2015.
Palm Jumeirah is the costliest location in Dubai for villas with average sales price of AED
2,400 per sqft. as of 2017.
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Exhibit 14: Dubai Average Villa Sales Price (AED per sqft, 2012-17)
1,400 Arabian Ranches 1,400 Dubai Sport City 1,400 Jumeirah Park 1,200 Jumeirah Village
1,200 1,200 1,200 1,000
1,000 1,000 1,000
800
800 800 800
600
1,250
1,225
1,175
1,175
1,150
1,150
1,150
1,150
1,125
1,110
1,100
1,100
975
600 600 600
1,050
950
1,000
1,000
850
850
950
900
750
400
800
400 400 400
550
200 200 200 200
0 0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
1,600 Meadows 3,500 Palm Jumeirah Springs
1,200
1,400 3,000
1,200 1,000
2,500
1,000 800
2,000
800
3,000
1,100
1,100
1,350
1,075
600
2,850
1,300
1,300
1,000
1,500
1,200
1,150
2,500
2,475
2,400
950
600
900
1,000
1,800
1,000 400
400
200 500 200
0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Villa sales prices in Abu Similarly, in Abu Dhabi, average villa sales prices witnessed a downtrend post 2014-15
Dhabi also witnessed a due to over-supply of residential units, coupled with a declining demand from the tenant
slowdown due to over- market. Despite lower prices, Saadiyat Beach villa community continued to maintain its
supply demand for sales prices constant at AED 1,550 per sqft. due to its favored exclusivity.
Exhibit 15: Abu Dhabi Average Villa Sales Price (AED per sqft, 2012-17)
1,400 Raha Gardens 1,200 Golf Gardens 1,000 Al Reef Villas

1,200 1,000 800
1,000
800
800 600
600
1,020
1,020
1,115
1,115
845
835
600
1,050
960
800
940
400 750
745
870
985
770
890
400
540
400
730
200 200
200
0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
800 Hydra Village 2,000 Saadiyat Beach Villas (Standard)
700
600 1,500
500
400 1,000
1,550
1,550
1,550
660
660
1,535
630
600
1,375
300
565
200 500
100
0 0
2013 2014 2015 2016 2017 2013 2014 2015 2016 2017
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Over the last few years, the UAE villa market has been witnessing a sluggish growth due
to the decline in oil prices and rising unemployment in the oil sectors. Moreover,
developers and owners are struggling to lease out their high-end villas, resulting in
declining rental yields. However, despite a slowdown in the real estate market in UAE,
the Dubai villa market has managed to maintain its growth compared to Abu Dhabi. In
2017, the average villa sales prices in Dubai are comparatively higher than that in Abu
Dhabi due to high land cost and high preference towards Dubai due to its attractiveness.
Additionally, Dubai’s low-end villas are also attracting investors and buyers due to
valuations being apt for investments in such a prime market. Thus, several developers
have started focusing on the low-end segment and are looking to enter the market in
communities such as Arabian Ranches, Dubai South and Akoya over the next three years.
Retail Real Estate Market

The GCC retail sector is one of the active contributors to the region’s economic
development. Over the last few years, the sector has witnessed a slowdown, however,
the growing population, a rising tourism sector and increasing per capita income are
likely to boost the retail sector in the coming years. The regional government’s
diversification efforts have started yielding results as several international retail brands
have already started setting base or are considering GCC region as the next investment
hub. Additionally, the regional retail giants are expected to continue investing in
developing retail infrastructure in the region.
Retail Supply
The UAE retail real estate sector continues to remain positive, despite a sluggish
economic environment affecting the consumer demand and economic output. The
Dubai witnessed a
major international brands which were introduced in the UAE retail segment have driven
significant addition of
41,000 sqm GLA in 2017 huge demand for their respective products not only in UAE but also across
GCC. According to JLL UAE Real Estate Report, there was an addition of 41,000 sqm
witnessed in Dubai during 2017, bringing the total supply to 3.43 million sqm, the
highest in Dubai since 2012. Few of the most notable projects completed during the year
were the first phase of Marsa Al Seef and La Mer, developed by Meras.
Going forward, the future supply is anticipated to be around 579,000 sqm in 2018 and
442,000 sqm in 2019; which would most likely include projects such as Dubai South Mall,
Dubai Mall Boulevard expansion and the Night Souk on Deira Islands. The supply of retail
space in Abu Dhabi remained unchanged at 2.6 million sqm as of 2017, compared to the
preceding year. Going forward, the retail supply in Abu Dhabi is set to pick up the pace
from the current scenario with smaller projects in the pipeline which are expected to
add 75,000 sqm of retail GLA by the end of next year. The city is expected to receive a
fresh supply of 275,000 sqm of retail space between 2018 and 2019, taking the total GLA
to over 2.87 million sqm by the end of 2019.
In Saudi Arabia, the retail stock in Riyadh reached to GLA 1.7 million sqm in 2017. While
The retail stock in Riyadh the growth in retail stock in Jeddah was relatively stagnant during the same period, the
scaled to GLA 1.7 million
stock is expected to increase drastically in 2018-19. In 2017, the retail stock in Jeddah
sqm in 2017
stood at 1.2 million sqm of GLA, with an expected addition of 350,000 sqm GLA by end
of 2019. Upcoming completions of projects in Riyadh are University Avenue, Khaleej
Mall, Elite, Dheyafah, Turki Square, AdhDhahiah Center and other notable projects which
are expected to cumulatively offer 2.4 million sqm GLA by 2020.
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Exhibit 16: GCC Retail Supply ('000 sqm, 2012-17)
5,000 Dubai, UAE 4,000 Abu Dhabi, UAE

442
4,000 579
3,000 75 200
3,000
4,009
2,000
3,430
3,430
3,389
2,675
2,000
3,128
2,600
2,600
2,600
2,600
2,500
2,903
2,899
2,817
2,194
1,993
1,000 1,000
0 0
2015
2018E
2019F
2012
2013
2014
2016
2017
2018E
2019F
2012
2013
2014
2015
2016
2017
2,500 Riyadh, Saudi Arabia 420 2,000 Jeddah, Saudi Arabia 2,000 Qatar
2,000 250 150 234
1,500 200 1,500
719
1,500
1,000 1,000
1,950
1,563
1,400
1,700
1,700
1,000
1,500
1,200
1,200
1,200
1,400
1,100
1,100
1,300
1,300
1,200
861
500 500
780
844
844
500
641
589
589
537
0 0 0
2016
2012
2013
2014
2015
2017
2018F
2019F
2018F
2019F
2012
2013
2014
2015
2016
2017
2018F
2012
2013
2014
2015
2016
2017
Completed Future Supply Completed Future Supply Completed Future Supply
Source: Jones Lang LaSalle(JLL), DTZ Research, Al Masah Capital Research
The rising tourism sector and high per capita income in the region driving demand,
helped Dubai to lead in terms of retail supply compared to other major retail markets in
the region. Going forward, Dubai alone is expected to add 1.021 million sqm GLA by
2019, which is distinctly ahead of its peers and more than the combined retail supply of
Riyadh and Jeddah which is expected to add 1.020 million sqm GLA by 2019.
Retail Vacancy
Retail vacancy rates in
In the GCC retail space market, Jeddah has outperformed since 2015 as its retail vacancy
Saudi Arabia have
rate fell to approximately 7% in 2017 as compared to 11% in 2015, while In Riyadh, the
improved compared to
that in the UAE markets vacancy rates rose to 9% in 2017 from 8% in 2015. During the same period, Dubai
witnessed a rise in the vacancy rate from 8% to 12% due to the influx of new retail stock
supply which created the situation of oversupply, while remaining stable in the majority
ofthe malls in Abu Dhabi, at 2%. Occupancy rates in established malls such as The Dubai
Mall, Mall of the Emirates, and Yas Mall remain high, indicating strong demand.
Exhibit 17: GCC Retail Vacancy Rates (2012-17)

20% UAE Retail Vacancy Rates (%) Saudi Arabia Retail Vacancy Rates (%)
15%
15%
15% 12% 12% 10% 11%
12% 10% 9%
10%
9% 10% 8%
10% 8% 8% 9% 7%
8%
4% 7%
5%
5% 2% 2% 2% 2% 2% 2%
0% 0%
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
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Retail Rentals
In Dubai, there is more retail stock supply than demand which forces landlords to offer
In Dubai, the rents in a attractive rates for tenants in response. Other notable factors such as the rising
secondary location stood competition from e-commerce market, oversupply retail stocks, etc. are declining the
at USD 618 per sqm PA in retail rentals in Dubai. In Dubai, the rents in secondary locations stood at USD 618 per
2017 sqm PA in 2017, up from USD 504 per sqm PA in 2012, while it was USD 1,268 per sqm
PA in primary locations, down from USD 1,361 per sqm PA in 2012.
Exhibit 18: GCC Retail Rentals (USD per sqm PA, 2012-17)
1,200 800
900 600
1,378
1,378
1,378
1,361
1,268
817
817
817
817
790
1,080
749
600 400
679
623
618
604
300 200
504
517
506
517
506
506
506
468
0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Primary Secondary AD Island Outside AD Island
900 Riyadh, Saudi Arabia Jeddah, Saudi Arabia 1,200 Qatar
800
800
700
700 900
600
600
500 500
600
1,060
400
722
766
758
747
700
743
400
993
990
683
683
640
639
669
608
862
829
300 829
300
200 200 300
100 100
0 0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
In Abu Dhabi, retail rental rates have stabilized as a result of limited supply of good
quality malls. Rents in Abu Dhabi Island stood at USD 817 per sqm PA in 2017, up from
USD 749 in 2012, while that in outside of Abu Dhabi Island fell to USD 506 per sqm PA in
2017 from USD 517 per sqm PA in 2012. In Saudi Arabia, while retail rental rates
remained range bound in Riyadh, Jeddah witnessed a strong growth momentum during
2012-17 on the back of limited retail supply during the period.
In the GCC, Jeddah retail space market has performed well compared to its peers,
registering continuous growth whereas other markets such as Riyadh and Abu Dhabi
have remained largely muted. On the other hand, Dubai retail space has witnessed
major fluctuations in rental rates during 2012-17 due to an oversupply of retail stocks.
Hospitality Market
With an estimated project
value of USD 56 billion, The GCC hospitality market has gained considerable traction in recent years on the back
there are more than 230 of a rising tourism sector. Most notably, according to Thomson Reuters, more than 230
fresh hospitality projects new hospitality projects are currently underway in the GCC region with an estimated
underway in the GCC
project value of more than USD 56 billion (as per disclosed values). Additionally,
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upcoming mega-events such as Dubai EXPO 2020 and FIFA World Cup 2022 are expected
to attract a huge number of tourists in the region, further creating a huge demand for
services. Moreover, in order to fulfill future demand, the regional governments have
started focusing on building quality hotels and enhance ancillary tourism facilities that
will also help them diversify their revenue sources.
Hotel Supply Market
The UAE tourism sector has significantly expanded in the past five years and the country
is already among the top countries in the world for new hotel openings, in anticipation
of over 25 million tourists expected to visit Dubai Expo 2020. Consequently, the current
market remains oversupplied and the key challenge would be to maintain tourist inflows
post this mega event. Dubai remains a strong tourist destination and is gradually
progressing towards becoming one of the largest hospitality markets in the world. The
Dubai is expected to upcoming key projects such as Dubai Eye, hotels on Bluewaters Island etc. and recently
receive 26,600 additional opened Bulgari Resort and Residences and other luxury resorts are expected to attract a
keys by 2019 large number of tourists in the country. On the other hand, Abu Dhabi hospitality market
remains reliant on business tourism which has been significantly affected by the decline
in oil prices, corporate consolidation and reductions in corporate travel budgets.
Exhibit 19: GCC Hotel Supply (No. of Keys, 2012-17)

17,400 30,000
100,000 1,800
25,000 2,100
80,000 20,000
99,400
60,000
23,900
15,000
82,000
82,000
21,800
21,800
77,900
21,200
20,400
72,400
19,500
67,500
18,150
60,800
57,300
15,700
40,000 10,000
20,000 5,000
0 0
2012
2018E
2019F
2013
2014
2015
2016
2017
2018E
2019F
2012
2013
2014
2015
2016
2017
20,000 Riyadh, Saudi Arabia 15,000 Jeddah, Saudi Arabia 1,500 25,000 Qatar 345
2,000
3,200 1,700
15,000 20,000
10,000
15,000
12,500
22,514
22,514
10,000
15,300
10,800
10,800
18,854
17,818
12,100
12,100
17,541
9,800
17,127
11,500
10,600
8,600
8,500
5,000 10,000
9,700
5,000
5,000
0 0
0
2019F
2014
2015
2016
2017
2018E
2018E
2019F
2014
2015
2016
2017
Q12017
2012
2013
2014
2015
2016
Completed Future Supply Completed Future Supply Completed Future Supply
The hotel supply in Dubai reached a total of 82,000 hotel keys in 2017 from 57,300 hotel
keys in 2012, while Abu Dhabi reached 21,800 hotel keys in 2017 from 15,700 hotel keys
in 2012, growing at a CAGR of 7.43% and 6.79%, respectively. The future supply also
looks strong for Dubai with an additional 17,400 hotel keys expected to enter the
hospitality market by the end of 2018 and another 9,200 to enter by the end of 2019. In
comparison to Dubai, the future hotel keys supply for Abu Dhabi looks rather subdued
with an expected addition of 2,100 hotel rooms by the end of 2018 and 1,800 keys by
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the end of 2019. The supply scenario in Saudi Arabia also remained strong throughout
the period from 2012 to 2017 on the back of a rising number of tourists and job creation
facilitating the expatriate population, which have led to a positive hospitality
environment in the Kingdom. The hotel supply in Riyadh and Jeddah reached a total of
12,100 hotel keys and 10,800 hotel keys in 2017, growing at a CAGR of 7.6% and 8.3%,
respectively. The future supply for Saudi Arabia is expected to remain robust with
Riyadh to receive an additional 5,200 hotel keys by end of 2019, while Jeddah is likely to
receive around 3,200 hotel keys by end of 2019.
Hotel Room Rents
Dubai is majorly focusing on strengthening its hotel demand through rising investment in
The average room rates the development of tourist facilities. Additionally, the oversupply of hotel rooms have
in Abu Dhabi declined 6% had a negative impact on the rents. Furthermore, the number of tourist from Saudi
in 2017, while in Dubai
Arabia, Oman, and Kuwait have declined which has forced the hotels to adjust their rates
the average room rates
declined 4% in 2017 to maintain a significant occupancy. On the other hand, Abu Dhabi is majorly focusing on
gaining the status of Entertainment City in order to attract tourists outside the corporate
space. In Saudi Arabia, Riyadh and Jeddah hotel markets are majorly dependent on
corporate clients and in order to reduce reliance the government is investing heavily in
hosting mega events to further attract tourists and vigor the hospitality industry.
Exhibit 20: GCC Hotel Rentals (USD per day, 2012-17)
300 Dubai, UAE 300 Abu Dhabi, UAE
250 250
200 200
150 150
261
241
238
215
195
189
181
100 100
148
141
141
126
118
50 50
0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
300 Riyadh, Saudi Arabia 300 Jeddah, Saudi Arabia
250 250
200 200
150 150
261
259
254
255
255
249
244
237
228
226
208
190
100 100
50 50
0 0
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
Source: Jones Lang LaSalle(JLL), AlMasah Capital Research
The average room rates in Abu Dhabi declined 6% in 2017 to USD 118 per day from USD
126 per day in 2016, while in Dubai the average room rates declined 4% in 2017 to USD
181 per day from USD 189 in 2016. Furthermore, the over-supply of rooms in the UAE is
going to add more pressure on the average daily rates. The spending for the tourism
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sector in the UAE is set to rise by 4% in 2018 to USD 44 billion from USD 42.30 billion in
2017 and is expected to reach USD 56.30 billion by 2020. With recently announced
projects including the new IMG World of Legends theme park, Six Flags at Dubai Parks
and Resorts, Formula One theme park at Dubai’s Motor City, and other cultural and
shopping venues, Dubai is expected to witness a significant rise in tourists leading to the
Expo 2020. More than 83 hotels are set to open in the UAE in 2018.
Although hotel room rates have declined in the last five years due to an oversupply
situation, the market is likely to attract a large number of tourists, due to the Dubai
EXPO 2020 and continuous development on tourist facilities. All these factors will help
Dubai hotel market to outperform compared to other peers market in GCC. On other
hands, other GCC nations are distinctly behind in terms of attracting tourists and majorly
dependent on corporate clients and pilgrims for religious visits.
Hotel Occupancy Rate
The occupancy rates in UAE hotels have remained relatively stable over the past few
years compared to Saudi Arabia, largely due to Dubai being a much popular tourist
destination for tourists around the globe. Though the number of tourists from other GCC
The occupancy rates in nations declined 10% Y-o-Y, tourists coming from countries such as China and India
UAE hotels have been increased 49% and 20%, respectively Y-o-Y. The occupancy rates in Dubai remained
more stable compared to strong at 77% throughout the past three years on the back of increasing number of
Saudi Arabian hotels
tourists and expatriate population. In Abu Dhabi, the occupancy rates remained stable at
71% since the last 5 years but have consistently underperformed Dubai.
In Saudi Arabia, there was significant downward pressure on the hotel occupancy rates,
especially in Jeddah which decreased significantly to stand at 61% as of 2017 from 79%
in 2012. The major factors contributing towards the declining occupancy rates was the
increasing supply of hotels in the Kingdom, coupled with a subdued demand from the
tourists which majorly consisted of business travelers. Although, the reduced demand
drastically changed the market dynamics, it has not stopped hotel operators from
entering into this competitive market. The properties most likely to be benefitted going
forward are the ones near any exhibition or conference center since there are large
numbers of business travelers and corporate officials arriving at such events.
Exhibit 21: GCC Hotel Occupancy Rates (2012-17)

100% UAE Saudi Arabia
80% 80% 100%
79% 77% 77% 77% 79% 78%
80% 76% 75%
80% 68%
61%
60% 76% 73% 74%
67% 71% 71% 60%
57% 56% 60% 60%
40% 40% 54% 54%
20% 20%
0% 0%
2012 2013 2014 2015 2016 2017 2012 2013 2014 2015 2016 2017
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INTRODUCTION OF VAT IN GCC

As a part of an economic diversification effort and sustainable growth, the regional
governments decided to introduce Value Added Tax (VAT) in all sectors. This move
embodies the inception of a landmark financial reform in the GCC and is likely to relieve
some part of the burden from reliance on oil revenues. The GCC VAT implementation of
UAE and Saudi Arabia this tax is being left to individual member States within the GCC-wide framework
implemented the VAT at
agreement signed in November 2016.On 1st January 2018, UAE and Saudi Arabia
a single standard rate of
implemented the VAT, a single standard rate of 5%, in their respective countries, while
5% in January 2018
the other GCC nations are likely to follow the suit soon.
Exhibit 22: Advent of VAT in GCC
Source: Al Masah Capital Research
Considering that the real estate sector is a major economic barometer for the GCC,
delivering the necessary infrastructure, commercial and residential spaces that are
crucial to the continued development, the reform is expected to cause a paradigm shift
in the overall business dynamics of the region. The introduction of 5% VAT in Saudi
Arabia and the UAE is likely to have an impact on the purchasing power of local investors
and on the investment decisions of international investors.
UAE
The real estate sector is one of the key non-oil sectors of UAE and introduction of VAT in
Residential property will the sector is likely to help the country to achieve some feet in diversification effort. VAT
be exempted from VAT in
will also provide the UAE with a new source of income which will contribute to the
the UAE
continued provision of high quality public services into the future.
Real-estate is one of the sectors which impacts all expatriates and citizens in UAE in the
form of house rents and prices. The government has introduced the VAT in two
segments i.e. residential and commercial units. There are different VAT regulations
between leasing and purchasing residential and commercial properties. In order to
maintain the interest of investors, buyers/tenants, the government has structured the
new rule in three segments - in addition to VAT-exempt purchases, there are two VAT
rates, namely zero-rated, and standard rated. Zero-rated is charged at 0%, while
standard rates will be charged at 5%.
Sales and leases of commercial property will be levied with VAT at the standard rate of
5%, whereas residential property will be exempted from the VAT. Exceptions of property
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in UAE, on the sale of new residential property VAT will charge at zero rate of VAT,
whereas bare land will be exempted from the VAT.
Exhibit 23: UAE VAT Segments on Real Estate
Residential Property
The first supply of residential property will be zero rated (input costs can be reclaimed)
for the first three years following its construction for both rental or purchase. After this
time, it will be exempt from VAT, but owners will no longer be able to reclaim input
costs. If a residential unit is sold even within the first three years, any subsequent sales
or rentals will be exempt, but will no longer be zero-rated. Effectively, first time
First supply of residential
property in the UAE will residential property renters will not pay VAT on the lease amount and first time
be zero rated for the first residential property purchasers will not pay VAT on the purchase price.
three years
According to the Federal Tax Authority (FTA) of the UAE, owners of residential buildings
do not need to register for VAT if they do not have any other business activities, but
owners that have other business interests will need to check whether they are required
to register or not.
Commercial Property
Commercial buildings, including hotels, shops and offices, are subject to VAT at the
standard rate of 5%, both for rental and purchase, but that owners will generally be able
to recover VAT on expenses related to the supply of the building.VAT will be applicable
to rents payable under commercial rental contracts, which took effect last year in
respect of rents that relate to 2018. Moreover, any commercial property, whether
leased out or sold such as offices, retail, and even car parking is taxable unless provided
as part of a residential property. The supply of vacant commercial properties or the
supply of a commercial property for future use is also subject to 5% VAT.
Commercial properties in
the UAE are subject to
According to the UAE FTA, owners of non-residential buildings whose supplies to the
standard 5% VAT
building have added up to more than AED 375,000 (USD 102,095) over the past 12
months, or who expect supplies to add up to more than AED 375,000 within the next 30
days, will be obliged to register for VAT.
Property Management and Bare Land
While bare, or unimproved land will be exempt from VAT, service charges, cleaning
services and utility charges will attract the standard VAT 5% rate.
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Exhibit 24: VAT in UAE’s Real Estate Sector
The government has introduced Capital Asset Scheme that allows recovering the input
on a purchase of any single expenditure (in some cases collective) above AED 5 million
for building or other capital asset incurred for use in business.
Exhibit 25: Capital Asset Scheme
Implications of VAT in the UAE Real Estate Market
While investors are now weighing the impact of a new tax regime, industry insiders are
hopeful the VAT will not affect property demand negatively. However, there will be
VAT is likely to increase repercussions across the real estate industry, particularly with lease agreements and
the costs of renting or property purchases as they are considered to be a taxable supply in terms of the VAT
owning property Law. This will increase in the costs of renting or owning property.
Rise in Commercial Property Prices
According to Deloitte, valuation and prices of commercial property price are likely to
increase. The commercial and retail sector is likely to be more expensive by 5% in the
case of rental pricing. However, there may be an effect on the prices and valuation may
be increased by 2-5%. Moreover, businesses such as financial institutions and banks are
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unlikely able to recover VAT fully on the purchase of property, however prices of
property (in the case of buying or selling) in UAE increases resulting burden of the VAT,
will be a direct cost for them.
Rise in Institutional Investors
The introduction of VAT in real estate sector is likely to bring more transparency into the
For the UAE, VAT could sector and improve the ethics and integrity around the real estate market in general.
generate AED 12 billion in The new rule offers an additional incentive for institutional investors such as sovereign
its first year and AED 20 wealth funds (SWFs), regional asset managers, pension, and insurance companies.
billion in its second year
Historically, VAT implemented countries across the globe have offered new investment
opportunities to the investors and considering the fact, the new rule is expected to
attract more institutional investors from the region as well as international markets.
Moreover, considering the revenue that the VAT is likely to generate for the UAE
government (VAT could generate AED 12 billion in its first year and AED 20billion in its
second year), liquidity levels in the market are expected to improve, which should
increase investor confidence and appetite.
Effect on Off-plan Property Sale and Demand for Secondary Market
The newly introduced 5% VAT on sale of the property is expected to witness short term
impact on off-plan properties. The increased property prices are likely to divert the
investors and buyers to seek alternatives on the secondary market. The demand for new
potential and existing tenants are expected to decline on the back of increased cost of
goods and services leading to low disposable income. According to the new rule,
exemption of sale or lease of old property would lead to a rise in demand from new
tenants and investors due to a high cost of new properties. The overall high cost of living
in Emirates such as Dubai and Abu Dhabi will divert the interest of tenant, buyer or
investors towards affordable housings.
Increased Cost of Ancillary Services
According to the new rule, the tenant, buyers, seller or investors have to pay VAT on the
brokerage services, maintenance services, Facility Management (FM) and Property
Management (PM) services, utility bills, short term rentals, EJAR registration and trustee
office fees. These services are expected to become cost additional burden on the real
estate participants. On the agency side, this could raise issues in terms of commission
sharing, as the brokerage would bear the VAT, while it would still pay the full
commission to agents.
Cash Flow, Long-Term Contracts and Input Tax Credit
The construction industry will attract 5% VAT, thereby impacting the real estate
development market which might lead to a delay in the project developments. Further,
VAT is likely to impact the there may arise cash flow considerations for long term projects as payments may get
real estate development delayed. For construction firms, VAT might impact cash flow as it is payable within 30
market which might lead days of the end of the quarter, during the filing. Therefore, businesses would need to
to a delay in project factor in the cost of long-dated payment terms on cash flow and the cost of funding the
developments
VAT.
On the other hand, long term contracts may create issues around when to account for
VAT and whether VAT can be added to the price and collected from buyers. Additionally,
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there may arise complications in claiming input tax credit for businesses engaged in
supply of residential as well as commercial property.
SAUDI ARABIA
The real estate sector plays the vital role in Saudi Arabia’s non-oil economy as the
country houses the largest expats in the GCC region. Introduction of VAT in the real
estate sector is changing the market dynamics and bringing more transparency to the
market. The Saudi government has structured a new rule into three major segments i.e.
Commercial Estate, Residential Real Estate and Ancillary Services.
Exhibit 26: VAT in Saudi Arabia’s Real Estate Sector
VAT in Saudi Arabia is applied to any real estate transaction in the Kingdom. The 5% rate
is implemented on the sale of a house, apartment, or other residential real estates, the
The government of Saudi sale of any commercial real estate, transfer of ownership of bare or undeveloped land,
Arabia will cover the 5% and the sale of partly completed construction works. The tax excludes selling to relatives
VAT on first homes with to the fourth degree and residential rentals. Moreover, the government of Saudi Arabia
values up to SAR 850 will cover the 5% VAT on first homes with values up to SAR 850 thousand.
thousand
Implications of VAT in the Saudi Real Estate Market
The newly introduced rule will have transitory impact on the real estate market as the
country is still undergoing the implementing phase. The real impact can be gauged after
the successful implementation of the VAT.
Effect on Sales and Rentals
While some experts believe that VAT will cause a decrease in the prices of sales and
rentals, others predict that the tax will limit the rise in rental prices and therefore
contribute to the improvement and diversification of services. Since residential rental is
exempt from tax, landlords may lower rental prices in order to create a profit. On the
other hand, real estate sales is expected to witness an increase in price. Considering that
the 5% VAT will be added to the sale, it is an additional cost to bear for the investors;
while sellers may be tempted to add the tax to the value of the property rather than
cover the cost themselves. This would translate into real estate investments in Saudi
Arabia becoming costlier than before.
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Cost of Investment Likely to Increase
There are high chances of property sellers to pass the newly added VAT charges to the
value of the property, which leads to high cost of investment for investors. The new rule
is putting an additional cost on investors which is likely to put more pressure on
investors to maintain the return on investments (ROI). However, in comparison to
VAT brings in
international real estate markets, where the standard VAT is significantly higher, the
transparency into the
Saudi real estate market, Saudi market continues to offer prime investments and provide investors a chance to
attracting foreign enter a strong and growing market. Though investors will be in need of larger capital to
investors finance their projects, they are expected to yield higher returns. Additionally, the new
rule also brings in transparency into the real estate market which is likely to attract more
investors and eventually write off the risk of high cost of investments.
Boost in Demand for Rental Apartments and Secondary Markets
As per the new rule of the VAT, the rental apartments are exempted from VAT charges
compared to buying the new house. The new rule is creating challenges for buyers to
purchase new apartment as 5% VAT is applicable on sale of new property, coupled with
additional 5% VAT on brokerage. This rule might divert interested buyers from buying
new houses to rent apartments or to buy old apartments. Additionally, all goods and
services are under VAT, which is weakening the disposable income of individuals and
indirectly forcing them to opt for secondary market. Moreover, in order to earn more
profit and to maximize occupancy, landlords are likely to offer cheaper pricing in future.
Short Term Rentals
The provision of accommodation or lodging in a hotel, motel, guest house, serviced

accommodation or similar establishment does not qualify for VAT exemption as a
residential rental. Any building which is designed to offer temporary accommodation to
visitors or travelers does not qualify for exemption. Similarly, hosted accommodation
and other rental offered through online platforms and held out for use as short-term
accommodation are presumed to be short-term accommodation and subject to VAT.
Increased Cost of Ancillary Services
Landlord might transfer additional charges for services provided in connection with the
rental of commercial or residential units, such as maintenance fees, charges for utilities,
car parking etc. Cost for additional services are generally a separate supply of services
which is subject to VAT and do not fall within the exemption for rental of residential real
estate, even where provided in connection with a residential contract.
Slowdown in Pace of Real Estate Development
The cost of developing or constructing real estate property is expected to increase as the
VAT is applicable to all raw materials and construction equipment. The real estate sector
is highly capital intensive and requires high cost investment and with the introduction of
the VAT, the cost of development is expected to further increase that might lead to
delays in the project development. Once again, this will increase the size of the
investment for those hoping to invest in the Kingdom's dynamic real estate market.
Accordingly, realtors feel the Saudi real estate market could see a fall in sales
transactions while boosting the rental market.
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FACILITY MANAGEMENT SERVICES IN GCC

The Facility Management (FM) industry in the GCC is one of the fastest growing sectors
in the region and also across the world, largely due to the high construction activities,
increasing infrastructure spending across the region and a growing tourism industry. The
rapid real estate and urban infrastructure development in terms of airports, roadways,
ports and railways have resulted in increased demand for FM industry. Resultantly, over
the last few years, the regional FM market has witnessed a significant change with a
GCC FM industry is one of broader scope of service offerings. The FM service providers are offering well-planned
the fastest growing
services at early/design phase of construction with the integration of advanced
sectors
technologies. Moreover, in addition to the upcoming new buildings and infrastructure
facilities, the maintenance of old buildings and facilities also continue to provide
opportunities for the FM industry.
The regional FM market continues to offer promising opportunities due to increasing

awareness of traditional landlords to outsource building maintenance to professional
service providers that can potentially service an untapped market of developments
which are currently being maintained by a basic in-house team. Also, the increase in the
pace of upcoming real estate projects which has attracted large real estate developers
and construction companies to the region. Thus, the regional FM industry has become
highly competitive due to the entry of international players and rise in domestic service
providers. On the demand side, the expats' population is also driving the FM service
industry in the GCC on the back of high demand for residential properties. Going
forward, the rising awareness of FM services, and ease of contract management are
expected to further fuel the demand for FM services in the GCC.
GCC FM Market Size and Structure
The GCC FM market was estimated to be valued at around USD 44.1 billion in 2017 and
GCC FM market is expected to reach over USD 67 billion by 2022, growing at a CAGR of 8.8%. The regional
expected to reach USD 67 FM market is majorly driven by commercial projects, followed by industrial and
billion by 2022 at a CAGR residential projects. Saudi Arabia remains the leading FM market in the region
of 8.8% accounting for around 56% (USD 24.6 billion) of the total FM spends, followed by the
UAE with around 26% (USD 11.7 billion).
Exhibit 27: GCC FM Market Size & Structure (USD billion)
(USD bn)
80
67.2
60 10.5
44.1
40 7.9
39.6
24.6
20
17.1
11.7
0
2017 2022F
UAE Saudi Arabia Other GCC Countries
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On the other hand, the rest of the GCC nations are still at a relatively nascent stage of
development (cumulatively accounting for USD 7.9 billion) compared to the behemoths
but are likely to gain considerable growth primarily driven by active and coordinated
development initiatives by the industry stakeholders, including the governments.
The growth within the FM market has been impacted due to regional & international
economic events. However, the impact has been minimal as the maintenance of the
buildings structure including MEP, HVAC, chillers, etc, is required regardless of the
economic situation in order to preserve the physical structure of the building and
maintain high occupancy. Additionally, in a down market, landlords are pressured to
maintain their buildings and ensure high functionality by providing quality services to
retain tenants.
Services Offered by FM Players

Over the past decade, the FM sector has not only grown in size but also in scope, with
companies growing from small, specialized entities to large, multifaceted corporations.
Integrated Facility The range of services offered by the industry players are broad and are expanding
Management (IFM) is an
further with the growing needs and requirements of the region's large infrastructure in
ideal model for
rationalizing all FM place. FM providers now offer a whole gamut of services including housekeeping,
services security, technical support, concierge, pest control, waste management, building
management systems, security services, and consultancy, amongst others. Based on
type, the GCC FM market is segmented into property services, cleaning, security,
catering and support services and based on end-users, the market is segmented into the
industrial, commercial and residential markets.
FM consultants can provide significant added value input for both Greenfield
developments and improvements in the operation of existing property portfolios. The
increasing sophistication of large buildings and developments, in terms of their building
components and operating systems and controls, is such that it is essential developers
and property managers ensure they select FM and maintenance service providers who
have the necessary technical and managerial skills. The application of the full range of
FM capabilities available from service providers with both business planning and, more
importantly, FM operational experience will lead to significant benefits in cost, quality of
service delivery, long-term asset preservation and sustainability.
Notably, Integrated Facility Management (IFM) is an ideal model for rationalizing of all
FM services in a way that reduces overall costs and delivers year-over-year improvement
and savings through operating efficiencies. With time and major investments in the
industry, the GCC FM service providers have targeted the growing and long-term
sustainable FM market by adopting diversified services. A shift in strategies from sub-
contracting soft services is also taking effect, with many former GCC FM management
companies now diversifying by incorporating soft services requirement into their own
operational profile to enhance their value and profitability.
Regional FM Markets by Country
UAE
UAE, being one of the fastest real estate growing nations in the region, is also the most
advanced and adaptive FM services market in the region. The country acts as a
benchmark for FM implementation in the region, due to the significant and sophisticated
UAE is the most advanced
FM market in the GCC developments in Dubai and Abu Dhabi. Though Dubai is the largest demand generating
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city for FM services in the UAE due to the major portion of infrastructure investments
and developments being concentrated in the area, Abu Dhabi, Sharjah, and Rasal-
Khaimah (RAK) are fast catching up with rise in residential and commercial infrastructure
developments.
The FM market in the country is majorly driven by the improving economic conditions,
coupled with the growing construction sector and rising investment in energy-saving
facilities. On the demand front, the UAE government has adopted a national plan for the
country’s sustainable growth by making new policies to achieve green growth and
development. Subsequently, the private sector is also supporting the government’s
sustainable growth effort by investing in environmentally sustainable developments.
Moreover, the government initiative of sustainability is opening new opportunities for
FM service providers. Therefore, the FM service providers have started adopting green
building management solutions in order to save operational cost.
UAE FM market was
estimated to be valued at The UAE FM market was estimated to be valued at around USD 11.7 billion in 2017 and
around USD 11.7 billion in is expected to reach around USD 17.1 billion by 2022, growing at a CAGR of 7.9%,
2017 majorly driven by the increased investment in the construction sector, coupled with
rising tourism, and key government initiatives. The market is expected to be primarily
driven by projects such as Abu Dhabi's emirate-wide 'Vision 2030' and 'Dubai Urban
Development Master Plan 2020'. Furthermore, upcoming mega projects such as the
Bluewaters Island, Dubai Creek Harbor, Dubai Water Canal, Dubai Theme Parks, and
others in line with Dubai EXPO 2020, are expected to create significant demand for FM
services in the Emirates. Eying the huge potential, many international FM firms are
targeting Dubai for their growth expansion.
Although there are over 3,500 registered companies in the FM service sector in Dubai
and an estimated 8,000 plus in the UAE, primarily composed of semi-government FM
service entities, development-contractor companies diversifying into FM services, and
Joint Venture (JV) companies between the UAE and international FM services companies
with significant experience and technology. Some of the leading players operating
in UAE FM market includes Emrill Services LLC, Imdaad, Farnek Service LLC, EFS Facility
Management Services, Khidmah LLC,Credo, ETA Facilities Management, Bilfinger HSG
Facility Management, and Advanced Facilities Management, among others.
Saudi Arabia
Saudi Arabia is the largest FM service market in the GCC and also the fastest growing
market in the region. The Saudi’s FM market is highly cost sensitive and the adoption of
FM services is gradually growing. Though the awareness of FM is emerging at a modest
pace, usage still remains immature, with the majority of asset owners using low-cost
labor supply companies to deliver work on an ad-hoc basis. According to MEFMA report,
the demand for hard services including building fabric maintenance, decoration &
refurbishment, M&E plant maintenance, plumbing & drainage, and lift & escalator
maintenance dominate and are the key growth segments in the Saudi Arabia market.
The Saudi government has launched a major initiative, NCLOM (The National Committee
for the Legislation and Standardization of Operations & Maintenance), to upgrade the
quality of FM across its estate. NCLOM is set to transform public sector operation and
maintenance (O&M), through enhancements to regulation, procurement, management,
budgeting, and workforce development. This professionalization of the public sector
market offers huge potential for suppliers who can bring a quality offer to the market.
Under Vision 2030, the real estate and tourism sectors are expected to witness major
Saudi Arabia is the
investment and as part of a diversification effort, the government is majorly focusing on
largest FM service market
in the GCC
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setting up local manufacturing units, developing export-oriented manufacturing centers.

Additionally, the government has also announced the mega projects in order to develop
housing units to enable 52% of its citizens to have their own houses by 2020. These key
initiatives are likely to boost the demand for FM services in the country.
The FM service market in Saudi Arabia was valued around USD 24.6 billion in 2017 and
likely to reach around USD 39.6 billion by 2022, growing at a CAGR growth of around
10%. In 2017, the country accounted for around 56% of the total FM spend in the GCC
region, which has more than tripled over the last decade driven by historically high oil
Saudi Arabia’s FM market prices supporting significant investment in buildings and infrastructure. The upcoming
is expected to reach USD mega projects in line with Saudi’s Vision 2030 are expected to further fuel the growing
39.6 billion by 2022 demand for FM service market and the Kingdom is likely to witness a major influx of
international FM players banking on the untapped potential of the industry, and the
growing hospitality industry.
Other GCC Regions

FM service market in the other GCC nations are at a relatively nascent stage and are
expected to grow modestly in the near future. These nations are likely to follow the
footstep of the UAE and Saudi Arabia in order to boost the construction sector. Newer
markets such as Kuwait, Oman and Bahrain are realizing the potential of investing in
these services and the rapid pace of development for large-scale real estate projects are
leading to increased demand for companies that can manage these facilities. As part of
the economic diversification efforts, these nations have also allowed private investment
in several sectors including real estate which are attracting new projects with advanced
technologies. Lack of awareness and lack of transparency in the FM service bidding
process are the major challenges that are hindering the growth in the market.
Growth Drivers for the GCC FM Market
The regional players are confident that the market will continue to grow as there are
sustained business streams from buildings that have already been constructed, as well
as the positive market influence of upcoming mega events. The regional FM players can
expect more business from a diverse client base as the industry continues to mature and
catch up with its global counterparts.
Upcoming Real Estate Project Likely to Drive Future Demand
The rapid real estate and urban infrastructure development in terms of airports,
roadways, ports and railways have resulted in an increased demand for FM industry.
Further, the boom in the construction activity in GCC led by Dubai Expo 2020, FIFA World
Over 1,231 projects are Cup 2022, Qatar Vision 2030, investment in aviation and Gulf railway is providing
currently under
impetus to the FM industry and creating lucrative opportunities for the regional
development in the GCC
and international FM companies. Apart from upcoming new buildings and infrastructure
facilities, the maintenance of old buildings and facilities also continue to provide ample
opportunity for the regional FM industry.
The GCC is expected to witness a substantial rise in real estate activities on the back of
improving regional economic conditions and government’s economic diversification
efforts which allow private investments in the regional sectors. Over 1,231 projects are
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currently under development (including ongoing and on-hold) in the GCC, in different
phases of implementation, with a turnaround time between 2018-2022. There are
current 694 projects (56%) being constructed in the UAE, followed by Saudi Arabia (269),
Qatar (93), Oman (64), Bahrain (57), and Kuwait (54). Of these, around 27 projects are
currently under 'on-hold' status due to several reasons including financial issues, legal
disputes, plan reviews and pending government permits, while the remaining are under
565 new real estate active development. 69% of the total projects are privately owned, while the remaining
projects are expected to share is backed by the government with less than 0.5% being PPP developments.
be completed in 2018
alone Of the total 1,231 projects, around 565 new real estate projects including residential,
commercial and industrial projects are expected to be completed in 2018 alone, which
will help boost the demand for FM services significantly. Most notably, the UAE (276)
and Saudi Arabia (142) are likely to contribute around 74% of the upcoming real estate
projects that are expected to be completed in 2018.
Exhibit 28: No. of Upcoming Projects (2018-22) Upcoming Projects by Country (2018-22) Upcoming Projects by Project Type (2018-22)
UAE
2018 565
5% 4% 8% Residential
KSA
2019 400 5%
8% 19% Commercial
Qatar
2020 218
2021 56% Oman 56% Hospitality

39
22% 17%
2022 9 Bahrain Retail
0 200 400 600 Kuwait
Source: Zawya Projects, Thomson Reuters, Al Masah Capital Research
As per disclosed values, the total value of ongoing and on-hold real estate projects to be
concluded between 2018-2022 in the GCC was estimated at USD 344.7 billion. Saudi
Arabia led the market, accounting for nearly 41.5% of the total projects, with a value of
USD 143.2 billion, followed by the UAE with 34.6% (USD 119.1 billion) share.
Exhibit 29: Value of GCC Real Estate Projects by Country Value of GCC Real Estate Projects by Sector
Total Value of Real Estate Projects = USD 344.7 billion Total Value of Real Estate Projects = USD 344.7 billion
$3, 0.8%
$4, 1.1%
$143, 41.5%
$19, 5.4% $200.1, 58%
$32.3, 10%
$57, 16.7% $56.1, 16%
$119, 34.6%
$56.2, 16%
Saudi Arabia UAE Qatar Kuwait Oman Bahrain Residential Hospitality Commercial Retail
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The residential real estate market is expected to witness a significant boom with 56% of
the upcoming 1,231 project being solely for residential purposes with a total value of
Significant development
in the residential segment over USD 200 billion (58%), a major growth driver for the regional FM services market. It
to propel the FM market is closely followed by the commercial sector, accounting for 17% of the total projects by
volume and 16% (USD 56.2 billion) by value. As per disclosed values of the top ranking
projects, Saudi Arabia is expected to witness the maximum investment in real estate
market followed by the UAE.
Exhibit 30: Top 10 Upcoming Real Estate Projects in GCC by Value (2018-2022)
Project Name Country Property Type Ownership Type Project Value (USD bn) Completion Date
Saudi Arabia Ministry of Housing Saudi Arabia Residential Government 67 Apr. 2018
Al Bandary Real Estate Qatar Residential Private 45 Jan. 2020
Dubai South – Expo 2020 UAE Commercial Government 33 Nov. 2019
Beban Hotel Saudi Arabia Hospitality Private 30 Nov. 2018
North Mutla Residential City Kuwait Residential Government 14 Feb. 2020
Le Jardin d’Eau Riyadh Saudi Arabia Retail Private 8.8 Jan. 2018
Jumeirah Village Triangle Park Inn UAE Hospitality Private 8.0 Nov. 2019
J One Saudi Arabia Residential Private 7.5 Dec. 2018
Dubai Mall of the World UAE Retail Private 6.8 Jan. 2018
Eclipse Twin Towers UAE Commercial Private 6.2 Oct. 2018
Government Initiatives
The initiatives taken by GCC countries to develop non-oil sectors, such as construction
and tourism are expected to help establish a solid base for their diversification efforts.
The steady economic growth in GCC, especially in the construction and manufacturing
sectors, is anticipated to boost the Integrated Facility Management (IFM) market in the
region. Government plans and visions to meet the demographic challenges by improving
the education systems, increasing healthcare facilities, growing private sector,
investment in transport (particularly air and rail), leisure, entertainment, hospitality and
culture will also drive the FM industry.
Key Trends in the GCC FM Market
Rising Demand for Longer Contracts
FM service providers are The regional FM customers have started adopting developed market trends in the recent
aggressively focusing on years and also started favoring long-term FM contracts from three to five years with
longer contracts service providers. The recent trends show that the customers are also demanding for
energy saving technologies and want to include more defined output-based targets
within their contracts. Dubai is the most advanced market in the region where the
demand for long contracts are high, followed by Abu Dhabi and Doha which are also
gradually adopting these trends. On the service providers’ front, the FM players have
started adopting advanced technologies to increase productivity, service quality and
transparency to match up with the increased demand.
Integration of Technologies on the Rise
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The GCC has witnessed a positive shift towards technology update in the construction
activities, due to an increasing demand for computer-aided facility management (CAFM)
technologies. As a result, the regional FM market is witnessing a rise in collaboration
between FM software manufacturers and construction technology providers to offer
extensive solutions to the customers. Over the past few years, there has been a huge
demand for mobile-based FM solutions from the techno-savvy customers, resulting in
the regional FM providers offering mobile FM services. With the adoption of new
advanced technologies with traditional FM services, the players are likely to bring the
potential to change the nature of facilities services and their delivery.
Going forward, a considerable rise in IT-based FM players is expected as part of the

smart technology and smart city trend, with hosted building management software and
active management analytics services at the forefront. Additionally, 3D-modelling
techniques will help architects and facility managers maintain greener and sustainable
buildings, and motion detection will identify maintenance issues. Building automation,
including the use of robotics and drones, will also be highly important in the industry.
Early Involvement of FM Companies in Development Stage
The real estate companies in the GCC have recognized the key role of FM service
providers in order to reduce maintenance cost during the operational phase of the
facilities. The real estate developers have started involving the FM companies in the
early phase of the property development to ensure a well thought out and functional
Real estate developers facilities. This move is helping the real estate developers to reduce the needs for major
have started involving FM
repairs and alterations that will otherwise occur in the operational phase.
consultants in early stage
of development
GCC Refurbishment Projects on the Rise
The role of refurbishment in the real estate has increased in the past couple of years,
with the rise in the number of projects in the infrastructure space. Rising demand for
residential buildings, office tower spaces have marked an ever-increasing era for the
refurbishment sector in the coming years. The refurbishment and fit-out industry have
experienced large leaps of growth, hand-in-hand with the real estate sector in GCC. As
the number of projects increases the towers to be built in the region, the role of the
refurbishment industry also becomes more important for the overall life of the towers.
Over the past few years, the real estate industry has witnessed the introduction of new
technologies which are positively impacting the FM service industry and helping the
Maintenance of old associated service providers and stakeholders to become a part of project’s decision
buildings and facilities making. Most notably, Building Information Modeling (BIM) is gaining significant traction
also continue to provide in the region by offering architecture, engineering, and construction (AEC) professionals
opportunities for the FM the insight and tools to more efficiently plan, design, construct, and manage buildings
industry and infrastructure. In a recent important move, the Dubai Municipality issued a new rule
to implement Building Information Modeling (BIM) mandatory for buildings over 40
stories or more than 300,000 sqft, as well as government projects including hospitals,
universities, and schools. This is likely to involve the FM services players to improve the
conditions of the existing facilities. Going forward the renovation/ refurbishment sector
will continue to remain dominant in the real estate growth story with the run up to the
Dubai Expo 2020, where Dutco Group of Companies has identified almost 60
refurbishment projects with targeted revenue of USD 150 million to take place during
the Expo. Apart from the Expo, there are approximately 10,000 hotels that will be
upgraded by the year 2020, which serve as a boost to the regional FM industry.
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GCC ELECTRONIC SECURITY MARKET

The growing infrastructure developments in the GCC region, which is gearing up for
transformational changes with several smart city projects, is the cornerstone for
increased demand for electronic security products. Over the last few years, the region
has witnessed a significant increase in the adoption of electronic security, largely driven
by increasing infrastructure investments, government rules & regulations, rising risk of
GCC electronic security perceived threat activities resulting in increasing security spending and hosting of
market is valued at international events such as the Dubai Expo 2020 and Qatar FIFA World Cup 2022. To
around USD 2 billion,
build the infrastructures for these forthcoming events, investments of more than USD
accounting for 76.5% of
the MENA region 350 billion is expected to be spent in the areas of transportation (metros, airports),
hotels, public infrastructures, stadiums, shopping malls, entertainment and amusement
parks, etc. To secure these infrastructures, various electronic security systems would be
deployed, which would further fuel the growth of the market.
According to Frost & Sullivan, the Middle East electronic security market was valued at
USD 2.6 billion in 2017 and is expected to reach USD 5.6 billion in 2022, growing at a
CAGR of 16.5% during the period. Most notably, the GCC nations, cumulatively, account
for a lion's share (76.5%) of the region's electronic security market, valued at around
USD 2 billion in 2017. Saudi Arabia (31.4%) and the UAE (24.2%) are the key regional
markets which are valued at USD 816.4 million and USD 629.2 million, respectively. UAE
has adopted stringent surveillance policies to better protect assets and infrastructure
because of security concerns. With around 25 million visitors expected for the Expo
2020, high demand for sophisticated security solutions with streamlined integration of
video surveillance and access control will be the key emerging trend in the region.
Exhibit 31: Middle East Electronic Security Market Electronic Security Market by Segment (2017) Electronic Security Market by Country (2017)
(USD bn)
5.6
9%
23.5%
15% 31.4%
0.7%
2.6 2.1% 7.2%
76% 10.9%
24.2%
KSA UAE
Qatar Kuwait
Video Surveillance Access Control Oman Bahrain
2017 2022 Intrusion Detection Rest of Middle East
Source: Frost & Sullivan Report, Al Masah Capital Research
In the regional commercial security market, Video Surveillance remains the key segment
which accounted for 76% (USD 1.9 billion) of the total market in 2017, followed by
Access Control with 15% (USD 390 million) and Intrusion Detection (IDS) with 9% (USD
Video Surveillance remains
234 million). Driven by the growing stringent, surveillance-related regulations in the
the key segment in the
regional commercial region, the Video Surveillance segment is expected to grow at a CAGR of 17.6% to reach
security market USD 4.45 billion by 2022. In video surveillance market, IP surveillance is the leading
revenue generator due to the expanding IT infrastructure, government mandates,
consumer awareness and presence of leading global players in the entire GCC region.
Access Control systems, such as biometric and card readers, have been gaining in
popularity in recent years, and is expected grow at 13.7% CAGR to reach USD 740 million
by 2022. Amongst all biometric technologies, fingerprint-based biometric systems have
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majorly dominated owing to low cost and ease of usage. However, higher growth is
anticipated for face and iris technology-based biometric systems over the few years. On
the other hand, IDS systems, which are more prevalent in the retail, banking and finance
sectors, is anticipated to reach USD 430 million by 2022, growing at 12.9% CAGR.
The Government & Transportation sector account for majority of the regional electronic
security market, primarily owing to numerous government projects pertaining to public
infrastructure. The strong line up of upcoming government-driven projects, the mega
The market is expected to events, coupled with growing tourism sector in the region is expected to compel the
grow at a healthy rate government to impose stringent regulations pertaining to the installation of electronic
with the rising adoption security devices. Nevertheless, the GCC regulatory bodies have already issued strict rules
of advanced technologies for installation of surveillance cameras for almost all market sectors and for 180-day
shaping the future of the video storage. Additionally, the majority of regional regulatory bodies have made
industry mandatory to install security camera at schools, residential units and commercial places,
and have also started imposing fines and penalties in case of failing to follow the
regulations. However, unlike the commercial and industrial sectors, the residential
sector still under penetrated in terms of installation, which remains a major growth
opportunity given the rising number of high-end residential units in the region.
The GCC electronic security market is largely controlled by European and American
market players, while Asian players are also gaining prominence and experiencing robust
growth across all the six countries. Some of the prominent service providers in the
region include Pelco by Schneider Electric (US), Arecont Vision (US), FLIR Systems (US),
Honeywell (US), Avigilon (Canada), Axis Communications (Sweden), IndigoVision (UK),
Milestone Systems (Denmark), Bosch Security Systems (Germany), Hikvision (China),
Panasonic (Japan) and Samsung Techwin (South Korea), amongst others.
Going forward, the market is expected to grow at a healthy rate as the implementation
of different commercial security technology will make traditional and conventional
infrastructure more efficient, sustainable, and safe. The rising adoption of advanced
technologies such as artificial intelligence (AI), IP surveillance, video analytics, and cloud
storage are expected to lead the growth momentum in the coming years. With increased
complexity of security requirements, integrated and centralised management of security
systems on the software layer is expected to gain further importance as it enables
customers to manage all security systems on a common platform. Additionally, growing
privatization driven by the government’s economic diversification plans, stringent
regulations, and rising awareness among public as well as the private sector about
protection of personal and business assets will further fuel the growing demand for
electronic security market in the region.
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PRIVATE EQUITY IN GCC REAL ESTATE

Private equity (PE) investment in the GCC real estate is lagging behind other developed
regions due to depressed oil prices, stronger currencies, regional instability and global
market volatility which weigh on the real estate prices and capital availability. During
A total of 20 PE deals 2008-17, a total of 20 PE deals were struck in the GCC real estate sector worth USD
were struck in the GCC 5,358 million as per disclosed values. In terms of value, 2008 (USD 2,723 million), 2009
real estate sector worth (USD 1,000 million) and 2011 (USD 1,569.2 million) remained the stand-out years for PE
USD 5,358 million during
the past decade investments in the real estate sector, while 2011 and 2015 witnessed the highest
number of transactions with five each. Further most of the deal activity was
concentrated in UAE (12), and Saudi Arabia (6) during the period.
Exhibit 32: PE Transactions in GCC Real Estate (2008-17)

3,000 (USD mn) 6
2,723.0 5 5
2,500 5
2,000 4
3 1,569.2 3
1,500 3
1,000.0
1,000 2
1 1 1 1
500 1
8.7 30.0 26.7
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Deal Value (USD million) Deal Count
Source: Zawya, Thomson Banker, Al Masah Capital Research
Some of the recent and notable PE deals in real estate sector include:
• In 2017, Numu capital, a Dubai-based VC firm making investments in promising

MENA tech startups, invested in Aqarmap, an online real estate marketplace
(portal) that facilitates purchasing, sale and renting properties easy and convenient
for developers, brokers and end consumers. In 2016, the Egypt and Saudi Arabia-
based property portal facilitated the sale of more than 17,000 properties, worth
greater than USD 550 million. The website gets more than 1 million visits per month
and the application has around 500,000 downloads.
• In September 2016, the Saudi Arabian SWF, Public Investment Fund (PIF),
announced plans to invest in the King Abdullah Economic City (KAEC) in line with
participating in the National Programme of Vision 2030. PIC plans to inject capital
into the business zone, now being developed by Emaar the Economic City (EEC), a
Saudi consortium affiliated with Dubai’s Emaar Properties Group. The fund was
poised to begin focusing investment in three fundamental sectors, namely housing
finance, renewable energy and IT.
• In March 2016, the Izdihar Real Estate Fund, managed by Bank Muscat, announced
its first acquisition of a new mixed use property at Azaiba. Izdihar Gardens is a
modern mixed-use building comprising of over 200 residential units with retail
outlets on the ground floor. Izdihar is a closed-ended real estate fund established
under the Capital Market Authority (CMA), Oman and seeks to generate regular
36
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income and long-term capital appreciation through investments in real estate

assets.
• In February 2016,Dubai Investments PJSC, which operates in manufacturing and
contracting, investment, and property businesses primarily in UAE, agreed to
acquire an additional 20% equity stake in a Joint Venture (JV) company - Properties
Investment LLC, for a consideration of USD 26.7 million.
As compared to the buy deals, the PE exit deals in GCC real estate market has been
10 PE exit deals were relatively low. In total, 10 PE exit deals were struck during 2008-2017, of which 7 took
struck during 2008-2017, place between 2011-14 signifying the improvement in real estate valuations post the
of which 7 took place real estate crash. Since 2008, some of the most active players in the exit market were
between 2011-14
Global Opportunistic Fund I, partaking with 4 deals worth USD 47 million, followed by
Markaz with3 deals valued at USD 24 million.
Exhibit 33: PE Exit Deals in GCC Real Estate (2011-17)

Size Stake IRR
Fund Name Year Target Company Country
(USD mn) (%) (%)
Markaz Real Estate
2011 Lusail Development Qatar 5 20.0% 3.9%
Opportunities Fund
Mubadala Development
2011 JBI Properties Services Company LLC UAE 16 - -
Company
Dar Al-Arkan Real Estate
Global Opportunistic Fund I 2011 Saudi Arabia 5 - -
Development Company
Kinan International for Real Estate
Global Opportunistic Fund I 2012 Saudi Arabia 27 8.7% -
Development Company Limited
Kuwait Business Town Real Estate
Global Opportunistic Fund I 2012 Kuwait 1 - -
Company K.S.C.P.
Markaz Real Estate
2012 Al Falah Land project Saudi Arabia 10 50.0% 5.9%
Opportunities Fund
Markaz Real Estate
2014 Abu Dhabi Reem Island UAE 9 100.0% 0.8%
Opportunities Fund
Source: Zawya, Thomson Banker, AlMasah Capital Research
As of March 2018, Zawya (Thomson Reuters) reported a total of 8 real estate focused
funds in the GCC, worth USD 650 million that are investing or raising capital for
investments in the regional real estate sector.
Exhibit 34: GCC Real Estate Fund Raising Activity (Currently Investing or Fund Raising)
Size
Fund Name Status Fund Manager Geographic Focus
(USD mn)
Al Ahli SEDCO Residential Development
Investing NCB Capital Saudi Arabia 93.34
Fund
Al-Dhawahi Real Estate Development
Investing Swicorp Saudi Arabia 38.96
Fund
ASAS L.P. Investing The Abraaj Group MENA & Turkey 100.00
Malaz Real Estate Opportunities Fund I Investing Malaz Capital Saudi Arabia 102.68
Malaz Real Estate Opportunities Fund II Investing Malaz Capital Saudi Arabia 86.14
Jordan, Lebanon, Qatar,
Markaz Investing Kuwait Fin Centre 58.96
Saudi Arabia, Syria, UAE
Middle East Real Estate Opportunities Corporate Finance House GCC, Jordan, Lebanon,
Investing 30.00
Fund II S.A.L. Middle East
PineBridge Investments
PineBridge GCC Real Estate Fund I Fund Raising GCC 140.00
Middle East B.S.C.
Source: Zawya, Thomson One Banker, AlMasah Capital Research
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Al Masah Capital Limited
Walkers Corporate Limited,

Cayman Corporate Centre
27, Hospital Road George Town,
Grand Cayman KYI – 9008, Cayman Islands
Email: Research@almasahcapital.com
Website: www.almasahcapital.com
Disclaimer:
This report is prepared by Al Masah Capital Limited (“AMCL”). AMCL is a company incorporated in the Cayman
Islands as an Exempt Company established under the laws of the Cayman Monetary Authority. The information
contained in this report does not constitute an offer to sell securities or the solicitation of an offer to buy, or
recommendation for investment in, any securities in any jurisdiction. The information in this report is not intended
as financial advice and is only intended for professionals with appropriate investment knowledge and ones that
AMCL is satisfied meet the regulatory criteria to be classified as a ‘Professional Client’ as defined under the Rules &
Regulations of the appropriate financial authority. Moreover, none of the report is intended as a prospectus within
the meaning of the applicable laws of any jurisdiction and none of the report is directed to any person in any
country in which the distribution of such report is unlawful. This report provides general information only. The
information and opinions in the report constitute a judgment as at the date indicated and are subject to change
without notice. The information may therefore not be accurate or current. The information and opinions contained
in this report have been compiled or arrived at from sources believed to be reliable in good faith, but no
representation or warranty, express, or implied, is made by AMCL, as to their accuracy, completeness or
correctness and AMCL does also not warrant that the information is up to date. Moreover, you should be aware of
the fact that investments in undertakings, securities or other financial instruments involve risks. Past results do not
guarantee future performance. We accept no liability for any loss arising from the use of material presented in this
report. This document has not been reviewed by, approved by or filed with the CIMA. This report or any portion
hereof may not be reprinted, sold or redistributed without our prior written consent of the Company.
Copyright © 2015 Al Masah Capital Limited
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Al Masah Capital: GCC Real Estate and Facility

Management & Support Services

GCC REAL ESTATE MARKET

UAE REAL ESTATE SECTOR

Exhibit 2: UAE GDP % Growth by Sector (2011-16)

Real GDP Growth Construction Real Estate Activities

Exhibit 3: UAE GDP Contribution by Sector (2010-16)

Construction Real Estate Activities

Source: National Bureau of Statistics, Al Masah Capital Research

Foreign Direct Investment Foreign Portfolio Investment

Impact of Oil Prices

Saudi Arabia PMI UAE PMI

Source: Markit, Al Masah Capital Research

MARKET STATISTICS: UAE VS. REGIONAL PEERS

GCC Office Supply

Exhibit 6: GCC Office Supply (’000 sqm, 2012-19F)

Dubai, UAE Abu Dhabi, UAE

Completed Future Supply Completed Future Supply

2012 2013 2014E 2015F 2016F 2017F

Completed Future Supply Completed Future Supply Office Space

GCC Office Vacancy

Exhibit 7: GCC Office Vacancy Rates (2012-17)

GCC Office Rentals

Exhibit 8: GCC Office Rentals (USD per sqm PA, 2012-2017)

Riyadh, Saudi Arabia Jeddah, Saudi Arabia 30 Oman

Source: Jones Lang LaSalle(JLL), Cluttons, Al Masah Capital Research

Residential Real Estate Market

Exhibit 10: GCC Residential Supply (2012-2019F)

Completed Future Supply Completed Future Supply

Source: Jones Lang LaSalle(JLL), Al Masah Capital Research

Exhibit 11: GCC Residential Rentals (USD ‘000 PA, 2012-17)

Apartment (2 BR) Villa (4 BR) Apartment (3 BR) Villa (4 BR)

Source: Asteco Property Management, Al Masah Capital Research

UAE Apartment Market

1,000 400 1,000

1,400 JLT 1,200 Jumeirah Village 2,500 Palm Jumeirah

Source: Asteco Property Management, Al Masah Capital Research

400 600 600

Source: Asteco Property Management, Al Masah Capital Research

UAE Villas Market

Source: Asteco Property Management, Al Masah Capital Research

1,400 Raha Gardens 1,200 Golf Gardens 1,000 Al Reef Villas

Source: Asteco Property Management, Al Masah Capital Research

Retail Real Estate Market

Exhibit 16: GCC Retail Supply ('000 sqm, 2012-17)

5,000 Dubai, UAE 4,000 Abu Dhabi, UAE

Source: Jones Lang LaSalle(JLL), DTZ Research, Al Masah Capital Research

Exhibit 17: GCC Retail Vacancy Rates (2012-17)

1,500 Dubai, UAE 1,000 Abu Dhabi, UAE

Source: Jones Lang LaSalle(JLL), DTZ Research, Al Masah Capital Research

Hotel Supply Market

Exhibit 19: GCC Hotel Supply (No. of Keys, 2012-17)

120,000 Dubai, UAE 9,200 Abu Dhabi, UAE

Completed Future Supply Completed Future Supply

Completed Future Supply Completed Future Supply Completed Future Supply

Source: Jones Lang LaSalle(JLL), DTZ Research, Al Masah Capital Research

Hotel Room Rents

Exhibit 20: GCC Hotel Rentals (USD per day, 2012-17)

300 Dubai, UAE 300 Abu Dhabi, UAE

300 Riyadh, Saudi Arabia 300 Jeddah, Saudi Arabia

Source: Jones Lang LaSalle(JLL), AlMasah Capital Research

Hotel Occupancy Rate

Exhibit 21: GCC Hotel Occupancy Rates (2012-17)