While there are substantial volumes of supply in the commercial and residential investment sectors, an undersupply of private residential (freehold) housing is a key challenge to the Kuwait real estate market, a report said.

DTZ, one of the top global real estate advisory firms, has released its market report on Kuwait for the first quarter of 2010, which covers the commercial office, retail and residential sector and comments on the effect of the economic crisis on Kuwait real estate market.

The office market

“In the office sector, demand has been significantly curtailed by the ongoing global economic crisis but also the ongoing disputes between parliament and the government which is restricting Kuwait’s ability to diversify and expand its economy beyond the oil and gas sector,” said Martin Cooper, head of consulting and research for the Middle East.

In Kuwait City, rental levels have fallen by as much as 50 per cent from peak headline rents in 2007, the report said.

With many companies failing or consolidating their operations, demand has flattened whilst office supply has continued to come to the market.

This has had a noticeable impact on rents, especially for new build properties, and tenants are putting pressure on landlords to review rents in the context of the current market conditions.

The DTZ report said there will be a continued pressure on office rents although landlords will seek to stabilise this by offering other forms of incentives to new and existing tenants.

Currently, DTZ estimates there is 184,000 sq m of new office space within 28 buildings in Kuwait City which is either complete or available to rent or is expected to complete in the next three months and is currently in the leasing/marketing phase.

There are also a significant number of projects currently under construction and due for completion between 2010 and 2013.

DTZ estimates a further 28 such projects in Kuwait CBD which will add a further 439,000 sq m of new floor space to rent, in addition to about nine other schemes at an advanced design stage.

The residential market

In the Kuwaiti freehold (private residential) market, there has been recent recovery in land prices after falls of between 25-35 per cent from peak levels in 2008, the report said.

There has also been significant growth in land rates in new areas where the Kuwait Government has granted construction permits.

The DTZ report said that the significant housing shortage for the Kuwaiti population will remain until Laws 8 & 9 are further reviewed to extend the amount of land being available to the private sector and extending their involvement in meeting the housing requirements of the Kuwaiti population.

The rental sector (investment properties) is dominated by expatriates and is typically characterised by apartments.

Villas are also available to rent but these are generally directly from a Kuwaiti individual rather than a real estate company and represent a small proportion of the total rental sector. The investment sector relies heavily on the expatriate population for demand, given that non Kuwaiti’s cannot own a freehold.

The DTZ report said that the increasing supply and impact of the economic crisis, which has seen the number of expatriates falling, will continue to have a negative impact on the sector.

The retail market

According to DTZ’s report, Kuwait has more than 50 covered malls of varying age, scale, quality and tenant mix with leasable floorspace of approximately 675,000 sq m. These malls are also seeing new retail development.

The ongoing economic situation has had a direct impact on retail sales and retail operators are now being more selective on the locations they chose, the report added.

Smaller malls will continue to see rental pressure, with rental growth likely to be limited to established and proven locations, the DTZ report said. – TradeArabia News Service