REAL ESTATE MARKET OVERVIEW - Colliers International · development, villas, traditional houses and...
Transcript of REAL ESTATE MARKET OVERVIEW - Colliers International · development, villas, traditional houses and...
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Erbil, Kurdistan Region, Iraq – A City in Transformation
REAL ESTATE MARKET OVERVIEW
Q2 – 2013
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Erbil is the fourth largest city in Iraq after Baghdad, Basra and Mosul. It is located 80
kilometers (50 miles) east of Mosul, and is the capital of Iraqi Kurdistan. Erbil is
considered as one of the oldest continuously inhabited cities in the world with recorded
urban life dating back to 6000 BC.
Erbil is the economic capital of the Kurdistan region and maintains a significant role in
greater Iraq, attracting a large number of people seeking to take advantage of the
economic growth and security of the city. With Kurdistan’s large hydrocarbon reserves
and safety, compared to the rest of the country, the economy is expected to sustain its
growth, further increasing demand for real estate and social infrastructure.
Kurdistan's population (the three provinces of: Erbil, Suleimaniya, and Duhok) was
around 4. 4, million in 2008, with Erbil having an estimated population of approximately
1.3 million. The Kurdistan region is currently witnessing an annual growth rate of 3%
with the population expected to increase to 5 million in 2013. The increasing population
together with the expected growth in the economy continues to increase demand for
real estate projects (residential, commercial, retail and hospitality) as well as social
infrastructure projects such as educational and healthcare facilities in the region.
Political risk, however, remains the main concern. The recent physical disputes with
Baghdad has increased concerns of the worsening relations between Erbil and the
central government. However this is currently balanced with the increase in violence
within non Kurdish Iraq and potential peace dividends from the recent rapprochement
between the PKK and the Turkish government.
Colliers International Erbil Real Estate Overview Q1 2013 provides a brief
snapshot of the key factors impacting the Erbil Real Estate sector and
the future outlook.
• Residential Sector: The residential real estate market in Erbil shows continued
growth potential. Market fundamentals remain strong supported by the slow growth
of supply. Government studies estimate that a total of 112,500 housing units are
needed during the next 5 years. Judging by the construction activities in the city it is
doubtful however that this volume of housing units will be delivered in time. This
estimate also accounts only for the growth of population and disregards demand
generated from buyers from other parts of Iraq which may result in further pressures
on supply.
• Commercial Sector: Colliers’ demand estimates suggest that current total demand
levels stand at 770,000m² of commercial space. Most of this demand is currently
accommodated in secondary substandard office space across the city. Comparing
this demand level to the current and the confirmed future supply indicates that the
market is largely undersupplied and is expected to remain so in the short to medium
term. It is expected therefore, that rental rates will continue to increase for new office
developments.
• Retail Sector: The retail sector in Erbil is currently also undersupplied, with
increasing demand stemming from a growing population together with increasing
income levels, indicating that the opportunity for developing a formal retail supply
remains strong in the foreseeable future. Moreover, the safety and security of Erbil
(relative to the other areas in the country) had attracted a large number of visitors
from the neighbouring cities capturing high footfalls and sustaining lucrative trading
volumes for retailers. However, the amount of new supply entering the market is a
source of concern. Most of the new developments have shopping malls and If they
are to be developed as planned the supply will increase significantly in a very short
period of time. The entrance of large space in a short period of time may exercise a
downward pressure on space take-up and consequently rental rates.
Introduction
REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | INTRODUCTION
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3,675
4,156
4,595 4,740
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
2012 2013 2014 2015
No
. o
f U
nit
s
Forthcoming Residential Supply
MARKET OVERVIEW
• The majority stock of the existing real estate supply in Erbil comprises of residential
development, villas, traditional houses and old and new apartments.
• As the population of the city is growing at a steady pace the housing demand is also
increasing. New supply, on the other hand is growing at a much slower rate than
demand, which in turn has resulted in increasing undersupply of the housing stock in
the market.
• Historically, most of the housing supply was concentrated between the Citadel (centre
of the city) and the 60m street as illustrated in the map to the left.
• Most of the supply between the Citadel and the 60m street consist of either old
traditional houses or poor quality low rise residential buildings.
• With the urban expansion of the city, the majority of new housing supply moved
beyond the 60m street towards the 100m street.
SUPPLY
• Current information on the level of current and future supply in Erbil city is generally
not available. Government agencies and ministries face difficulties in quantifying
existing or future supply. The Ministry of Planning of Kurdistan Regional Government
had quoted in its Regional Development Strategy for Kurdistan Region 2012-2016
that: “Comprehensive data on the size of the housing is not available, and relying on
old data of the demographics and housing statistics conducted several years ago
does not reflect the situation. Therefore, the size of housing is hoped to be carefully
identified in the census planned for this year”. The census, however, was never
conducted.
• While it is difficult to quantify the current supply levels, vacancy rates are somewhat
easier to estimate. Government sources and other stakeholders estimate that the
current vacancy rate in Erbil are in the range of only 1% to 2% of the total housing
stock, which is very high compared to any standard. Based on Colliers’ primary
market research we observed that the vacancy rates of 1% to 2% are generally due to
owners holding the property over (whether for sale or lease) to take advantage of
rising market conditions.
• Based on our field and primary market research individual housing units make up a
small percentage of the forthcoming residential supply. Most of the new supply will be
in the form of master-planned developments offering villas, townhouses and
apartments. Although the apartments concept was new to the city of Erbil, as evident
from the existing supply, it has been readily accepted by buyers and tenants.
DEMAND
• Historically, demand was directed towards individual traditional housing units as they
were the only form of supply in the market.
• With the emergence of master-planned gated communities demand patterns have
shifted towards these gated communities offering safe community living with
swimming pools, gymnasiums and other community services.
• Recently low-income and mid-income housing has successfully attracted buyers
although Government subsidies and support was a main factor behind the success of
such developments.
• Demand for higher quality residential products has also proven strong mainly
consisting of villa compounds and in a few cases apartments. This is evidenced by the
early and complete sale of projects such as: the Italian Village, the English Village and
Dream City.
Source: Colliers International
Source: BRF/Colliers International
REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | RESIDENTIAL MARKET
Residential
Erbil’s Residential
Market
Population Growth
Young population
and reducing household
size
Affordability of Erbil
Safety of Erbil
Economic Growth
Residential Demand Drivers
New Master Planned Residential Community
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DEMAND - CONTINUED
• Much of the demand is driven by the safety of Erbil compared to the rest of Iraq
coupled with a sizeable white collar expatriate workface working in oil and gas and
other sectors of the economy. The white collar expatriate workforce, and wealthy
Iraqis and Kurds, have a preference for compound master planned communities.
• The key success factors for development of such a master-planned community in Erbil
includes:
o Security: as security concerns remain high in Iraq, both the white collar expatriate
workface as well as high-net-worth Kurdish/Iraqis prefer gated villas and apartment
compounds offering essential amenities.
o Convenience Retail: majority of gated developments in Erbil have a provision of
convenience retail within the development, however, most of the retail space is
generally very small only catering to the resident population of the development.
o Social Infrastructure: another key success factor for gated communities is
availability of social infrastructure offering safe community living with pools,
gymnasium and other community services. In some large communities developers
have/are planning integrated schools and basic healthcare facilities.
PRICING
• Average sales prices within master-planned communities currently range between
US$ 330,000 and US$ 625,000 for villas, and between US$ 300,000 and US$
350,000 for apartments. On average, this equates to US$ 1,677 per m².
• Average market rent is US$ 143 per m² per annum. Whereas, further analysis of the
prevailing rents in the market indicate that quality apartments, such as the units in
Naps City, can command sales prices that equates to, or sometimes exceed the price
of villas. This is due to the high demand for good quality apartments, particularly
amongst the expatriate community in Erbil.
OUTLOOK
• The residential real estate market in Erbil holds strong growth potential. The
fundamentals of the market are strong compared to the supply which is growing at a
slow rate, which is further widening the current demand/supply gap in the market.
• Supply, on the other hand, is growing at a slow rate further widening the current
supply gap in the market
• Government studies estimate that a total of 112,500 housing units are needed during
the next 5 years. Judging by the construction activities in the city it is doubtful however
that this volume of housing units will be delivered in time.
• Beside the demographic factors, economic factors are also increasing demand for
housing in Erbil. With Erbil being the economic capital of the Kurdistan region and
perhaps Iraq, it is attracting a large number of people who are seeking to take
advantage of the economic growth of the Kurdish region.
• With Erbil’s large hydrocarbon reserves and safety compared to the rest of the
country, the economy is expected to sustain its growth path, which will further
increase demand for housing units in the city.
• There exists a gap to develop a residential product that caters to the needs of the
professional, expatriate and local white-collar employees in Erbil and the young small-
sized families.
• Political risk, however, remains the main concern,. The recent row with the central
government in Baghdad has increased the fears of conflict in the Kurdistan region.
Source: Colliers International
Source: Colliers International
REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | RESIDENTIAL MARKET
Residential - Continued
10.14%
8.27% 9.21%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Apartments Villas MarketAverage
Yields in Erbil
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MARKET OVERVIEW
• The commercial real estate market in Erbil, when compared to the residential real
estate market, is still underdeveloped. The market still lacks a defined Central
Business District (CBD) and commercial developments are scattered in the city.
• The existing formal office stock (aside from the residential villas that have been
converted into office space) can be categorised as class D office space in
international standards. However, there are a few class B office buildings under
construction.
• In part due to the lack of a defined CBD, a number of local and foreign companies
have opened their offices in converted villas in villa compounds such as: the English
Village, the Italian Village and the Vital Village. The main reasons for setting up the
offices in villa compounds include:
o Security: as security concerns remain high in Iraq, the single access point through
a secure gate and control over entry into individual villas.
o Power and Utility Services: another reason for choosing villas in these
communities as offices is uninterrupted supply of power and utility services in these
villas which guarantees uninterrupted business activities as most of these villa
compounds have their own power generators.
o Accommodating the Staff in the same Compound: with security of staff being a
key consideration a number of local and foreign companies prefer to have both
offices and residential facilities in the same compound.
SUPPLY
• There are only two commercial developments in Erbil, namely the Nishtiman Bazar
office space in Downtown Erbil and the Empire Business Park. Despite the location
advantages, the commercial space in the Nishtiman Bazar failed to attract
multinational companies and large local companies due to poor planning and
infrastructure, low-quality finishing, limited parking facilities and poor security and
safety provisions. Empire business park however, is part of a larger gated master-
planned community (Empire Village) and it can be considered as a primary office
space. The development, therefore, was entirely pre-let by multinationals operating in
Erbil.
• Due to the shortage of quality office space, most of the new master-planned
communities have announced plans to develop commercial space into their master-
plans. However, with the exception of one development (Empire Village), they have all
yet to start developing the office space.
• Most developers, when interviewed by Colliers International, indicated that the
commercial component is still under review and will be developed at a later stage,
suggesting developers’ lack of confidence regarding uptake of commercial space
combined with the relative ease of selling residential properties off-plan. As office
development has not been tested in the market before, the degree of risk involved in
developing office space remains unclear for most developers.
• The confirmed future supply, being small and limited in scale, is expected to have a
minimal effect on the market. Thus due to lack of availability of formal office space and
limited expected supply, the use of villas as offices is expected to remain high in the
near the future.
Source: Colliers International
REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | COMMERCIAL MARKET
Commercial
Existing Characteristics of Office Space in Erbil
The only confirmed supply entering the market
are the Erbil Business Center and the Erbil
Business Tower, both are part of Empire’s Royal
City
The Business Center has three building with a
total office space equals to 14,400 m².
One of the buildings will be occupied by the
developer while the rest have been leased at
US$60 per m² per month
Erbil Business Tower (Empire Tower)
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DEMAND
• Going forward demand is expected to grow as Erbil becomes the business Capital of
Kurdistan. The city is attracting corporates from all sectors of business to benefit from
the opportunities present in Kurdistan in particular and Iraq in general.
• The first formal office development, albeit small in scale, was completed recently
(Empire Business Park). The development was successfully pre-let entirely during the
construction phase, indicating strong demand for formal purpose built office space.
• Colliers’ estimates, suggest that current total demand for office space stands at
approximately 770,000m². This is based on a population of 85,392 white-collar
workers, and an assumption of 9m² of space per office worker. Most of this demand is
accommodated in secondary substandard office space across the city and residential
villas in gated residential developments.
• Colliers’ research indicates that many firms are likely to welcome the idea of relocating
to formal office buildings in gated master-planned communities.
• Increasing demand levels in an already undersupplied market suggests that Erbil’s
commercial sector is likely to remain undersupplied in the short to medium term.
• Forthcoming supply, limited in scale, is unlikely to put an end to the current trend of
converting residential units into office space.
• Despite the unavailability of recent official employment statistics (required to establish
demand), the fast absorption of office space in Erbil is a clear indicator of high
demand. Colliers’ market research concludes that the city’s commercial real estate
market is expected to witness high levels of demand in the short to medium term, and
the amount of confirmed forthcoming supply entering the market is unlikely to keep
pace with this demand.
PRICING
• Since there is no existing CBD in the city, most companies lease office space in
residential compounds. Rentals therefore, is the same as documented for residential
villas: i.e. between US$ 26,400 and US$ 48,000 for villas ranging from 140m² to
500m².
OUTLOOK
• Comparing the estimated total demand level (770,000m²) to the current and future
confirmed supply suggests that the market is largely undersupplied and is expected to
remain so in the short to medium term.
• Demand for office space in the city is expected to grow rapidly due to:
o Double digit growth figures of Erbil and the Kurdistan region;
o Increased government spending on infrastructure and housing projects;
o Erbils continuing importance in the Iraq business landscape.
• As the market is expected to remain undersupplied in the near future, the rental rates
are therefore expected to continue to increase.
Source: Colliers International Estimates
REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | COMMERCIAL MARKET
Commercial - Continued
Erbil Business Center
Demand for Office Space
Office Worker
Space per
Worker
Demand estimated
at
770,000 m²
The first real, albeit small in scale,
office development was completed
recently (Empire Business Park).
The development was successfully
pre-let entirely, which is an
indicator for strong demand for
office space.
Companies have chosen Erbil as
their Iraq headquarter due to:
• The safety and security of Erbil
compared to Baghdad and
other cities in Iraq;
• Better infrastructure;
• Having a modern International
Airport that connects Iraq to
other regional and international
cities.
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MARKET OVERVIEW
• Retail offering in Erbil, until very recently, comprised of mainly of street retail nodes,
located primarily between the Citadel (Centre of Town) and the 30m road .
• The latest addition to the street retail concept in the Nishtiman Bazar. The Bazar is a
redevelopment of an old retail node in the area.
• In recent years, however, the concept of shopping malls emerged in Erbil with the
opening of Majidi Mall and the Family Mall. These two malls represent the only form of
formal shopping malls in the city.
• While the street retail nodes have failed to attract international retailers, these two
malls were successful in attracting many international brands to the city for the first
time in Erbil.
SUPPLY
• The current supply of shopping malls (GLA) per capita in Erbil is 0.079m²/capita, well
below the target of 1.1m²/capita recommended by the International Council of
Shopping Malls.
• The large majority of developers have indicated that shopping malls will be part of
their master-planned communities. Colliers site visits, however, revealed that most of
these shopping malls have not materialised.
• There are several malls under construction in different parts of the city. All these malls
are small in size and, therefore, they will not be able to compete with the existing and
future supply of well-planned large size shopping malls.
• Colliers’ field research indicates that only one large shopping mall is under
construction with an expected GLA of 70,000m² and 250 key hotel. Due to the size of
the mall, it is expected to be the first truly destination mall in Erbil.
DEMAND
• Population growth in Erbil: The population is growing at a rate of almost 4% per
annum. This coupled with increasing income levels, in light of the city’s economic
growth and ample business opportunities is one of the key demand drivers for this
sector.
• The demographics of Erbil: the majority of the population is between the age of 15 –
64, out of which, the majority are under the age of 30, as shown in the table to the left.
For this age group, shopping is one of the main entertainment activities, especially
with the lack of other lifestyle or entertainment options in the city.
• The safety and security of Erbil: the safety and security of Erbil is attracting a large
number of visitors from other parts of the country for regional tourism.
CONCLUSION
• Judged by the current and future expected supply, the retail real estate market is
expected to remain undersupplied (in terms of GLA/capita) for a long period of time.
The scale of the new supply, however, is a source for concern. Most of the new
developments have shopping malls and If they are to be developed as planned the
supply will increase significantly in a very short period of time. The entrance of large
space in a short period of time may exercise a downward pressure on space take-up
and consequently rental rates.
Source: Colliers International
REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | RETAIL MARKET
Retail
Modern Shopping Space
Governorate
Age Group
Less than 14 15 - 64 65 and
older
Erbil 38.43 57.78 3.79
Duhok 42.67 54.05 3.28
Sulaymaniyah 33.41 61.72 4.87
Average 38.17 57.85 3.98
Kurdistan Demographics
Source: Colliers International
Area
Rent without
Key Money
(US$/Month/M)
Rent with Key Money
(US$/Month/M2)
Key Money
(US$) Rent
Opposite
Neshtiman Bazar 500 - 600 50,000 100
The Main Souq 5,000 – 6,000 120,000 300
Gold Souq 700 - 800 22,000 200
Retail Rental Rates and Key Money
Source: Colliers International
Traditional Shopping Space
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