The environment, social and governance (ESG) strategies are creating new demand in the real estate sector of the Gulf Co-operation Council (GCC), especially in the office segment of the region, a new report by the Kuwait-based non-banking financial powerhouse, Kamco shows.
“We do expect an increasing number of occupiers to prefer sustainable built environments, as more companies start incorporating ESG strategies into their operations,” Kamco said in its latest report.
The office space operators would continue to optimize their portfolios between traditional and flexible spaces, while occupiers are expected to negotiate with operators and look for higher quality spaces. Technology, media and telecom (TMT) and healthcare sectors are likely to witness growth in their contribution towards new office space demand, due to the increasing significance of these sectors in a post-COVID-19 era, the report said.
The government support and funding are likely to allow small and medium enterprises (SMEs) and startups in the technology and fintech field to look at office space requirements that include ‘phygital’ experiences.
Highlighting that office space rents witnessed mixed trends across the GCC, but remain extremely sensitive to the incoming supply, the report said markets like Doha and Bahrain witnessed high single-digit percentage declines year-on-year in the first half of 2021 due to existing oversupply in the market.
In the industrial segment, growth in demand from themes such as eCommerce and 3PL logistics witnessed in 2020 should normalize, and focus should return towards more conventional sources of demand such as construction and industrial materials as well as white goods.
“Competition amongst spaces could intensify, and will potentially lead to downward pressure on rents, as landlords look to preserve market share. Separately, the transformation of retail mall spaces deriving a higher footprint from entertainment and F&B (food and beverage) tenants is expected to continue in 2021,” the report said.
Leasing is likely to turn into a two-tiered market, as secondary and lower quality assets that are not refurbished adequately would face significant challenges in keeping occupancy rates and rents stable, Kamco said.
The retail rents in the GCC continued between 4 percent -12 percent year on year across various markets at the end of H1-2021 and Kamco said the trend sustained despite achieving higher COVID-19 vaccination rates, leading to a recovery in the fundamental drivers.
The retailers persisted with negotiations over restructuring tenancy deals, bargaining for additional rent-free periods, the report said, adding the ongoing theme of changing consumer spending habits, combined with retailers driving expansion plans via omnichannel strategies remained.
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