2019 Kuwait Property Market Report and Review of 2018

2019 KUWAIT P R O P ERTY MA R K ET R EP ORT AND REVIEW OF 2018

2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

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2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

FOREWORD Kuwait’s economy is still largely driven by its oil sector. In 2018, it accounted for approximately 55% of the country’s total Gross Domestic Product (GDP). Some efforts have been made to diversify – especially in light of the 2017 market slump that was a consequence of the OPEC deal to cut oil production – and this has been largely positive, with the nonoil sector growing at a compound annual growth rate (CAGR) of 4% from 2010 to 2018. Various segments of this non-oil sector, including the property market, have been affected by regional dynamics, global trade, government spending on infrastructure projects and, of course, oil prices. In our first analytical overview of the Kuwaiti property market, we explore how the residential, retail, office, industrial and hospitality sectors fared in 2018, until Q1 2019.

Kuwait’s residential property market, divided into residential (villas) and investment (apartment) asset types, saw strong transaction values and volumes in 2018, compared to 2017. Given that freehold is unavailable for expatriate buyers, the increase in sales is a positive sign for the local market. However, a large number of upcoming apartments are expected to add to the supply, putting downward pressure on rents. Monthly rents started at an average of KWD 200 for studios, climbing to KWD 1,200 for 3-bedroom units. Meanwhile, the retail sector in Kuwait has been largely successful, unburdened by a dependence on tourists. The number of high-end brands entering the market to cater to the high purchasing power of Kuwaitis has also increased, boosting retail growth and paving the way for new malls and retail hubs in the country.

For offices, the oversupply of space and lower demand – a consequence of challenging market conditions in the region – continued to impact the sector. New government measures introduced by Kuwait’s Ministry of Commerce and Industry, such as the launch of an electronic system for the issuance of commercial licences, are expected to encourage increased business activity. Meanwhile, Kuwait’s ambitious plans of developing five new island destinations – Bubiyan, Warba, Failaka, Maskan and Aouha – as part of the New Kuwait Vision 2035 plan, are expected to boost hospitality and tourism numbers in the long term.

CONTENTS 04

Macroeconomic Overview

06

New Kuwait Infrastructure Projects

08

Residential Market Overview

10

Upcoming Supply

11

Retail Market Overview

12

Office and Industrial Market Overview

13

Hospitality Market Overview

14

A Word From our Chief Economist

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KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

MACROECONOMIC OVERVIEW

Accounting for almost 10% of the world’s oil reserves, Kuwait’s GDP is largely dependent on this sector, with petroleum generating nearly 95% of all export revenues and government income. As of 2018, 55% of Kuwait’s total GDP came from oil, and from 2010 to 2018, the sector registered a CAGR of 1%. However, in this same period, the non-oil sector grew by 4% CAGR. The GDP per capita in 2017 was KWD 8,712. Kuwait continued to encourage Foreign Direct Investment (FDI) with the implementation of new laws and regulations. The share of FDI in 2017 represented roughly 41% of total foreign investments into Kuwait.

Ease of doing business, human capital, innovation, resilience and agility has steadily improved in Kuwait, according to the World Economic Forum’s research. The country is currently ranked 54 out of 140 nations in the Global Competitiveness Report. A raft of public infrastructure projects, part of the New Kuwait Vision 2035 plan, has been proposed, with many under construction and set to complete over the coming years. This includes the 48.53 km Sheikh Jaber Causeway, designed to link Kuwait City with Subiyah New Town; the KWD 908.4 million Kuwait Metro, with a link to Nuwaiseb on the Saudi Arabian border and a 153 km-long line linking Kuwait City with Boubyan Port; the Al-Zour Refinery, expected to commence operations in 2020; a new terminal at Kuwait International Airport, expected to be completed by 2022; and other major roadworks projects.

10%

45 40 35 30 25 20 15 10 5

2010

2011

7%

1%

1%

1%

4%

-3%

-0%

2012

2013

2014

2015

2016

2017

2018*

Kuwait GDP

12% 10% 8% 6% 4% 2% 0% -2% -4%

Growth Rate

*Projected from 2017 data. Source: 2010 - 2017 World Bank, 2018 data from Kuwait Central Statistical Bureau

GDP CONTRIBUTION BY SECTOR IN 2018

27%

Extraction of crude petroleum and natural gas and service activities incidental to oil and gas

9%

Others Education Public administration and defense

7% 4% 3% 1% 1%

Financial intermediation Hotel and restaturant 48%

Construction Source: Central Statistical Bureau

4

Wholesale and retail trade

Growth rate %

KWD billions

TOTAL GDP IN 2010-2018 (KWD BILLIONS)

2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

GDP PER CAPITA IN 2017

FDI IN KUWAIT IN 2013-2017 3,200

14,000

KWD millions

10,000 8,000 6,000

3,000 2,800 2,600

4,000 2,000

12,210

8,712

7,122

6,255

4,580

UAE

Kuwait

Bahrain

KSA

Oman

2,400

3,018

2,948

2,716

3,073

3,105

2013

2014

2015

2016

2017

Source: World Bank Data

Source: Central Statistical Bureau

POPULATION OVERVIEW

According to the Central Statistical Bureau of Kuwait, the total population was 4.6 million at the end of December 2018, an increase of 5% since 2011. Of this, 70% (roughly 3.2 million) were expatriates, while the remaining 30% were Kuwaiti nationals.

Between 2011 and 2018 the country’s male population grew by a CAGR of 6.8%, while the female population grew by a CAGR of 2.8%.

POPULATION GROWTH IN 2011-2018 3.0 Population millions

KWD

12,000

2.5 2.0 1.5 1.0 0.5

1.3 1.8

1.4 1.9

1.5 2.0

2011

2012

2013

1.5 2.1 2014 Female

1.6 2.3

1.6 2.4

1.6 2.5

1.6 2.9

2015

2016

2017

2018

Male

Source: Central Statistical Bureau

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2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

NEW KUWAIT INFRASTRUCTURE PROJECTS The New Kuwait Vision 2035 plan is a unified strategy to transform Kuwait into a financial, cultural and institutional leader in the region.

The plan encompasses sweeping changes to affect the goals listed in the vision, and also accommodates provisions for new infrastructure projects across the country. While many projects are already underway, with estimated completion times over the next few years, others are multi-phase developments expected to be completed by 2035.

CLEAN FUELS PROJECT Expansion and upgrade of Mina Abdullah and Mina Al-Ahmadi refineries into an integrated refining complex with a capacity of 800,000 barrels/day.

SHEIKH JABER AL-AHMAD CULTURAL CENTRE

JABER AL AHMAD AL JABER AL SABAH HOSPITAL

Also called the Kuwait Opera House, the centre is a multi-disciplinary public space for music, theatre, film and literary events.

New hospital regarded as the largest in the GCC, with 1,168 beds, 36 operation rooms, a medical centre, helipads and a parking lot for 5,000 vehicles.

AL-ZOUR REFINERY Among the largest refineries in the world when complete, it will produce 615,000 barrels/day, supplying low-sulphur fuel.

SOUTH AL-MUTLAA CITY PROJECT New project to house 400,000 residents, with 116 schools and 12 public health centres.

2016

Completed

6

2017

Under Construction

2018

2019

2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

SABAH AL SALEM UNIVERSITY CITY New university city project covering 6 million sq m, including student hostels, health sciences centre and the main campus with supporting facilities and services.

JABER CAUSEWAY

AIRPORT EXPANSION

Major roadwork project connecting new island projects to mainland Kuwait.

New terminal at Kuwait International Airport.

2020

2021

2022

MUNICIPAL SOLID WASTE TREATMENT The Kabd site will utilise the latest technology to convert municipal solid waste into energy to protect the environment and land resources.

2031

Source: New Kuwait

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KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

RESIDENTIAL MARKET OVERVIEW

Kuwait’s residential property market is divided into residential (villas) and investment (apartments) types. With a lack of freehold options available for expat investors and buyers, all properties are rented by expats in Kuwait. There are no zonal or community-based restrictions on where expats can live. The top areas to live in Kuwait in 2018 were Kuwait City, Salmiya, Salwa, Jabriya, Fintas and Mahboula.

Sales, particularly in the investment category, have been strong since the downturn in 2017. Rising prices and an increase in the volume of transactions indicated positive performance in 2018. More stable rents also contributed to the rise in sale prices for both apartments and villas.

APARTMENTS

APARTMENTS

KWD 200-1,200

KWD 230-750 VILLAS

VILLAS

KWD 700-2,500

KWD 700-2,000 APARTMENTS KWD 200-850 VILLAS KWD 600-2,250

APARTMENTS KWD 300-750

Salmiya

Kuwait City

VILLAS KWD 850-2,500

Jabriya Salwa

MONTHLY RENT BY BEDROOM LEVEL * Data as of March 2019 (Active listings) VILLAS 2 BR - 4 BR

3 BR - 4 BR

APARTMENTS Studio - 3 BR

8

1 BR - 3 BR

3 BR - 5 BR

2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

AVERAGE QUARTERLY TRANSACTION SALES, VALUES AND VOLUMES IN 2015-2018

SALES (KWD MILLIONS) 2018

2017

2016

2015 0

50

100

150

200

250

300

350

400

600

700

800

TRANSACTION VALUES (KWD THOUSANDS) 2018

2017

2016

2015 0

100

200

300

400

500

900

NUMBER OF TRANSACTIONS 2018

2017 APARTMENTS KWD 200-900 VILLAS

2016

KWD 750-2,500

2015 0

Fintas and Mahboula

100 200 200

Residental

300400 400

500 600 600

700 800

800 1000 900

100012001200

Investment

Source: NBK / Cavendish Maxwell

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KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

UPCOMING SUPPLY Several projects are scheduled for completion in Kuwait in line with the New Kuwait Vision 2035 plan. This includes major mixed-use developments including Tamdeen Square in Sabah Al Salem, and Al Andalous Complex in Hawalli.

Commercial and residential projects include the proposed Al Basma Tower in Kuwait City, and Al Warba Island Residential Tower on Al Warba Island.

Kuwait also plans to build several master plan communities, including Silk City, which will be connected to the mainland by the under-construction Sheikh Jaber Causeway and eventually host an estimated 700,000 people in residences, offices, hotels and entertainment facilities. Plans are also underway to transform Failaka Island in the south into a premier leisure and tourist destination, taking advantage of its importance as a heritage and archaeological site. Meanwhile, the proposed Bubiyan Island Development will be home to a new seaport in the north and resort complexes along its southern beaches.

With an aim to create new living spaces for workers, Kuwait is developing the Southwest Al Jahra Labour City project, which will eventually house 20,000 workers and provide community, municipal and utility services.

Warba Island Residential Tower

Bubiyan Island Development Silk City Failaka island Development

Al Basman Tower Al Andalous Complex Southwest Al Jahra Labour City

Tamdeen Aquare

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KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

Souk Sharq Assima Mall

Al Andalous Complex

Marina Mall

The Avenues Mall

360 Mall Existing malls

Lulu Hypermarket

Al Kout Mall

Upcoming malls

RETAIL

MARKET OVERVIEW Kuwait’s retail market is widely viewed as the most robust and successful in the region, after Dubai, UAE. The Avenues Mall in Kuwait City is currently the largest mall in the region, after The Dubai Mall, and there are over 50 malls of varying scale, quality and tenant mix in the country.

Older malls such as Marina Mall and Souq Sharq continue to perform well, even with new retail hubs, including Avenues in Al Rai and Fahaheelin the south of Kuwait City, adding to the competition. The newly expanded 360 Mall, with a tennis complex, is also expected to open its doors later this year, adding an estimated 30% increase in footfall and bringing total visitor numbers to over 18 million.

Approximately 799,000 sq m of leasable floor space was available as of 2017, and there has been a rise in the number of high-end brands entering the Kuwaiti retail space as a result of citizens’ high spending power.

Unburdened by a reliance on tourism, Kuwait’s retail sector has remained largely insulated from the retail downturns seen in other parts of the GCC.

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2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

OFFICE AND INDUSTRIAL MARKET OVERVIEW

Unlike the residential and retail markets, Kuwait’s office market performance has been less than robust. In the aftermath of the second Gulf War, planning permissions for over 1 million sq m were approved, which eventually led to the issue of oversupply starting to impact the office market in 2010. A large amount of office space was then delivered in 2011 and, coupled with limited demand due to the overall downturn in the region, the office market continues to struggle.

The government has taken measures to encourage business activity, such as the launch of an electronic system for the issuance of commercial licences by the Ministry of Commerce and Industry.

Sharq, downtown Kuwait City and Salimiya are the new office areas, with new projects either completed, available for rent, or expected to be completed in the short to medium term.

The only free trade zone in Kuwait, Shuwaikh, was also shut down in 2019 after a decision by the Council of Ministers to cancel the programme.

AVERAGE QUARTERLY TRANSACTION SALES, VOLUMES AND VALUES 2015-2018 SALES (KD MILLIONS)

NUMBER OF TRANSACTIONS

2018

2018

2017

2017

2016

2016

2015

2015 0

20

40

60

80

100

120

140

160

5

2018

AREA

2017 2016 2015 1,000

2,000

Commercial

3,000

4,000

5,000

6,000

10

15

20

25

30

35

COMMERCIAL RENTS FOR OFFICES IN POPULAR LOCATIONS

TRANSACTIONS VALUE (KD THOUSANDS)

12

0

7,000

MONTHLY RENT (KWD) SIZE (SQ M)

Kuwait City

225-2,200

16-400

Salmiya

300-1,400

25-300

Hawally

250-2,200

25-300

Source: NBK / Cavendish Maxwell

2019

KUWAIT PROPERTY MARKET REPORT AND REVIEW OF 2018

HOSPITALITY MARKET OVERVIEW

As part of the New Kuwait Vision 2035 plan, the government is set to embark on the creation of five island destinations – Bubiyan, Warba, Failaka, Maskan and Aouha – along with the previously mentioned Silk City project. The total land area for these projects will span 973 sq km, of which Bubiyan Island will cover 863 sq km. Warba Island is the next largest project, covering an area of 37 sq km.

The proposed tourism and leisure destination of the historic Failaka Island will span 12 sq km, while the smaller islands of Maskan and Aouha will cover 750,000 sq m and 350,000 sq m respectively.

Kuwait currently has more than 70 hotels and this number will grow as more projects, such as the new aforementioned developments are realised. According to Tri Consulting’s HotStats data, Kuwait’s hotels recorded a 1.7% decrease in occupancy rates, from 54.5% in 2017 to 52.8% in 2018. The revenue per available room (RevPAR) also declined from approximately KWD 38 in 2017 to KWD 35 in 2018.

Aqua Park

JW Marriott Hotel Kuwait City Entertainment City

Condrad Hotel

Novotel Sharq

Ice Skating Rink

Swiss-belboutique Bneid Al Gar Four Seasons Hotel Kuwait Radisson Collection Hotel Sheraton Kuwait

The Scientific Center Holiday Inn Kuwait Grand Hotel

Kuwait Zoogical Garden

Grand Hyatt

Jumeirah Messilah Beach Hotel & Spa Kuwait

Existing Hotels Upcoming Hotels

Hilton Garden Inn

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A WORD FROM OUR

CHIEF ECONOMIST The continuing relative strength of the Kuwait residential market demonstrates that the hallmark of the market is relative stability. The evidence for stability is considerable. First, population growth at around 2% annually is relatively steady, driven not only now by migration but also increasing life expectancy. Growth in airport traffic was 8% in 2018, following 17% growth the previous year. Second, Kuwait’s robust politics themselves are an indicator of political stability.

So too the US State Department advises that ‘There is minimal risk from crime in Kuwait City’[1]. These are not negligible factors encouraging real estate market stability. Third, policy has been aimed at the same objective: policymakers have consistently emphasised the importance of restrictions on speculative development and accompanying hot capital. The decision to begin the transition to a taxation-based economy, too, was a widely-admired fiscally conservative decision which will protect government revenues in the long-term.

At times like these, the attractiveness of these conservative policies is quite evident. From an investment horizon standpoint, mainly over the next decade, oil dependence is manageable, given steady diversification in the economy and the general trajectory for oil prices in the short to medium term. This is especially the case in respect of healthcare where Kuwait has a comparative advantage, where dozens of projects are under development, both in the public and private sector.

A steady growth in tourism can also reasonably be expected. Even more remarkable, stability in the Kuwaiti residential real estate market has been achieved without the introduction of a comprehensive freehold law, although the decision of 2015 to allow strictly controlled expatriate ownership of apartments will undoubtedly have helped to put a floor under local demand. Stress on the local office market reflects more strategic considerations of office use as well as the building output of recent years, whilst the continued relative buoyancy of the retail sector reflects more on constrained supply than any expectation that Kuwait will be immune to the e-commerce trend of the region. The only question mark must be over the rapidity of the development of Silk City, where the first phase alone is scheduled to cost US$ 86bn. All the evidence of recent years suggests that caution and phasing should be the hallmark of any development dependent on the scale that has been planned.

Kuwait is not a market for speculators, and never has been, but its fundamentals seem unlikely to be threatened by downturns elsewhere in the region and its claim to represent a ‘safe harbour’ for regional real estate investment now looks stronger than ever. Only a precipitate and prolonged collapse in oil prices, or too rapid a speculative development of Silk City, could derail this assessment over the next few years.

JULIAN ROCHE CHIEF ECONOMIST

[1] https://www.osac.gov/Pages/ContentReportDetails.aspx?cid=25754 Kuwait 2019 Crime & Safety Report - osac.gov www.osac.gov The current U.S. Department of State Travel Advisory at the date of this report’s publication assesses Kuwait at Level 1, indicating travelers should exercise normal precautions.. Overall Crime and Safety Situation. The U.S. Embassy in Kuwait City does not assume responsibility for the professional ability or integrity of the persons or firms appearing in this report.

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STRATEGIC CONSULTING AND RESEARCH Cavendish Maxwell’s strategic consulting and research team has some of the region’s most highly qualified data analysts with a wealth of international real estate advisory experience. We work closely with a broad portfolio of banks, property developers, government entities and private clients, providing authoritative, industry-specific research and advice to maximise portfolio performance.

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Our strategic consulting and research expertise spans a variety of sectors including residential, office, hospitality, education and mixed-use developments, and our team draws on reliable proprietary data to allow for thorough and accurate analysis of trends and market fluctuations.

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Disclaimer: The information and analysis contained in this report is based on information from a variety of sources generally regarded to be reliable, and assumptions which are considered reasonable, and which was current at the time of undertaking market research, but no representation is made as to their accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices at any time, for regulatory or other reasons.

The report and analysis do not purport to represent a formal valuation of any property interest and must not be construed as such. Such analyses, including forward-looking statements are opinions and estimates only, and are based on a wide range of variables which may not be capable of being determined with accuracy. Variation in any one of these indicators can have a material impact on the analysis and we draw your attention to this. Cavendish Maxwell and Property Monitor do not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this report.

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