REAL ESTATE MARKET OVERVIEW - Colliers International · development, villas, traditional houses and...

Accelerating success.

Erbil, Kurdistan Region, Iraq – A City in Transformation

REAL ESTATE MARKET OVERVIEW

Q2 – 2013

2 | COLLIERS INTERNATIONAL | WWW.COLLIERS.COM

For further information please contact:

Ian Albert

Regional Director

Valuation & Advisory Services

[email protected]

Mansoor Ahmed

Director | Development Solutions

Healthcare | Education | PPP

[email protected]

Mobile: +971 55 899 6091

Sadallah Abed

Manager | Development Solutions

[email protected]

Mobile: +971 55 899 6106

P O Box 94348 | Abu Dhabi | UAE

P.O. Box 71591 | Dubai | UAE

Main +971 4 453 7400

Fax +971 4 453 7401

Riyadh | Jeddah | Cairo

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


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


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.



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


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.


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)


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.


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.


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


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


Traditional Shopping Space


482 offices in

62 countries on

6 continents

United States: 140

Canada: 42

Latin America: 20

Asia Pacific: 195

EMEA: 85

• $2.0 billion in annual revenue

• 1.12 billion square feet under

management

• 13,500 employees

SERVICES OFFERED BY COLLIERS

INTERNATIONAL

• Strategic & Business Planning

• Economic Impact Studies

• Market & Competitive Studies

• Highest & Best Use (HBU) Studies

• Market & Financial Feasibility Studies

• Financial Modelling

• Mergers & Acquisitions Assistance

• Buy side Advisory/Sell side Advisory

• ‘Sale and Leaseback’ Advisory

• Public Private Partnership (PPP) &

Privatisation

• Operator Search & Selection and

Contract Negotiation

• Land, Property and Business Valuation

• Asset & Performance Management

• Site Selection & Land / Property

Acquisition

• Performance Management and

Industry Benchmark Surveys

COLLIERS INTERNATIONAL

Colliers International is a leading global real estate services organisation defined by our spirit of

enterprise. Our 13,500 professionals in 482 offices worldwide are dedicated to creating strategic

partnerships with our clients, providing customised services that transform real estate into a

competitive advantage.

COLLIERS INTERNATIONAL - MIDDLE EAST

Colliers International has been providing leading advisory services in the Middle East and North

Africa region since 1996 and in Saudi Arabia since 2004. Regarded as the largest and most

experienced firm in the region, Colliers International’s expertise covers Hospitality, Residential,

Commercial, Retail, Healthcare, Education and PPP sectors together with master planning

solutions, serviced from the five regional offices: Abu Dhabi, Dubai, Riyadh, Jeddah and Cairo.

Colliers’ Research Services Group is recognised as a knowledge leader in the industry, providing

clients with valuable market intelligence to support business decisions. Colliers’ research analysts

provide multi-level support across all property and business types, ranging from data collection to

comprehensive market and competition analysis.

OUR SPECIALISATIONS

The information contained in this document (the “Report”) has been obtained from sources deemed reliable. While every reasonable effort

has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged

to consult their professional advisors prior to acting on any of the material contained in this report.

Colliers International makes no warranty, representation or undertaking whether expressed or implied, nor does it assume any legal liability,

whether direct or indirect, or responsibility for the accuracy, completeness, or usefulness of any information that contain in the Report. It is

not the intention of the Report to be used or deemed as recommendation, option or advice for any action (s) that may take place in future.

Unless otherwise stated, all information contained in this Report shall not be reproduced, in whole or in part, without the specific written

permission of Colliers International.

REAL ESTATE MARKET OVERVIEW | 2013 | ERBIL, KURDISTAN REGION | ABOUT COLLIERS INTERNATIONAL

Airport Cities & City

Centres

Waterfront

Developments & Ports

Sports &

Entertainment

Healthcare & Life

Sciences

Education & Human

Capital

Infrastructure & Public

Private Partnership

Leisure, Tourism &

Cultural Development

Mixed Use

Developments Hospitality


www.colliers.com Accelerating success.

REAL ESTATE MARKET OVERVIEW - Colliers International · development, villas, traditional houses and...

Documents

Transcript of REAL ESTATE MARKET OVERVIEW - Colliers International · development, villas, traditional houses and...