“Let me just put this out there, we all know it – but COVID-19 has had a significant impact on not just the economy, but our most of our livelihoods,” said Pierfrancesco Rocca, Associate Partner at McKinsey & Company, MENA, speaking at Cityscape's Real Estate Summit 2020.
Indeed, with an estimated 400 million full-time jobs lost in Q3 2020 – a global GDP loss of -4% during the same period – and 67% of employers surveyed by McKinsey & Company maintaining that a WFH (work from home) policy will continue for the foreseeable future, it is easy to see the astronomical impact the 2020 pandemic has had, and will likely continue to have, at least in the short term, on commercial and industrial real estate market.
As a result, Rocca said, some business leaders have become “increasingly conservative about the ability of the economy to rebound... there is agreement that it will go back up, but there is uncertainty about what this path will look like.”
This is not something limited to commercial and industrial projects either, with private real estate transactions and evaluations also being affected. In Dubai, Q2 and Q3 saw a 33% decline in apartment prices, and a 32% decline in the number of transactions for both apartments and villas. Meanwhile, Riyadh was equally hit with -47% transactions for villas, while the prices for apartments saw a smaller decrease, with just -1% in value. Interestingly, however, perhaps in a nod to optimism about the future of the market, the same period saw an upturn in the price for private real estate transactions for villas and townhouses in both cities, with an increase of 25% in Dubai, and a more modest +3% in Riyadh.
STABILISATION OF THE REAL ESTATE MARKET
According to Rocca, this optimism is not misplaced. Due to the finite nature of the 2020 pandemic, he says investors should remember that “most fundamentals of real estate investment are expected to stabilise in the mid-to long-term,” he told attendees. “You look at China, and it is very interesting to see how both the commercial and residential markets over there took just a few months post-crisis to reach the same levels of transactions as before COVID-19.”
Indeed, there is no reason why the GCC real estate market should not experience the same rebound in the mid-to long-term.
“There are currently about one to one and a half trillion dollars of funds that institutional investors have and are ready to deploy,” Rocca concluded. “They just want to know where to put them and are waiting to figure out what happens.”