As political and social unrest swept across the Middle East in recent weeks, the world watched in stunned amazement as once unshakeable dictators, autocrats and royal families were challenged - or usurped altogether - in widespread protests from Bahrain to Libya.
Many market watchers immediately turned their attention to a pressing issue: the spiking price of oil.
Few discussed another problem, namely how the turmoil would affect the highly sensitive commercial property sector. Landlords watched nervously as business tenants stayed home from work, retail outlets closed, hotels shuttered their doors and factories ceased production.
To make matters worse, most of the region has been embroiled in a sharp correction over the past 18 months, as the recession took its toll, hammering rental rates and property values by as much as 40 per cent in Dubai and Bahrain.
Widespread unrest certainly hasn't helped, says Ian Gladwin, Dubai-based chief executive of Middle East affairs for commercial property consultancy Cluttons LLP. And it's too early to tell how the strife will affect commercial property markets in the medium term.
Or, for that matter, which opportunities will emerge as the dust settles. As life returns to normal, particularly in Egypt, Mr. Gladwin predicts a flurry of major development to satisfy demand for commercial office space, but investors will still need to see clear signs of stability before taking the plunge.
Here, experts offer predictions for commercial property markets in countries where, to varying degrees, instability and unrest have become the new norm:
Before revolutionary protests: According to international property consultancy Colliers International, rent in high-end retail malls in Cairo averaged $630 (U.S.) a square metre last year - a 12 per cent dip from the year before. Premium offices rented for $260 a square metre with just a 1 per cent vacancy rate due to a drastic undersupply of space. Egypt's supply-starved market was dented far less by the global economic downturn compared with other parts of the Middle East, namely Dubai, Colliers notes. (By comparison, premium office rental rates in Toronto hovered around $262 a square metre, or $24.39 a square foot, in the fourth quarter of last year, with a 6.9 per cent vacancy rate, according to CB Richard Ellis.) "The demand for commercial accommodation has been growing and it's because Egypt set itself up as an outsourcing zone for other markets in the Gulf area," explains Nicholas Maclean, managing director, Middle East consultancy, for global real estate giant CB Richard Ellis.
The next two years: "Commercial demands will be halted until people know whether the unrest will be temporary and what government will replace the Mubarak regime," says Mr. Maclean. "Even if we go back to a similar regime as under the previous government, but the country is stable and growing, then I think that's okay for investors. We have a wait-and-see situation at the moment."
Before mid-February anti-government protests: A recent CB Richard Ellis report characterized the commercial property situation in Bahrain as a "tenant's market," as oversupply continued to put downward pressure on office, hotel and retail rental rates, which dropped by as much as 8 per cent in parts of the kingdom in the fourth quarter of 2010.
The future: The situation - never as serious as that of Egypt or Libya - has calmed and isn't having a significant effect on commercial property markets, says Dominique Bourdais, London-based director at Colliers International. Despite the ease in protests, Mr. Bourdais paints a bleak picture of investment opportunities. "Bahrain is oversupplied, so forget about it for now," he says. "It's also a very small market."
Before revolutionary protests: "Tunisia saw an advantage for creating a base for companies that wanted to trade in Algeria or Libya," explains Mr. Maclean. Tunisia was also seen as a strong opportunity for property developers and investors based on its growing tourism industry. At least in the short term, hotels will suffer as questions about stability and attractiveness for tourists loom.
The future: "Tunisia has an opportunity to put itself back in a strong position because it wasn't particularly impacted by the global downturn and looks to much of Western Europe for investment," says Mr. Maclean. "I think if stability comes back, the interest in investment will come back to Tunisia and it will be business as usual."
Before anti-government protests: According to CBRE data, average rents for prime office space in downtown Tripoli hovered at $365 (U.S.) a square metre last year, with vacancy rates low at 5 per cent due to an undersupply of premium inventory. Retail rental rates at Tripoli's top shopping malls topped out at $440 a square metre, with occupancy rates better than 90 per cent in many instances.
The future: What lies ahead for Libya is far less certain than for any of the countries mentioned here. As Mr. Bourdais explains, the relatively underdeveloped country boasts huge property opportunities, but a looming civil war makes any significant investment all but impossible in the short to medium term. "The residential market has reached the point where there's no revenue being generated, there's retail looting taking place and from the point of view of tourism, all the hotels have stopped taking bookings. Recovery is going to take a long time, and it's going to be untidy."
Special to The Globe and Mail