DUBAI, United Arab Emirates - Wednesday, September 4th 2013
In keeping with the positive macro-economic outlook, GCC real estate markets have widely stabilized and partially recovered
While country- and segment-specific development opportunities exist across the GCC states, opportunistic development approaches will no longer work and making money will become tougher in the future
Competition among developers is heating up and client-developer relationships are becoming more professional while land supply remains limited
GCC real estate developers will be forced to determine how to leverage the status quo to ensure long-term success
Developers will also have to rethink their corporate and portfolio strategies in a holistic manner in order to cope with the changing market environment
While macro-economic conditions are improving in GCC countries, investors still remain cautious regarding new real estate projects. Development opportunities will have to be carefully selected, taking into account a developer's experience and capabilities. "Successfully dealing with increasingly demanding clients, reacting to stronger competitive pressure from skilled international players and getting access to land banks will determine the winners and losers," says Dr. Tobias Plate, Partner at Roland Berger Strategy Consultants.
Opportunities exist but making money is getting tougher
There are of course real estate development opportunities throughout the GCC countries. Nevertheless, a selective development approach based on thorough assessments will be crucial to avoid repeating the negative experiences of the past crisis where purely opportunistic development was paramount. "Overall, the competitive landscape is intensifying, forcing GCC real estate developers to rethink their strategic positioning," says Dr. Fabian Engels, Principal at Roland Berger Strategy Consultants Middle East.
Increasingly demanding clients are requiring more from developers, expecting that total completion time, cost and especially quality be on par with international standards. Taking the approach "if you can't beat 'em, join 'em", local companies are already partnering with international players – a clear sign that these international players are adding to the rising competitive pressure. Finally, land bank access is controlled by only a few institutions. As a result, GCC land prices are very high, accounting for up to 60% of total development costs, in turn putting pressure on proper development planning and execution in order not to jeopardize profits.
Opportunistic development approaches will no longer work Development decisions have to be made with due care. The years in which every investment turned into a success are clearly over and are not expected to return. The increasing pressure from international real estate developers and clients demanding state-of-the-art properties is further heightened by opening up the markets and making doing business easier for foreign investors and service providers. "Clearly, GCC real estate developers need to scrutinize their positioning and strategic leverage to be successful in the future," says Dr. Plate. Segments, geographic differences, clients, business model, asset intensity, equity and financing requirements, potential risk and possible outsourcing of functions are just a few topics that need to be addressed – all in light of potentially changing economic conditions.
Holistic corporate and portfolio strategies are required
Long-term success on the GCC real estate markets must be based on a set of interlinked success factors. "Unfortunately, project experience has taught us that existing strategies often do not cover all relevant aspects," reports Dr. Engels. Therefore, the company's overall strategic targets must be broken down into actionable objectives on the project portfolio and individual project levels. The organizational setup needs to mirror the targeted value chain coverage and thereby facilitate reaching the objectives. Finally, defining the right depth and breadth of the value chain and establishing an effective and transparent organization staffed with high-caliber employees will yield long-term success. "Altogether," summarizes Dr. Plate, "GCC real estate developers will definitely have to do their homework in order to be successful in the long run."
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Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 2,700 employees working in 51 offices in 36 countries worldwide, we have successful operations in all major international markets. The strategy consultancy is an independent partnership exclusively owned by about 250 Partners.
Contacts
Mia Mutic
Roland Berger Turkey, Middle East & Africa
+971 50 9105302
mia.mutic@rolandberger.com
www.rolandberger.com
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