Real estate 2021: From pandemic laggard to recovery leader

The GCC’s largest real estate players saw revenues and valuations drop by as much as 40 percent before re-stabilising to pre-pandemic levels. While some have been slow to respond, others have been swift in rethinking their business models and embracing new realities.

Master developers: Make the bold moves

After construction projects in 2020 plummeted to a third of their five-year average, leading developers recognised the urgent need to centralise cash, control expenses, and strengthen balance sheets. This paved the way for the consolidation of real estate giants like the coming of Meraas under Dubai Holding, rationalisation of supply and de-listings like in the UAE, and more calculated growth and leadership alignments in the KSA.

Regional leaders such as Aldar swiftly redirected their best-in-class capabilities into safe, fee-based businesses that generate long-term recurring income, with immediate rewards from their investor base. Others are re-aligning their businesses with the national agenda and the mega-project pipeline by partnering with public and semi-public entities driving growth, all while gradually building pioneering capabilities in next-generation construction technologies.

Aldar swiftly redirected their best-in-class capabilities into safe, fee-based businesses that generate long-term recurring income, with immediate rewards from their investor base

While opportunities still remain at home through value-driven asset management, the region’s master developers are increasingly positioning themselves for the next (door) growth wave. Opportunities are emerging in 2021, however, for savvy developers who pay attention to timing and demand.

Retail and lifestyle: Think outside the mall

For the region’s mall developers and operators, 2020 was one of the toughest years on record. How can a business based on social interaction and physical agglomeration survive, let alone emerge stronger after the pandemic?

It cannot, without a fundamental shift in mindset that transform malls from physical channels connecting consumers and brands to epicenters of the consumer ecosystem. Industry leaders are tapping several growth avenues and unlocking hidden value across the consumer ecosystem, from pioneering data and analytics platforms like UAE’s Majid Al Futtaim, to boosting their share of the consumer’s wallet through e-payment solutions, to expanding across the value chain linking the consumer to the product.

The players who will come out stronger in 2021 are the ones who will transition from mall owners to ecosystem leaders

The pandemic’s impact on in-store shopping has been—and will continue to be—severe. The GCC is widely expected to have exhibited similar signs of e-commerce adoption acceleration of the United States, where e-commerce penetration rose as much in the first quarter of 2020 as it did in the previous five years. For pure-play mall operators in KSA particularly, cracking the online market is no longer a choice but an imperative. Today, top players are evolving their physical products in-line with changing consumer preferences like with Riyadh’s vibrant University Walk, divesting their underperforming assets to fuel more promising areas of their business, and recognising the need to protect their tenants, their true long-term partners, a practice KSA’s Arabian Centres has rigorously adopted over the past year.

While the global pandemic has not uncovered new trends impacting the sector, it has fundamentally accelerated their impacts in the GCC, and accordingly the need of its operators to evolve. The players who will come out stronger in 2021 are the ones who will transition from mall owners to ecosystem leaders.

Hospitality: Reimagine the experience…and the guest

Few real estate sectors have been as severely impacted by the pandemic as hospitality.  Even if pent-up demand materialises, recovery will not be immediate.

Categories such as “workcations” are now at the fore, as people experience fatigue due to long periods of working from the same place. With international travel expected to remain largely impaired over a good part of 2021, the domestic tourist is “here to stay”, and leading hospitality players have started making simple adjustments to cater to the trend. Operators in Riyadh and Jeddah are increasingly re-imagining the stay beyond the room, by offering a comprehensive experience journey to unique local attractions such as Al Ula, the Diriyah E-prix, desert safaris, and seasonal festivals and pop-ups.

As occupancies and revenue per available rooms (RevPAR) recover, hotel operators should be able to effectively manage the downturn by re-imagining the experience to a very different visitor, re-configuring their channels, and being more flexible.

Commercial: Remaking the office

In many ways, the future looks grim for office buildings, especially as recent surveys showcase a growing number of employees preferring to work outside the office for longer periods. Global tech giants like Twitter and Amazon are already spearheading the charge to make virtual work permanent. Despite these systemic challenges, landlords can thrive by embracing the new realities of office space demand.

The region’s office landlords should first and foremost focus on the future pockets of demand; new tenants such as freelancers, entrepreneurs, and small businesses. According to a World Economic Forum survey, “entrepreneurs” was the fastest growing profession in the MENA region, achieving 37 percent growth in five years. Targeting the “returners”, job functions that require personal interaction, that are customer-facing, or involve specialised tools, and offering them what remote working does not, can hasten the ‘back-to-the-office” return for existing tenants and lure new ones.

Tenants in the “office-of-the-future” are going to have very different needs. Those who address these needs by offering the right amenities, whilst modernising the space and the lease, will be able to emerge stronger.

Bruno Wehbe, Vice President at Booz Allen Hamilton and Joseph Mazloum, Vice President at Booz Allen Hamilton, MENA.