Amman Jordan Market Overview Q4 2007

SUDAN

Property type

SECOND Quarter | 2007

c o l l i e r s i n t e r nat i o na l

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M E N A RE G IO N

Amman Real Estate Overview M A RKET RE S E A R C H Syria

ECONOMIC Market Indicators 2006 Actual

US$ 16bn

Tourism:

6.6mn visitors

Current Account:

US$ 2.35bn (deficit)

Population:

6.1mn

Unemployment:

14.1%

Inflation:

5.7%

FDI:

2007

• Traditionally one of the most stable Middle Eastern states, attracting Palestinian, Iraqi and Lebanese settlement and investment • Position as a net oil importer, with focus of economic activity falling on less energy intensive industries, such as tourism

Saudi Arabia

GDP:

|

Economic Highlights

JORDAN



f o u rt h Q ua rt e r

Iraq

Amman Egypt

|

US$ 3.1bn

2007 Forecasts

• Member of the World Trade Organisation since 2000, with a free trade accord with the US and an association agreement with the EU in place • Projected growth in GDP expected to continue within the range of 5-6% for the medium term, hampered by a considerable government budget deficit • Rapid acceleration in cost of living, outstripping income growth and impacting on inflation rates • Influx of wealthy Iraqis into Amman since 2003 have contributed to a recent boom in real estate prices • Landlord and Tenant Law No 11 amended in 2001, repealing an earlier provision allowing a tenant to occupy a property indefinitely at the same rent even after the end of a lease term – thereby promoting investment in both office and residential space • Attractive mortgage packages with low interest rates and longer payment schedules have also boosted real estate investment • Jordan’s foreign real estate investor profile is composed primarily of displaced Iraqis, and expatriates from Europe and the GCC purchasing holiday homes. • Gateway to Iraq for foreign companies, UN agencies and NGOs, with 30-50 new organisations expected to establish offices in the capital over the next twelve months • Major forthcoming mixed-use developments include the US$ 1bn Abdali Urban Regeneration project in the city centre, the 2500 hectare Zarqa Garden City master-plan and the US$1bn Royal Metropolis project

Immigration and economic growth combine to fuel occupier-led real estate boom in the south and west of the city

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Amman

RESIDENTIAL

fourth Quarter | 2007

Residential The residential sector in Amman has been notably undersupplied in the recent past, due both to a historic under-provision of stock and to the considerable influx of Iraqi citizens to Jordan in general, and Amman in particular. Rents and sales prices have increased sharply given supply constraints.

Development activity will continue to intensify, although it will become increasingly stratified between developments targeting low- income citizens and those targeting the higher- income demographic and nonresident Jordanians initial yields Locations 8.0%

Airport Road

10.0%

Jabal Amman

9.0%

Shmeisani

8.0%

Dabuq

9.0%

Gardens

7.0%

Rabiyah

10.0%

Units

Royal Village (2008)

1,038

Abdali Project (2010)

1,500



The scale of development at the high end of the market may result in a moderate oversupply over the short term for high-end property, although this is unlikely given the scale of unsatisfied demand. At the lower end, demand is highly likely to outpace supply over the medium-term. Overall, the focus of development activity will continue to shift towards southern areas, especially along the Airport Road.

100

Project

Al Jiza City (2012)

Overall residential unit supply in Amman grew by approximately 14,000 units (2.9%) in 2005. Slightly over 11,000 new apartment units were provided, along with nearly 3,000 villa units. In 2006, supply growth was slower, with around 2,500 additional villas and 9,500 additional apartments completed in the city. Colliers International estimates that by the end of 2007, an additional 7,000 units will be completed (6,000 of which will be apartment units), representing an overall growth rate of 1.4%. It is likely that development activity will continue to intensify, although it will become increasingly stratified between developments targeting low-income citizens and those targeting the upper-income demographic and non-resident Jordanians.

villa rents by location

FORTHCOMING SUPPLY

Greenland Project (2008)

Developers of new projects have attempted to take advantage of the large unsatisfied demand for housing among the low and lower-middle income segments of the population by offering more attractive mortgage financing options for off-plan sales. This is a new innovation in the Jordanian residential market, where mortgage options have traditionally been limited in accessibility and duration. This, in conjunction with a focus on providing affordable housing units, is set to make the option of home ownership accessible to a considerably larger proportion of the

880 16,000

Colliers International

Annual Rent (US$/m2)

Abdoun

By regional standards, residential villas account for a small proportion of the overall residential supply in Amman, at around 25% of overall stock. The villa segment has traditionally been a relatively safe investment, and rental yields are tight. Within this segment, the rental market is dominated by smaller unit sizes, whereas villas of five and six bedrooms are overwhelmingly owner-occupied.

population. The average unit size of licensed new dwellings in Amman has concurrently declined sharply, from 208m2 in 2000 to 169m2 in 2006.

80 60 40 20 0

Abdoun

Airport Road

Shmeisani

3 Bed

4 Bed

Sweifiyah

5 Bed

Khlada

Tlaa Al Ali

Amman

office

fourth Quarter | 2007

Office Amman currently lacks a defined Central Business District, and primary grade office space in the city is scarce. Demand for high quality office space, however, is on the increase, driven by growth in the number of regional and international companies establishing subsidiaries in the Jordanian capital.

The office sector in Amman is dominated by low rise, owner-occupied units disparately located throughout the city, with a greater concentration in districts to the west of the city centre

initial yields

The relatively poor quality of available office stock, combined with comparatively high rental prices due to unsatisfied demand, has driven many office space users to purchase and convert residential villas for commercial use until suitable space becomes available. In the meantime, the office sector in Amman is dominated by low rise, owner-occupied units disparately located throughout the city, with a greater concentration in districts to the west of the city centre. Such is the current demand-supply dynamic in Amman that office buildings are reporting occupancy rates of over 95%, and absorption of new space offered to market is rapid. Office sector rents have been increasing sharply, and price escalation reached 40% in 2006 over the previous year. Nevertheless, space-user

ratios is Amman are high by regional standards. Corporate tenants in the city occupy as much as 50% more space than their counterparts in more space constrained markets such as Dubai and Abu Dhabi. The Abdali project alone will increase Amman’s volume of dedicated office stock considerably, and a number of other projects will offer smaller commercial components. Whilst details are still emerging from private sub-developers within the Abdali masterplan regarding their projects, the scale of the master-plan will ensure that Amman’s future office market will be focused within the Abdali redevelopment. These High Density Mixed Use projects are intended both to rationalise commercial space provision, and to ensure that the needs of Amman’s expanding economy are met for the next 25 years. As dedicated office buildings are constructed within the Abdali Project, it is likely that the city’s existing relatively low quality office stock will undergo a de facto re-grading downwards, with an attendant decline in occupancy and rental rates.

Space Yield Primary Grade

12%

Secondary Grade

14%

Class A (Primary): Strong location, purpose-built, high quality finishing, central provision of Information and Communications Technology (ICT), Air-conditioning (A/C) and central heating (C/H), good state of repair, available parking facilities. Class B (Secondary): Strong location, converted use, moderate quality finishing, provision of ICT, A/C and C/H, limited parking facilities Class C (Tertiary): Poor location, congestion and parking constraints, limited or no ICT, A/C and C/H, adequate state of repair, moderate quality finishing

office rents by location FORTHCOMING SUPPLY GLA (m2)

Jordan Gate (2008)

80,000

Grand Amman Complex (2009) Abdali Boulevard (2010)

85,000 27,000

180

Annual Rent (US$/m2)

Location

160 140 120 100 80 60 40 20



Colliers International

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Amman

Retail The retail sector in Amman has traditionally been dominated by small high-street retail units. More favourable weather conditions in the city mean that climate controlled indoor shopping venues have been slower to establish themselves than in other regional markets, with Amman’s first shopping mall opening as recently as 1999. The city has experienced considerable growth in the number of mall developments since the opening of the Amman Mall, which have now established themselves within the retail market, due in large part to their attraction of international brands into Jordan. These centres are concentrated in west or central Amman, although mall developers have begun to turn their attention to the eastern part of the city. Nevertheless, high-street retail units remain an important and popular segment of the city’s overall retail provision. Retail rents in Amman’s malls are relatively low, reflecting long lease durations agreed by landlords for some of the more

retail

fourth Quarter | 2007

established shopping centres. Newer malls have achieved a sharp escalation in rental prices over older developments, indicating the growing adoption of the shopping mall concept, and the strong confidence of retailers in retail mall units. Despite this, there is not yet a mall on the market that can offer a shopping experience of international standard. When such a facility does become available it is likely that it will command a considerable premium. The forthcoming Baraka Mall aims to supply this higher standard of space, and is attracting strong international brands into its tenant base. Conversely, the Beitna City Mall is seeking to address the opposite end of the retail spectrum. Its location in East Amman is relatively unfavoured, and the project targets low-income consumers. However, leasing of units has been slow, suggesting that the focus of retailers themselves remains on the more affluent areas to the west of the city. When complete, the Taj Mall in Abdoun will target this constituency directly, aided considerably by its favourable location.

The city has experienced considerable growth in the number of mall developments since the opening of the Amman Mall, which have now established themselves within the retail market, due in large part to their attraction of international brands into Jordan shopping mall rents Location Rent (US$/m²/pa) Amman Mall

120

Abdoun Mall

175

Mecca Mall I

175

Mecca Mall II

320

Zara Centre

300

Brothers Mall

250

City Mall

275

FORTHCOMING SUPPLY Project

Nla (m2)

Jordan Gate (2007)

30,000

Al Baraka (2008)

16,000

Beitna City (2008)

40,000

Abdali Boulevard (2009)

220,000

Taj Mall (2009)

50,000

Mihrath (2010)

165,000

Colliers International



Amman

hospitality

fourth Quarter | 2007

Hospitality The hospitality sector in Amman has been in a period of transition in recent years. Traditionally a market which has enjoyed high occupancy rates, its hotels have been unable to drive up achieved average room rates beyond a relatively low level. This has now begun to change, and since early 2006 achieved average room rates in both 4* and 5* hotels have been rising – indicating the robustness of Jordan’s hospitality sector. Terrorist attacks at the end of 2005 have done little to dent the performance of the city’s hotels, which have enjoyed notable improvements in occupancy rates in the last 12-18 months.

Terrorist attacks at the end of 2005 have done little to dent the performance of the city’s hotels, which have enjoyed notable improvements in occupancy rates in the last 12-18 months

hotel performance Category

ARR (us$) RevPAR (US$)

5*

142

86

4*

100

74

3*

65

46

Amman derives its hospitality sector demand from a number of sources. As is the case in the city’s other real estate sectors, demand related to the security situation in Iraq has bolstered the market. In the hospitality sector additional demand related to Iraq has mainly been the result of Amman’s position as a primary access point to the country. Non-Governmental Organisations (NGOs), contractors, journalists and others commonly pass through Jordan. A second major source of demand for hotel accommodation in Amman is Jordan’s popularity as a Meetings Incentives Conferences and Exhibitions (MICE) destination. Whilst the country’s main conference and exhibition facility is located on the Dead Sea, hotels in Amman report that the majority of delegates will spend at least one night in a hotel in the city

during their visit. The third primary source of demand for hotel rooms in Amman is leisure tourism. In a similar manner to MICE visitors, a significant number of these visitors pass through Amman’s hotels for between one and three nights as one of the destinations on their tour of Jordan. While it remains highly unlikely that leisure tourists will ever have long durations of stay in the capital, they do provide a valuable additional source of demand to the city’s hospitality sector. The fourth, and largest, source of demand for Amman’s hotels is business travellers, who tend to visit the capital city as their primary destination. The bulk of the city’s high quality hospitality offering is accordingly business oriented, and this is unlikely to change at any time in the foreseeable future. There are two hotels currently under construction in Amman, both of which have been granted operating licenses and have international operators in place. A significant number of hotels are reported to be at the planning stages in Amman. In general terms, the Abdali project is expected to offer between four and eight hotels in addition to the Hilton and Rotana hotels already under construction. The demand generated from expected increases in corporate and leisure tourism levels is expected to outstrip provision of forthcoming supply in the medium term. This scenario will translate into the continued strong performance of hospitality real estate assets.

historic 5* hotel occupancy rates 80

forthcoming supply Project Rooms Hilton (2008)

500

Rotana (2010)

350

Occupancy (%)

70 60 50 40 30 20 10 0



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Amman real estate overview

fourth Quarter | 2007

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over 260 offices more than 50 countries 6 continents

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Contact information yeMeN S U DA N

Available market studies Forthcoming market studies bespoke studies

This market overview is extracted from a comprehensive Amman real estate market study carried out in 2007, available from Colliers International UAE for purchase.

Colliers International is a global real estate consultancy company providing a comprehensive range of property services to a broad range of clients on an international basis. Core services include property and asset management; leasing; development consultancy & strategic advisory; property valuations and international property investment services.

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