Investor's Guide to Kuwait’s Evolving Office Market

Kuwait City shines as the nucleus of Kuwait's office space market, commanding a staggering 70% share of the nation's office inventory and boasting an annual rental income of USD 314 million. As we embark on a journey through the intricate landscape of office spaces across the nation, we unravel key insights, market dynamics, and future projections that shape this thriving sector.

Market Overview

Kuwait City: The Center of Office Space Market

Kuwait City stands out as the central hub for office spaces in Kuwait, holding a commanding 70% share of the country's total office space inventory. This dominance is further underlined by the city's significant economic impact, particularly through its substantial annual rental income of USD 314 million.

National Landscape of Office Space

The total office space across Kuwait, encompassing contributions from both the government and private sectors, amounts to around 7.24 million m² as of 2022. Here's how it breaks down:

• Private Sector Contribution: 53% of the office space demand.
• Government Sector Contribution: 47% of the demand.

Property Insights in Kuwait City

In terms of property specifics within Kuwait City:

• There are approximately 282 office space properties, primarily in the private sector.
• An evolving landscape is evident, with 20 properties currently in different stages of design and development.

Kuwait City as the Central Hub for Office Spaces:

• "The office space sector in Kuwait is limited to just a few districts: Kuwait City accounts for 70% of the total office space inventory in Kuwait."
• "The sector in Kuwait City generates USD 314 million of annual rental income."

National Landscape of Office Space:

• "Gross office space from the government and private sector in Kuwait is around 7.24 million m² in 2022."
• "Of the gross demand, private sector accounts for 53% share and the government accounts for 47% share."

Property Insights in Kuwait City:

• "There are around 282 office space properties in Kuwait City that are owned by the private sector."
• "20 properties in various stages of design and development in Kuwait City."

Impact of the Pandemic on Kuwait's Office Market

Employment and Office Demand Dynamics

The pandemic's onset in 2020 significantly altered the employment landscape in Kuwait:

Employment Decline: The employment base fell from 2.93 million in 2019 to 2.76 million in 2021, resulting in a net loss of approximately 170,000 jobs.

Effect on Office Demand: This reduction in employment directly impacted the demand for office spaces.

Office Space Occupancy Rates and Projections

The pandemic also had a noticeable effect on office space occupancy rates:

Occupancy Decline: There was a decrease from a peak of 94.7% in 2019 to 84.8% in 2022.

Future Projections: Projections indicate a further decline in occupancy rates, with an estimated drop to 81% by 2024. For Kuwait City specifically, a projected occupancy rate of 87% by 2025 is anticipated.

Employment and Office Demand Dynamics:

• "The pandemic year of 2020 brought down the employment base and it declined further in 2021 (till Jun 2021). We have shown the comparison of the employment base under these two scenarios – before pandemic and after pandemic in Table 1."
• "The employment base declined from 2.93 million in 2019 to 2.81 million in 2020 and to 2.76 million in 2021 – net loss of 170,000 jobs in the pandemic."

Office Space Occupancy Rates and Projections:

• The report provides a detailed table with the occupancy rates and projections for 2021 to 2025. This includes data on office space inventory, occupied office space, change in occupied space, and occupancy ratios for overall Kuwait and specifically for Kuwait City. These figures match the data you've listed in your blog post.

Occupancy Decline and Future Projections:

• "The occupancy declined from its peak of 94.7% in 2019 to 84.8% in 2022."
• "We project the occupancy to decline to 81% by the year 2024. For Kuwait City, we project the occupancy to touch 87% by 2025."

Future Outlook for Kuwait City’s Office Space

Projected Occupancy and Inventory Changes

As we look towards the future, the outlook for office space in Kuwait City shows notable trends:

• Occupancy Rates: There is an expected decline in occupancy rates, with projections suggesting a drop to 81% by 2024. However, for Kuwait City specifically, the occupancy rate is projected to rebound to 87% by 2025.
• Inventory Growth: The office space inventory is set to increase, with new developments contributing to this expansion. This includes approximately 275,000 m² of office space currently in the pipeline.

The Role of Government Entities in Market Dynamics

Government entities play a significant role in Kuwait City's office market:

• Occupancy by Government: Government entities currently occupy about 18% of the office space in Kuwait City. This is a substantial portion, considering the overall market size.
• Impact of Government Decisions: The decisions of government entities regarding their occupancy and leasing strategies can significantly influence market dynamics. Discussions about government entities potentially moving to develop their own properties could have notable implications for the office space sector.

Projected Occupancy and Inventory Changes:

"We project the occupancy to decline to 81% by the year 2024. For Kuwait City, we project the occupancy to touch 87% by 2025."

"We are tracking around 20 properties in Kuwait City, a handful of properties in other locations and a large development in Jaber Al Ahmed City that are in various stages of design or construction... Kuwait City has 183,796 m² office space pipeline till 2025 and outside Kuwait City is 90,068 m²."

The Role of Government Entities in Market Dynamics:

"REMI carried out a survey of various tenants of different office space towers in Kuwait to estimate what is the share of office space in open market properties for the Government entities... Chart 9 shows that Government share jumps to 18% [in Kuwait City]."

"There are various discussions in the market that many Government entities are planning to secure their own lands in Kuwait City where they plan to develop their captive properties. If this happens, it can have serious repercussions for the office market office space sector."

Lease Rates and Price Dynamics in Kuwait's Office Market

The report offers a detailed analysis of the lease rates and pricing trends in Kuwait's office market, particularly focusing on Kuwait City:

Lease Rate Spectrum: The lease rates vary significantly based on property grades. Prime grade office spaces in Kuwait City are leasing at rates between KD 6 to 14 per m². In comparison, mid-grade properties have lease rates ranging from KD 5.5 to 12.7 per m², demonstrating the diversity in the market.

Annual Rental Income: A key indicator of the market's strength is the annual rental income, with Kuwait City’s office sector generating USD 314 million. This highlights the sector's substantial contribution to the real estate market

Lease Rate Spectrum:

• "For Prime grade office space, the lease rates range from KD 6 to 14 per m² (on gross leasable area) depending upon location and the unit sizes."
• "For Mid grade, the range is KD 5.5 to 12.7 per m²."
• The report also provides a detailed table of lease rates based on unit size and property grade (Prime, Mid, Low), similar to the one you've listed in your blog post.

Annual Rental Income:

• "The sector in Kuwait City generates USD 314 million of annual rental income."

Investment Considerations in Kuwait's Office Space Market

Key Properties and Their Significance 

Al Hamra Tower: Standing out as a landmark, Al Hamra Tower has the largest leasable area for any office space tower in Kuwait, with an impressive 83,512 m² of office GLA (Gross Leasable Area). Its prominence in the market is a reflection of its size and status.

Assima Office Tower by Salhia: This upcoming development is poised to become a major player in the market, with a projected leasable area of 58,382 m², making it the second-largest office space in terms of GLA once developed.

These properties, especially given their scale and location, play a significant role in shaping the office space market dynamics in Kuwait City. They not only contribute significantly to the total inventory but also set benchmarks in terms of rental rates and occupancy trends.

Due to their size, location, and the prestige associated with these towers, they are particularly attractive to investors looking for flagship properties in the region.

Prime Investment Locations

Capital Governorate Focus: Kuwait City, holding 70% of the office space market, is a primary area for investment, especially in districts like Sharq, Qibla, and Mirqab.

Potential in Other Governorates: Hawalli, Farwania, and Ahmadi offer growth opportunities, suitable for investors seeking to explore beyond central areas.

Financial Prospects and Trends

Robust Rental Income: The significant annual rental income of USD 314 million in Kuwait City points to a strong and stable market.

Lease Rate Dynamics: The market's resilience, even with slight softening in lease rates, indicates potential for advantageous investment entry points during market corrections.

Market Resilience and Recovery Potential

Post-Pandemic Recovery: The office space market's gradual recovery from the pandemic provides a strategic opportunity for long-term investment.

Government Sector Influence: The decisions and movements of government entities, occupying a significant portion of office space, can have substantial impacts on market dynamics, offering areas for focused investment strategies.

Key Properties and Their Significance:

"Al Hamra Tower at 83,512 m² office GLA has the highest leasable area for any office space tower in Kuwait."

"Once developed, Assima Office Tower by Salhia will have the second largest GLA at 58,382 m²."

Prime Investment Locations:

"Capital Governorate accounts for 70% share of the office space in open market commercial properties."

The report also discusses the office space market in districts like Sharq, Qibla, and Mirqab within Kuwait City. However, specific mentions of investment potential in other governorates like Hawalli, Farwania, and Ahmadi are not detailed in the report.

Financial Prospects and Trends:

"The sector in Kuwait City generates USD 314 million of annual rental income."

The report discusses lease rate dynamics, but specific insights into market resilience and potential investment entry points during market corrections are more implicit and would need to be inferred from the overall analysis.

Market Resilience and Recovery Potential:

The report details the impact of the pandemic on the office market and the projected recovery, but specific statements about the strategic opportunities for long-term investment post-pandemic are not explicitly made.

Government Sector Influence:

"REMI carried out a survey... Chart 9 shows that Government share [in office space] jumps to 18% [in Kuwait City]."

The influence of government entities on market dynamics is discussed, particularly in the context of their potential development of captive properties.