Pakistan Real Estate Report Q1 2011

[Lahore_Real_Estate]

The Pakistan Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Pakistan's Real Estate industry.

The last year or so has been very challenging for the protagonists in Pakistan’s commercial real estate sector. Rents have fallen in Islamabad and Karachi (although not, apparently, Lahore) and across all three sub-sectors. It also appears that there have been sharper drops in prices and capital values, with the result that yields have in some cases increased.

This has happened even though Pakistan’s economy has suffered far less from the global financial crisis than its counterparts have in many other developing countries. The fundamental problem is a lack of demand from potential commercial tenants. The dangerously unstable political and security situation has resulted in the overall level of demand for commercial space falling well below that which is available. Our sources report vacancy rates of 40-50% in Lahore and Karachi. Perhaps because of the larger government presence, the vacancy rates in Islamabad are only around 10%.
Property owners also have to contend with the looming completion of a number of new, mixed and prestigious developments, such as the Centaurus in Islamabad. Our in-country sources (interviewed in mid-February 2010 and again in July 2010) indicate that the likely impact of these new projects will be to attract tenants from surrounding, and older properties not least because they offer better physical security.

That these developments have continued at all is testament to the fact that a number of the protagonists understand, and are extremely tolerant of, the risks of doing business in Pakistan. Foremost among these is the Defence Housing Authority (DHA). Projects have also been supported by Middle Eastern multinationals; however, some of these companies, which are both developers and potential occupiers of space in Pakistan, have suffered as a result of the financial crisis in Dubai.

The comments from our sources in Pakistan indicate that rental yields have been volatile recently as a result of the slippage in rentals and (often) a greater fall in prices and capital values. Looking forward, we envisage that yields will stabilise over the 2011 to 2015 forecast period at levels that were prevailing in 2008 and 2009.

On the macroeconomic front we estimate growth to come in at a respectable 4.1% for FY2009/10. However, despite this flash estimate we remain cautious on the prospect of a return to the booming growth enjoyed through the middle of the last decade.