Short- to mid-term future trends

We certainly live in challenging times. The unprecedented global economic situation has created chaos in many industries, real estate included. However, as we move forward, certain trends are becoming clearer.

There are a number of factors impacting the real estate industry today, but two stand out: lack of liquidity in the financial system and reduced demand for products, materials and services.

Very little capital is available and that capital is being deployed slowly and cautiously. While we are starting to see some positive signs that the situation is stabilising, confidence has not yet returned.

The real estate industry depends upon the growth in the underlying economy to provide people to fill the houses, shop at the stores and occupy the office spaces that are created. When the underlying economy stops growing, the need for new real estate declines. If the growth is negative, the industry experiences surplus capacity. So what trends have emerged and are emerging for the short- to mid-term?

New projects

There will be very few new projects started and many of the projects underway will experience restructuring and delays or, in some cases, will be cancelled.

Fundamentals

Those projects that will be built will be tailored to existing demand and expected future demand. Speculative building in most markets will cease. Real estate projects being developed to attract the end users' market,with financial and construction plans, always have a great success rates.

Consolidation

There will be consolidation at the various levels in the industry. The businesses that service the real estate industry are under a great deal of pressure. Many companies expanded quickly over the last few years and a number of new companies were created to meet the growth in the industry.

Quality versus...

There will be a flight to quality. With surplus capacity in the market, ageing or badly constructed inventory will suffer, as users are given more choices in quality and price.

...cost

Prices for services and materials will decline further. Most of the services and materials provided in the region come from international sources. With the number of real estate projects declining worldwide, the competition to service new and existing projects will increase.

Contracts

Contracts will need to be amended to reflect present realities or some projects may not remain viable.

Conclusion

These are general observations and must be tailored to fit specific markets and economies. For example, in Qatar, the situation is much less extreme than that experienced by some of the other markets globally.

It is important to keep in mind that markets will recover, albeit at different times in different places. So, while this is an unsettled time, it is also a time of opportunity. The decline in prices of construction inputs means that projects being built today are more economic than they were previously.

At all levels, the focus has to be on cost and efficiency. We have to be willing to take less profit today, to ensure that we preserve our projects and workforces.

Brian Meilleur holds a BA and LLB degrees from the University of Ottawa, an MBA from the University of Western Ontario and an LLM from the University of Toronto. While a licensed lawyer, Meilleur has, over a 25-year career, held a variety of line positions, primarily in the real estate field.

The opinions expressed in this column are of the author and not of the publisher.

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