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Tue 26 Jul 2016 01:33 PM

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GCC property markets said to be facing 'perfect storm'

AT Kearney says regional real estate firm must adapt amid high supply and softening demand

GCC property markets said to be facing 'perfect storm'
sheikh zayed road, real estate, burj khalifa

A "perfect storm" of increased supply and softening demand lies ahead for real estate markets in the Gulf region, according to a new study.

A report by management consulting firm AT Kearney highlighted a supply of developments that is four times higher than the value of developments completed in last 10 years and a continuing softening of demand due to shifting market sentiment and lower oil prices.

It said this will "challenge real estate developers not just to be better but to be different". 

The study argued that actively probing for disruption, creating a value network and improved targeting of customer preferences is key to navigating the storm that lies ahead.

"There is little evidence the real estate industry is preparing for the next market cycle. Developers need to probe for disruptive innovation beyond the traditional boundaries of their industry and beyond their known value chain," said Federico Mariscotti, Vice President at AT Kearney.

"For example developers can find solutions which offer both cost savings and efficient construction techniques by introducing commercially viable space construction alternatives that were developed during a competition for NASA."

Among the recommendations of the study is a re-orientation from a sequential value chain toward a value network - an ecosystem with new incentives and an appetite for innovation through collaboration.

AT Kearney said with better governance and a new operating model, companies in the industry will become more resilient.

Mariscotti added: "As customers become more savvy, our study shows that value can be captured by having a better understanding of their preferences. By establishing a value network, developers can collaborate on designs that place the customer at the heart of the project, driving increased customization and profitability.

"Advanced analytics enables an understanding of which features to customize and the trade-offs customers are willing to make and how much they will pay for them. This alone can improve the internal rate of return on investment by 10-25 percent, and create a pipeline of affordable housing projects."

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