Real estate

Strategy&’s Middle East real estate practice is the oldest dedicated practice for this sector among top-tier consulting companies in the region.

Real estate has long been a core economic sector and investment of choice in the Middle East region, buoyed by strong demand fundamentals from solid population and GDP growth, as well as excess liquidity from oil. Realizing its importance in shaping their nascent economies and its action as a catalyst for growth and diversifying the economy through reduced dependence on oil, many local governments have set up large national real estate development champions and pushed to establish ambitious mega-cities and urban developments. The sector was instrumental in addressing the needs of the region’s burgeoning youth, especially in housing and entertainment.

Albeit emerging, the regional real estate landscape has been rivaling the world’s leading markets, with plenty of media attention paid to the success stories of local champions and the grandeur of the many pioneering urban developments.

The region however is not a single uniform market, and remains divided into “old” markets and “new” markets, each with its own specificities that shape the real estate landscapes within.

The Middle East is divided into two main property markets. Key Middle East cities by market maturity:

 

Founded in the early 2000s, Strategy&’s Middle East real estate practice is the oldest dedicated practice for this sector among top-tier consulting companies in the region. We have supported over the years four main types of clients:

Single- and multi-segment master and property developers, in the context of startups, growth, strategic evolutions, and restructurings.

Family businesses and large land owners looking to optimize value creation from their large land banks and property portfolios.

Diversified industry (non-real estate) corporate entities such as car distributors, banks, telecom companies, and airlines looking to effectively tap into real estate as a support to their core operations and optimize value creation from their large property portfolios.

Ministries, municipalities, and other government-controlled entities and authorities looking to tap into their real estate portfolios to support the delivery of their core agendas (housing, entertainment, education, etc.) and drive economic diversification and financial sustainability.

Over the past two decades, we have been working in tandem with our regional clients, offering end-to-end strategy-to-execution support across all facets of real estate — strategic diagnostics, strategy definition, digital and customer experience strategy, portfolio and asset management, operating model design, fund design and setup, project feasibilities and development support, and end-to-end implementation support.

Key trends

Key industry trends across all real estate entities in the Middle East are as follows:

The triple effect of low oil prices, political uncertainty, and impending tax reform is temporarily curbing fundamental demand and creating volatility in the real estate markets, evidenced by the recent slowdown in sales and transaction growths, developer performance, and project pipelines. The macroeconomic climate has also put a damper on funding, with liquidity-constrained banks limiting cheap financing, and equity investors preferring to invest outside the region. Real estate developers and investors are thus redefining and evolving their business models, strategies, and operating models to ride the wave and emerge stronger.

With curbed growth prospects and dwindling public finances, local governments, family businesses, and developers alike are looking to extract maximum value from their land and operating property portfolios. Large RE portfolio owners are now actively exploring value creation strategies on their dormant plots and optimizing the asset management of their operating properties across all facets, in an effort to generate additional income, hedge against core business slowdown, and maintain/enhance margins. Similarly, governments are increasingly adopting PPP models to maximize private-sector participation.

Real estate financing in the region customarily was limited to basic structures and sources, mainly traditional corporate and project-level debt and equity funding. Now real estate players are looking to expand their financing models and are starting to use alternative models such as private RE funds, club deals, and RE investment trusts (REITs). REIT regulation has recently been introduced in Saudi Arabia, the UAE, and Bahrain. This new mode of financing not only provides access to cash, it diversifies risk, and generates other revenue streams, while still affording control of projects.

As the landscape and capabilities mature, and markets become more efficient, the region’s developers are increasingly seeking new ways to win against the competition and differentiate their products. They are slowly evolving their traditional “product-based” business to an “experience-based” one through actively offering innovative and commercially viable digital products and enhancing the end-to-end tenant/customer experience, from marketing and sales down to daily operations. This will help solidify developers’ brands, and help them emerge stronger and differentiated from the slowdown. This experience-based innovation can be seen in the new urban plans and master plans, characterized by the emergence of next-generation cities and smart cities to support the rapid adoption of new urbanization trends and requirements.

As the young people who make up the population bulge come of age, demand for affordable housing is at an all-time high. However, old preferences of living in large single units/villas is difficult to achieve at the right price or location. Newer and smarter community planning is much needed, where smaller units (apartments and town houses) are introduced in the context of a vibrant self-sustainable community, where residents can share a plethora of common amenities, facilities, and social infrastructure to fulfill the desire for an active social life and seamless social inclusion.

How we help our clients

Strategic diagnostic

Whether in preparation for the next growth phase, or to moderate a slowdown, we support real estate players in identifying and understanding their key performance and capability gaps vis-à-vis best practices and their aspirations.

  • Performance assessment
  • Capability gap assessment

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Strategy definition

We help our clients achieve their growth aspirations and win in the market through end-to-end market and investment strategies.

  • Mandate, vision, mission definition
  • Market assessments
  • Business model definition
  • Market and investment strategy
  • Delivery and operational strategy
  • Financial projections
  • Business plan definition
  • Targets, KPIs, and dashboards
  • Implementation plan
  • Strategic PMO (end-to-end strategy implementation)

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Digital and customer experience

We help our clients achieve customer service excellence and deliver on the latest customer trends and requirements with next-generation digital and value-added offerings, be it on the service, property, or master plan levels.

  • Holistic customer experience strategy
  • Digital strategy and implementation
  • Next-generation and smart cities

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Land bank activation and monetization strategies

We help our clients activate their dormant land banks and extract maximum value from them.

  • Land portfolio segmentation and prioritization
  • Investment strategy
  • Financial projections
  • Real estate entity setup and activation
  • Legal structure and requirements
  • Valuation and transaction support (debt and capital, tax, accounting, legal, deal support)

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Portfolio and asset management

We support our clients in maximizing value from their real estate portfolios and enhance their efficiency through our rigorous portfolio and asset management services.

  • Portfolio performance review
  • Portfolio rationalization strategy Single-property value optimization Property business plans Valuation and transaction support (debt and capital, tax, accounting, legal, deal support)

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Fund design and setup

We help clients take advantage of one of the fastest-growing financing trends in the region, by supporting them in defining and developing their real estate funds.

  • Multi- or single-project fund design
  • Fund business model and strategy
  • Fund operating model
  • Fund legal and tax structure

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Operating model evolution

We help our clients reach operational excellence and develop best-in-class capabilities through our comprehensive operating model services.

  • Organization structure design
  • Job descriptions and KPIs
  • Manpower requirements
  • Board and management-level governance frameworks
  • Delegation of authority
  • Integrated real estate process design
  • Key management processes
  • Policies and procedures
  • Operating model PMO (end-to-end operating model transition and migration support)

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Mega-project feasibilities and development management office

We support our clients in creating, defining, and reviewing their mega-flagship developments by ensuring the optimal concept, commercial viability, and ability to secure partners and investors.

  • Concept definition and value proposition
  • HBU and asset-mix definition
  • Infrastructure and superstructure development strategies
  • Phasing strategies
  • Regulatory frameworks and enablers
  • Financial appraisals and optimizations
  • Investor packaging strategies
  • Investor briefs
  • Project business plans
  • Project implementation plans
  • End-to-end development management office, working with master planning, cost consulting, and legal partners

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Case studies

Strategic diagnostic

Performance gap analysis

A diversified real estate developer with the largest single-segment operating property portfolio in its country was looking to chart its next growth phase that would see it rival leading international peers in terms of GLA size.

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Strategy definition

Mandate, business model, and strategy update

A national champion GCC developer that had recently expanded its mandate was seeking to redefine its role, business model, strategy, and operating model. Strategy& supported the client in all phases and provided a fully fledged transformation plan that would allow it to achieve its strategic evolution.

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Growth strategy and business plan

A mid-sized retail and residential community developer in Saudi Arabia aspired to become the local market leader.

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Asset management and growth strategy

A real estate developer and one of the largest real estate asset owners in Central America with a significant variability of returns from its widely varied assets needed to formulate a strategy to achieve future growth.

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Digital and customer experience

Customer and digital experience strategy

One of Saudi Arabia’s largest developers was looking to enhance the customer experience throughout its entire portfolio, with a focus on the retail and entertainment properties.

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Land bank activation and monetization strategies

Monetization strategy

A ministry in a GCC country was seeking to establish a real estate investment company to monetize unutilized assets in its land bank. Strategy& designed the strategy and business plan for the undertaking.

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Land bank activation and strategy development

A large listed company in Saudi Arabia with an unutilized land bank engaged Strategy& to determine four plot feasibilities for its real estate arm and develop its mandate, strategy, business plan, operating model, and financial forecasts over the next 10 years.

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Portfolio and asset management

Portfolio monetization strategy and operating model refinement

A GCC sovereign investor with a multi-billion dollar portfolio of local and international real estate and infrastructure assets was seeking to balance its portfolio.

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Mall asset management and performance improvement plan

A large regional mall operator was looking to improve the performance of one of its flagship super-regional malls, with a GLA upward of 100,000 square meters.

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Portfolio assessment and optimization, with implementation plan

A large European retail bank with a vast portfolio of real estate assets in several countries had become fragmented in a number of ways.

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Fund design and setup

Flagship project fund structure

The real estate development arm of a GCC family group with leasehold land was looking to develop the mega-plot into a flagship mixed-use city.

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Operating model evolution

End-to-end operating model evolution

A nascent Qatari developer was looking to cut cost overruns on its only mega-project, and to evolve from a one-project developer into a full-fledged developer and operator.

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IPO readiness and fully fledged business transformation

One of the largest mall developers and operators in the GCC intended to file for an IPO. The client requested Strategy&’s assistance in assessing its IPO readiness, as well as our support in undergoing.

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Mega-project feasibilities and development management office

Concept definition and feasibility study

A government-controlled developer was seeking to develop the new downtown area in the capital city, on a large tract of government-owned land. The proposed town center would provide a focal point for ...

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Strategic plot feasibility and investor packaging

A large GCC family conglomerate with a real estate business was looking to develop two land plots in the capital city of its home nation. The client wanted to ensure the viability and feasibility of the projects,...

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Destination revitalization strategy and master plan development

A leading developer acquired the rights to revitalize an island in a prime site in Malta. Although the developer has a 99-year lease, the government requires the site to be developed within the next eight years ...

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Contact us

Per-Ola Karlsson

Partner, Strategy& Middle East

Ramy Sfeir

Partner, Strategy& Middle East

Karim Abdallah

Partner, Strategy& Middle East

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