Office Rental Market Braces for Change After Ministry’s Exemption Announcement.

There is no doubt that the office rental sector is part of the real estate activity that is considered one of the most important pillars of the economy, as it represents a locomotive for many vital sectors. However, it seems that the decision of the Ministry of Commerce and Industry to exempt 54 activities from having the lease contract to issue a commercial license and from renting a headquarters will cast a shadow over the office sector occupancy rates, in the event that some businesses dispense with their rented locations and opt to work from home or remotely, reports Al-Qabas daily.

According to real estate agents, the decision will directly affect offices with areas that do not exceed 30 or 40 square meters, most of which are located outside the borders of Kuwait City. Large offices, especially those in commercial towers, will remain far from the repercussions of the decision and will generally maintain their occupancy rates.

Some others believe that it is too early to know the repercussions of the decision on the office sector.

Head of the Real Estate Association Ibrahim Al-Awadhi affirmed that the decision of the Ministry of Commerce and Industry to exempt some commercial activities from having a lease contract will directly affect the office rental market and the occupancy rates.

He explained that the office sector in Kuwait is classified into sections, including those that are located in commercial towers and have very large areas. Companies rent them and carry out their activities during official hours. These are unlikely to be affected by the decision.

The small-sized office market, whose areas are estimated at 30 or 40 square meters or less, may be affected by the decision, as they are usually opted by those wishing to establish a new activity or by the holder of a commercial license who is forced to rent a temporary headquarters to complete the licensing procedures, but cancels the lease after obtaining all necessary approvals.

Most of the small offices are located outside the borders of Kuwait City. Therefore, the offices in the Capital Governorate in general will not be affected by the decision. The greatest impact remains on the offices located in other areas such as Hawally, Salmiya, Farwaniya, Khaitan, and others, which are usually small in size.

Al-Awadhi said he expected the occupancy rates of the office sector to decline, given that the business model of some towers is built on the basis of containing small offices that depend on the needs of license holders. They must therefore reconfigure and arrange their investments in line with the decision, and search for other activities, especially for the offices located in the basements and mezzanines of the complexes scattered in the aforementioned areas, some of which are exploited for licensing and then abandoned. This applies to a large extent to activities that do not need a headquarters or labor registration, which represents a good percentage.

He said he believes there are some small shops or offices that will continue to operate as usual, since their tenants do not need large areas to carry out their commercial activities.

Al-Awadhi concluded by saying, “It is generally difficult to know the extent of the impact of the decision on the office sector now, because it is still in its early stages. We have not yet seen any reactions, either negative or positive, from the market. I believe that in the coming days, the picture will become more clear.”

Furthermore, the Vice President of the Real Estate Brokers Union Imad Haidar said the ministerial resolution No. 86/2023 regarding activities of a special nature must be reviewed, especially with regard to the real estate brokerage work.

He said, “We, as the Union of Real Estate Brokers, have come a long way over the course of six years in regulating the real estate brokerage profession. We cooperated with the Anti-Money Laundering Department and the Real Estate Department at the Ministry of Commerce and Industry to close the doors of money laundering and real estate fraud and prevent intruders into the profession and peddlers from harming the Kuwaiti real estate market.

We have also been setting up workshops and courses for the compliance monitor and a five-year archive for each real estate office that has an official headquarters. Now the decision has  come to cancel official headquarters and replace it with the home address in the civil ID card.

It is known that most of the addresses in the civil ID card are incorrect. This is a well-known fact. Even the security and control procedures on homes are complex and differ from the control of shops and offices. There is no doubt that the decision will increase the number of middlemen and intruders to the profession.”

Haidar explained that he is currently in the process of launching an electronic broker contract that needs a computer, printer and scanner. It is unreasonable for the broker to carry these devices from one place to another to conclude a deal, at a time when other countries boast of their real estate offices, meeting halls, presentation rooms and professional staff. The aforementioned decision encourages a return to making deals in the “Dalalwa Coffee Shop in Al-Jet Market”.

Also, a real estate expert Suleiman Al-Dulaijan stated that it is too early to know the repercussions of the Ministry of Commerce and Industry’s decision on the office sector regarding the exemption of 54 activities from having a lease contract.

He said, “We must know the number of people who will work at home before we see the extent of the decision’s impact on the office market. Currently it is difficult to predict, and this depends on the turnout and the conditions set for that.”

Meanwhile, the Director of Al-Laheeb Real Estate Company Sulaiman Al-Laheeb said the decision of the Ministry of Commerce and Industry to exempt some activities from having a lease contract will have a positive impact on Kuwaiti youth and entrepreneurs who wish to start a new commercial activity.

In terms of real estate, Al-Laheeb said he believes that the decision will affect the occupancy rates of the office sector, which mainly suffers from high vacancy rates by about 15 percent, and may reach 20 percent during the next stage as a result of economic difficulties and the sharp increase in office space available in the market.

He suggested having joint coordination between the Kuwait Municipality and the Ministry of Commerce and Industry to come up with laws and decisions that balance supply and demand by converting some office licenses into commercial stores in a number of craft commercial areas, such as the Mubarakiya market area, Shuwaikh, Rai, Ardiya, and others, and to reduce the supply of offices.

Al-Laheeb stressed the need to ensure practical solutions are put in place to overcome this crisis by reducing rents in order to preserve the tenants, and stop building more office properties due to the lack of economic feasibility of them at the present time.

He concluded his statement by praising the efforts of the Ministry of Commerce and Industry and the competent authorities for their contribution in maximizing the role of the real estate sector in supporting the national economy.

Source- Arab Times.

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