Where will evolving economic dynamics take the GCC?

Moving landscapes are constant features across the deserts of the Arabian peninsula, says Steven Morgan, Middle East chief executive, Savills. The evolving economic and political situation throughout the Gulf Cooperation Council could be considered a man-made mirror of this naturally dynamic region. Despite low oil prices and political turbulence in some areas, the countries of the GCC have been generally resilient against regional and global economic and political issues. Though the ripple effects of these factors have weighed on growth in the short term, the region’s long-term prospects are promising. Over the past decade, many cities within the GCC have competed strongly on the global stage across the financial, logistics, leisure, education and healthcare sectors. This has been facilitated by a collaborative and visionary approach in creating an integrated forward-thinking hub for business, leisure and residence. Countries in the region continue to diversify their economies to remain competitive at a global level and to address the challenges posed by depleting oil reserves and decreased demand. The pace of change, however, has gathered pace over the past few years. The UAE continues to drive this trend but the rate and significance of socio-economic change in the Kingdom of Saudi Arabia is both remarkable and unprecedented. There is a renewed focus on tourism, services and the manufacturing sector to drive economic activity. Growth in either of these sectors will have a positive effect on the wider economy. According to one estimate, by 2027 the impact of tourism on the GCC economy will be 10.1% of GDP. The expansionary 2019 budgets across the region (KSA at $295bn and UAE at $16.3bn being the largest) are an indicator of governments’ priority on building necessary infrastructure for future growth. The GCC is one of the fastest-growing regions in the world. Spearheading this growth is a digital revolution, as businesses move away from old technologies. There is a desire in UAE particularly to embrace technology and predict future trends to position the economy ahead of global rivals. The region has been at the forefront of adopting, promoting and nurturing technologies such as Hyperloop, 3D printing and blockchain. Technological advancements are changing the world at an accelerating rate, and real estate is playing a pivotal role in the way that corporates carry out business and the way in which their talent engages with the built environment. A large population is expected to enter the workforce over the next few years. KSA alone is expecting 200,000 new entrants to the labour force annually over the next five years. Over the next decade, there will be significant changes in the way that Middle East real estate influences how people work and live. Masterplanned communities, co-working and co-living spaces, omnichannel and online retail, automated warehousing will be the key themes. The outlook, however, is not without challenges. The region faces a competitive landscape. The latest Purchasing Managers’ Index (a gauge of non-oil private sector performance) readings for KSA and UAE, the largest Gulf economies, reflect this reality with the overall input costs spiking for the non-oil private sector because of the introduction of 5% VAT. Real estate and construction offer another look at the economy’s performance. The supply/demand imbalance and continued softening of both rental and sales prices across numerous real estate classes has created challenges for various market participants. However, progressive government policies in the GCC and its demographic and geographical advantage will be key drivers for long-term growth. Development for millennials and generation Z must be considered, keeping in mind their requirements and the way their habits/thinking/work culture differ from preceding generations. Governments in the region are addressing this imbalance and creating new flexible living/working environments, future-proofed to meet the inevitable changing trends that lie ahead.