A ‘perfect storm’ is on the horizon for GCC real estate players

A study released by AT Kearney, a leading management consulting firm, predicts a perfect storm that lies ahead for the GCC real estate market.

This is based on 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.

This will challenge real estate developers not just to be better, but to be different.

The study argues 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’s 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," commented 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.

"The recommendations were based on over 20 interviews with architects and contractors that indicated that the current supply chain is inherently inefficient and drains value throughout the project life-cycle,” said Douglas Pickles, Director at AT Kearney.

"This commonly accepted model leads to design changes on up to 40% of the project specs and delays of six months or longer. The future belongs to those developers who can tackle these inefficiencies by introducing innovation and increase up front collaboration within their supply chain."

With better governance and a new operating model, companies in the industry will become more resilient. The study finds that further cost efficiencies are possible with increased differentiation and focus on end-customer preferences.

The study closes by saying these opportunities pose significant challenges as they mandate a rewriting of the way business is done. Successfully adopting them will require a new mindset, new skills and new incentives.

But according to AT Kearney there is hope, as other industries have shown it can happen successfully, and in the firm's experience, companies most needing change are willing to make it happen.

The next move is the real estate developers' to make.

Courtesy: zawya.com