Overview

The Kurdistan Region is made up of three governorates: Erbil,

Sulaymaniyah and Duhok with a total population of some 5.2 million
with population growth estimated at 3% per annum. GDP growth is
forecast at 8% for 2013. Erbil (or Hawler in local parlance) is the capital
of the Region with an estimated population of 1.3 million.

Since the enactment of the 2006 Investment Law which created the
architecture for attracting Foreign Direct Investment, the Kurdistan
Region of Iraq (KRI) has established itself as a business friendly
environment for foreign companies. As of June 2013 there are now in
excess of 2,300 foreign companies registered in the KRI in addition to
the 15,000 local companies. Factors encouraging expansion into the
KRI include: security, regular power, airport infrastructure, growing
social and transport infrastructure, quality of life and investment
opportunities.

One of the cornerstones of the economy are the regions huge
untapped natural resources: an estimated 45bn barrels of oil reserves,
up to 200TCF of natural gas reserves and relatively unexplored
mineral deposits. This has attracted estimated investment of nearly
US$20bn up to 2013 in the Oil & Gas sector alone.

The KRG is actively encouraging public and private investment in the
industrial & logistics, tourism and agriculture sectors. Housing has also
been a key investment sector attracting nearly 50% of all investment
licenses granted within KRI.

The current and potential economic growth is overshadowed by the
KRGs fractious relationship with Baghdad and wider political risk
from neighbouring countries however the KRI is capitalising on its lead
as the safe and business-friendly region of Iraq that also offers
businesses and investors a spring board into the rest of the country.



FIGURE 3
Erbil International Airport Passenger Numbers
Key Economic Indicators
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0.6
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FIGURE 1
GDP Growth 2004 to 2012
FIGURE 2
GDP per Capita Growth 2004 to 2012
Source: EIA
Source: Kurdistan Regional Statistics Office/IKG Property Research
FIGURE 4
KRG Investment figures by sector (excluding Oil & Gas) 2006 to July
2013 (USD m)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
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Source: Kurdistan Regional Statistics Office/IKG Property Research
Market Overview Kurdistan Region of Iraq
Erbil Commercial and Residential Property
Q3 2013
IKG Property Research
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5
10
15
20
25
30
35
Source: Kurdistan Regional Statistics Office/IKG Property Research
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1,000
2,000
3,000
4,000
5,000
6,000
2004 2006 2008 2010 2012
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ikgproperty.com 1

Office
Market Overview
Local businesses tend to cluster within the 60m Road in the
historic CBD; International companies are located within gated
communities and standalone office buildings/villas on Gulan Street
and 100m Road within close proximity to the airport. This area is
defined as the emerging CBD. Additionally, international
companies are clustered within Ainkawa District, New Azadi,
Dream City and American Village.
The office sector is undeveloped. Lack of conventional office space
has resulted in companies leasing converted residential
accommodation, both villas and apartments. With the inherent
inefficiencies of converted residential buildings, lack of brand
integrity and less commercially minded individual investor
Landlords, the international corporates are beginning to move to
conventional office space.
Completed office buildings are characteristically poor quality:
typically low-rise, retail ground and mezzanine floors with office
space above. There are some recently developed exceptions in
close proximity to Erbil International Airport.
Office demand is increasing, in particular from the Oil & Gas sector
due to headcount increases as they graduate from exploration to
production phase.

Supply
Current built supply is limited in volume and quality. We estimate
that current supply of Grade B/C office buildings is approximately
70,000 m
2
with the majority clustered around the airport. This
figure does not include the ungraded commercial buildings.
Current supply of completed Grade B/C buildings are at
approximately 95%+ occupancy.
The majority of current built supply is poor quality and does not
adhere to International Building Code standards.
Relative good standard developments include Empire Business
Complex, UB Plaza, Ster Tower and Erbil Business Centre.
All of current supply is single Landlord owned with the exception
of Empire World and Justice Tower where floors/individual units
within some of the office buildings are being sold off plan.
Future supply is difficult to assess due to the large number of office
developments that have either not been officially launched or
those developments that have been are still under construction
but the developer is undecided as to what use class the building
will be. We estimate the cumulative supply of Grade C and better
office buildings is approximately 430,000 m
2
by end of 2016.
A large volume of the future supply is expected from Empire
World, Justice Tower, Emaars new Downtown project on Gulan
Street and from the office components within other mixed use
developments.
We are seeing some of the major local Landlord developers
aspiring to develop true international Grade A offices and are
employing international consultants to help achieve this.
Khoshnaw Tower on 100m Road is one such example.
Source: IKG Property Research
Market Overview | Erbil Commercial and Residential
ikgproperty.com 2
Q3 2013
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2013 2014 2015 2016
FIGURE 6
Future Office Supply: 2013 to 2016
100m Road
60m Road
Erbil
International
Airport
FIGURE 5
Erbils Emerging New Business District
Source: Bing Maps/IKG Property Research
m
2

Rent
USD/m
2
/pm
Trending
Prime 45
Secondary 15
Villa 20
Source: IKG Property Research
Market Overview | Erbil Commercial and Residential
ikgproperty.com 3
Q3 2013
Demand
International Oil Companies are scaling up operations giving rise
to large headcount increases. IOCs are currently the largest
international occupier type, according to our research they lease
approximately 30,000 m
2
offices within Erbil. A large proportion of
these companies have agglomerated in the first phase of Empire
Business Complex, currently running at almost 100% occupancy.
An increasing number of international companies are setting up
small representative offices in Erbil, most notably in the banking,
law, oil & gas related services and construction sectors. The
majority set up in villas as a cost effective solution, in some
instances using the premises as combined residential and office
accommodation.
Small number of large occupiers (> 1,000 m
2
). The market is
primarily made up of small to medium occupiers of 100 300 m
2
.
Rising public sector demand as government related entities
relocate to better quality premises or expand out of existing
premises.

Rents
Average prime rental rates for the prime office buildings are
showing flat growth since Q1 2013. The rental rate quoted in
Figure 7 is an average figure for shell & core offices that excludes
exceptional deals anecdotal evidence suggests that Empire
Business Complex has achieved rental rates of in excess of USD55
per m
2
.
Commercial villa rents, particularly in Italian City and English
Village, are showing strong growth due to supply/demand
imbalance. Evidence suggests year-on-year rental growth of up to
20% from Q3 2012.
Relative to the global market, Erbils prime office occupancy costs
are similar to Munich, Houston and Abu Dhabi.

Outlook
Occupier demand will be driven by expanding business in Erbil,
especially within the Oil & Gas and related sectors, consolidation
and also new market entrants.
Strong GDP growth will contribute to increasing office demand.
Continued international interest in foreign entities setting up
representative offices in KRI.
Short term absorption of new office buildings expected to be high
given the immediate undersupply.
Increasing supply of good quality offices as the market matures
and developers start to understand occupier requirements.
Occupiers of residential conversions are beginning to consider
relocating to conventional offices, although given current cost
differential and immediate undersupply we expect this to be a
relatively slow process.
We expect the consolidation of existing offices spread over
multiple villas and apartments into single office premises.
Lease terms are set to increase from annually renewable to longer
terms as companies solidify local business. In the longer term we
see a potential for built-to-suit solutions for larger occupiers.
We see rental rates remaining stable as more supply enters the
market given a combination of economic growth with
slow/delayed delivery of new office buildings.
FIGURE 7
Office Rental Rates
FIGURE 8
Prime Office Occupancy Costs: Erbil vs selected cities
0 50 100 150
Kuala Lumpur
Prague
Adelaide
Auckland
Abu Dhabi
Ho Chi Minh City
Erbil
Munich
Houston
Vancouver
Buenos Aires
Aberdeen
Istanbul
Dubai
Seoul
London City
Moscow
USD/m
2
/pm*
Source: IKG Property Research
* Occupancy costs include service charge (if applicable)
Prime rents will remain stable for the
short term. In the mid-term, given
volume and some superior quality
supply we expect rental rates will
adjust to more sustainable levels for
Grade B/C offices.
Source: IKG Property Research
Market Overview | Erbil Commercial and Residential
ikgproperty.com 4
Q3 2013
Residential
Market Overview
The residential sector continues to be an attractive investment
sector with many new developments under construction.
Many of the new residential developments under construction
appear stalled with construction being initially commenced
possibly for land banking purposes to avoid investment licenses
being revoked.
Although the city does not enjoy a true CBD, the overseas
community favors the West of the City given its attractive location
close to Erbil International Airport and within easy reach of many
5 star facilities and services.
It is rumored that the KRG is refusing to grant new building
permits for residential developments in effort to prevent possible
over-supply of low quality product whilst legislation is
promulgated to encourage higher construction standards.
The serviced apartment market has yet to establish itself, although
some supply is currently under construction.
Rental yields upwards of seven percent are being typically
achieved on prime rental stock suitable for the international
community.

Supply
Apartment Market
Only approximately 2,000 units have been successfully delivered
to date.
If all planned developments are completed, total supply could
exceed 15,000 units, a 700% increase on existing stock levels.
Typically, units are configured to 2/3 bedroom arrangements with
only a small number of developers offering studio and one
bedroom style accommodation.
The majority of new stock supplied over the next few years will be
offered at around USD1,200 / m
2
.
In the next few years several new luxury projects are anticipated
to be completed establishing new price / quality thresholds.
Much of the existing and future supply is typically of local build
quality with only a handful of developments being to international
standard.

Villa Market
Typically villas suitable for the international community are found
within gated compounds offering back up power and 24/7 security
located in the West of the city.
New townships are springing up around the city, typically along
major arterial routes and sandwiched between the built 100m
Road and the yet to be completed 120m Road.
New villa developments are typically part of wider mixed-use
developments and can be split broadly into international standard
and local standard quality. Total supply by end of 2016 is likely to
be nearly 35,000 units.
Local grade accommodation is available for purchase within many
new townships from around USD150k per unit.

FIGURE 9
Villa Rental Rates
FIGURE 8
Residential Sales Rates
Source: IKG Property Research
Rent
USD/m
2
/pm
Trending
Empire World 22
Italian City 18
English Village 15


Price USD/m
2
Trending
Luxury
Apartment
1,650
Luxury Villa 1,950
Local Villa 1,200


Source: IKG Property Research
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2013 2014 2015 2016
FIGURE 9
Cumulative Apartment Supply
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Market Overview | Erbil Commercial and Residential
ikgproperty.com 5
Q3 2013
FIGURE 10
Incremental Apartment Supply by Grade
Source: IKG Property Research
Source: IKG Property Research
Demand
Villa Market
Villas within gated compounds are typically being rented between
USD 3,500 and USD 6,500 per month depending on quality and
handover condition.
Despite being an opaque market, villas within gated compound
facilities are transacting on the secondary market in the region of
USD 700,000 per unit - equivalent to approximately USD 2,000 /
m
2
.
With little new short term supply and the increasing popularity for
corporates to be located in the West of the City close to Erbil
International Airport, rental rates and valuations are expected to
remain at worst case firm.
Increased appetite from the corporate sector for villas as office
accommodation, especially for new start ups are likely to underpin
prices accordingly.
Villas which do not enjoy gated compound facilities and services
enjoy healthy discounts and are available for rent at
approximately USD2,500 per month and are currently transacting
at approximately USD250,000 per unit.

Apartment Market
On the back of several top end developments being completed
over the next few years, demand for mid-tier stock might suffer as
new price/quality thresholds are established.
Rental rates for good quality apartments range between
USD2,000 and USD4,000 per month depending on location and
configuration, with the more expensive units being available
within gated communities offering security and management
services.
Transactions are on a cash basis with bank lending / mortgage
derived financing being minimal.
Initial yields of around ten percent are being achieved on medium
grade stock, encouraging purchase for investment purposes over
immediate owner / occupation.
Given the political and security landscape of Iraq, Erbil is a favored
location for Iraqi nationals living in areas suffering from greater
security risks.

Outlook
Rental rates and valuations for top end compound villa stock likely
to remain firm.
Apartment market could suffer from over supply if planned
developments go ahead available stock could increase to over
15,000 units compared with just over 2,000 units as of 2013.
In tandem with a large supply of new stock, the delivery of several
top end developments would establish more transparent price /
quality thresholds possibly weakening demand for mid-tier
accommodation.
Local villa market unlikely to change due to limited supply with
continued demand from corporates to be located in the West of
the City.
Erbil will continue to be an attractive proposition for non-Kurdish
nationals seeking a safe haven to invest in property.


0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
0
1,000
2,000
3,000
4,000
5,000
6,000
A
B
C
In excess of USD1,200/m
2

Launch price between USD850 1,200/m
2
Launch price between USD600 860/m
2
FIGURE 11
Cumulative masterplanned (Int. & Local) Villa Supply
If all planned apartment
developments are delivered on time,
Erbil apartment supply will increase
by 700% within the next few years.
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IKG Property provides high quality residential and
commercial property services across Iraq, applying
insight, experience, and local market intelligence and
resources to help our clients make informed real
estate decisions.

Our clients range from global corporations to
individuals and our commitment is to serve them,
whether occupiers, owners or investors, to the
highest possible standards across all service lines and
asset classes through a dedicated team of
professionals. We take an international best practice
approach to our services, adding value and delivering
the best possible solutions for our clients.

IKG Property currently has a team of 9 employees
and is headquartered in Erbil with plans to expand its
operations across Iraq in the near term.

Market Overview | Erbil Commercial and Residential
ikgproperty.com 6
Q3 2013
Industrial
Market Snapshot
Light industrial, logistics and storage uses are mainly clustered to
the West on Mosul Road, to the South on 100m/Kirkuk Road and
to the North on Gazna Road and in proximity to Bahirka. To the
East
Predominantly warehouse quality is very poor, typically steel
portal frame construction with block work to full eaves height.
Connectivity to utilities in some outlying areas is poor.
There is currently no professionally masterplanned industrial and
logistics hub although we understand there are some under
consideration. Stores Land on Mosul Road is the only major
industrial focussed development that approaches being properly
master planned although development progress has ceased.
Limited centralised cold storage facilities but some under
construction at Erbil Food Distribution Centre, a high quality
facility off the Mosul Road.
Increasing demand from major FMCG companies for storage and
distribution facilities.
Increasing demand for storage from major retail franchisees as
international retail operators in KRI increase.
Increasing demand from the oil & gas sector for lay-down yards
and workshops.
Ad-hoc speculative supply from local Landlords, characteristically
clusters of c. 600 m
2
low grade warehouse units. Larger occupiers
are starting to purchase/lease plots to develop their own long term
facilities. We see this trend increasing due to the limited and low
quality existing options.
IKG Property Research will publish a full industrial report as part of
the Q4 2013 Market Report

Retail
Market Snapshot
Typically street retail clusters within the 60m Road. Retail has
generally agglomerated on a street by street basis, for example
Computer Street, Stationary Street.
Limited supply of destination shopping malls. Majidi Mall, Family
Mall and Royal Mall are the only malls in Erbil that offer an
international type of shopping experience.
Limited international brand penetration within market but
growing.
Increase in big box retail formats such as the new Ace Hardware
store on 100m Road. A French hypermarket is due to open shortly
on 100m Road. There is already an existing Carrefour
hypermarket in Family Mall.
Upcoming supply of low grade community malls, if they are
completed. Built supply is invariably poor quality with some malls
such as Gallery and Sofy Malls being converted to office premises.
Small scale Mall developers have historically sold individual units
off-plan to fund construction which has resulted in poor retail
mixes.
The Kurdish majority tend to shop within the historic shopping
areas of Erbil. Footfall within the Malls is predominantly
expatriate.
IKG Property Research will publish a full retail report as part of the Q4
2013 Market Report



IKG Property Research Team
Edward Carnegy
Managing Director
+964 (0) 750 198 6645
edward.carnegy@ikgproperty.com
Neil Thurston MRICS
Director
+964 (0) 750 207 0399
neil.thurston@ikgproperty.com
Omar Moradi
Research Analyst
+964 (0) 750 202 7294
omar.moradi@ikgproperty.com
This report is for general informative purposes only. It may not be published,
reproduced or quoted in part or in whole, nor may it be used as a basis for any
contract, prospectus, agreement or other document without prior consent.
Whilst every effort has been made to ensure its accuracy, IKG Property accepts
no liability whatsoever for any direct or consequential loss arising from its use.
The content is strictly copyright and reproduction of the whole or part of it in
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