The real estate market can be divided into 5 groups: residential, commercial, industrial, agricultural and other (i.e. Parks, Church, Mosque and etc.). In this article, we examine the market for commercial real estate which includes business offices, stores, movie theatres and playhouses, hotels, etc and the outlook will be studied from a macro point of view.

During the past years, the number of commercial units has experienced a considerable growth and most of them are presently vacant and do not face a proper amount of demand. Below, we demonstrate the data on building permits issued in Iran during 2004 to 2014:

Year 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total 133,157 156,669 211,813 246,823 203,579 184,883 216,944 183,385 206,372 206,395 120,408
Residential 114866 136200 185146 218966 179932 164389 197,105 163,618 180907 175914 99768
Residential and workshop together 8,321 9,989 14,001 14,244 12,105 10,725 10,954, 10,436 14,022 15852 10067
Commercial 6,058 7,023 9,021 9,769 8,300 7,064 6,586 7,049 8,774 10,915 8226
Industrial 1,575 1,117 1,374 1,501 1,451 1,156 1,139 1,111 1,310 1532 1220
Educational 219 280 464 455 382 374 343 315 224 218 362
Sanitary or Medical 82 69 117 105 124 160 126 115 134 137 142
Other 2,036 1,991 1,690 1,738 1,285 1,016 691 741 1,001 1827 623

 

As can be seen in the table above, the number of issued permits for commercial units has a direct relation with the number of issued permits for residential units. Considering the expected decline in the number of permits for residential units in the coming years, a reduction in the number of permits for commercial units is not unlikely. On other hand, taking into account the demographic structure in Iran and the growth rate of the population, the demand for commercial units is expected to be stable or to have a low growth rate as a result of this factor.

There is no official statistics regarding the number of vacant commercial units and therefore there isn’t any official statistics about the rate of vacant spaces; however, by doing field study and observations we can easily assess that the number of vacant commercial units is very high in Iran. This problem, along with the number of new units under construction has resulted in an excess supply in this sector.

Considering the statistics of the trade units in Iran and comparing it with other countries reveals that Iran is far away from international average for number of trade units per households. According to the published data, currently there exists one trade unit for every seven household in Iran, a number which is equal to 37 in Europe. This data shows that in the case of an increase in productivity and reaching the desired level, trade units should reduce in number and supply should rise.

Another important problem that can influence the number of trade units is a change in the consumption culture. The effect of internet and online shopping, which have experienced a significant growth in the recent years, is very strong. Iran is not an exception as well and presently online stores have a growing share in the Iranian market. This fact has resulted in a change in the culture and could be a factor to have effect on demand sector in the long run and lead to its reduction. On the other hand, the construction of shopping malls and various hyper markets and chain stores has led many people to use these centers instead, affecting the retail industry and reducing trade units as a result.

Considering the high prices of business and commercial units and also their opportunity costs, their rental costs are extremely high in a way that in many cases it constitutes the major part of the costs of these trade units and in reality, these units are not cost effective from economic point of view. This problem has a negative impact on the demand for these units.

Besides these negative factors mentioned above, we should not overlook the positive effect of the nuclear deal. Considering the lack of presence of many foreign companies in Iran at the moment and their need to launch offices and agencies in the country in the near future, it seems that this deal will lead to an increase in the demand.

Bearing in mind the above mentioned elements and their result, it appears that the demand will either decline or stay stable and in return supply will increase and the result will be stability in commercial units and a decrease in the attraction of investment in this section of the real estate.