Tehran's Commercial Property Market in Deep Recession

EghtesadOnline: As Tehran's residential housing market was experiencing a reversal and coming out of a long recession last year, the capital city's commercial properties market was sinking into stagnancy, official figures indicate.

News ID: ۷۸۴۲۵۶

24 October 2018

The number and total floor area of commercial units built in Tehran have fallen, leading to a double-whammy recession both on the supply and demand sides.

This was reported by the Persian economic newspaper Donya-e-Eqtesad based on a host of previously undisclosed data obtained from the Tehran Municipality, the Central Bank of Iran and the Statistical Center of Iran.

Following that massive slump, the next year (2016-17) saw the number of permits slightly grow to 9,950. However, the previous fiscal year (2017-18) saw another huge decline in the number of permits as they more than halved to 4,700, according to Financial Tribune.

At the turn of the current Iranian decade in 2011-12, the country's commercial property market was still experiencing a bubble that enticed many, including even banks, to invest. The initial two years of the decade continued to witness increasing investments, but the downturn that ensued has persisted ever since.

According to figures on permits reported by the paper, a total of 13,758 commercial units were constructed in Tehran in 2012-13. In the next Iranian year, an additional 21,727 commercial construction permits were issued.

But in the following two fiscal years that immediately followed the commercial property boom, the number of permits declined to 14,624 and 7,131 respectively.

Following that massive slump, the next year (2016-17) saw the number of permits slightly grow to 9,950. However, the previous fiscal year (2017-18) saw another huge decline in the number of permits as they more than halved to 4,700.

After the experience of the past few years, builders looking to build commercial units tread carefully, especially since a great number of units previously constructed remain empty in Tehran, especially in the capital's districts 1 to 5 in addition to District 22.

The downturn in the commercial property market was accompanied by a similar trend in the residential housing market, at least between 2012 and 2017 when the residential market was mired in its longest-running recession in recent memory.

But during the previous fiscal year, the residential market showed signs of finally exiting recession on the back of government support and increased private sector investments. From the start of the final quarter of the previous year in December 2017, the market entered a boom phase.

During the previous fiscal year, the number of construction permits for malls, commercial centers and single-unit shops declined by 15% year-on-year. This decreased the total floor area of built commercial units from about 1.83 million square meters to 663,000 square meters in that period, which affected the supply chain. On the demand side, a declining purchasing power contributed to market stagnancy.

Donya-e-Eqtesad reports, based on "field evaluations" during the current fiscal year (ending March 2019) for which there are no official data yet, that the residential market has experienced much stronger price hikes compared to the commercial property market.

The ongoing recession in the commercial property market and the considerable volume of commercial units that are still vacant are the main reasons behind the less accentuated price fluctuations in the commercial property market.