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Fitch Ratings says short-term leases and geographic and specific market segment concentration are viewed as limiting qualitative rating factors for property investment companies (PIC) in the Gulf Cooperation Council (GCC).
In the GCC the majority of office and residential lease period is typically one year. Land and Industrial facilities can have long-term leases, up to 30 years. However, they will usually have a break clause of less than one year.
Fitch assumes all leases break or rents are reset at the earliest possible opportunity with conservative rental values and occupation rates.
The short-term nature of leases in the GCC exposes regional PIC to lease renewal risk. However, Fitch notes the exception for prime and good secondary retail leases, which can be of a longer stable nature with an average of around seven to eight years.
For example, Majid Al Futtaim Holding LLC MAFH, BBB/Stable, benefits from an average retail lease length of 8.1 years, which compares well with European peers, a high-quality and diversified tenant base exhibiting an estimated above 95% lease renewal rate, and occupancy rate at 98%.