Boston, MA -- (SBWIRE) -- 02/12/2014 -- Our forecasts for the commercial real estate sector in Pakistan are unchanged. Long-term upside risk is provided by the (hopefully) improving political and economic situation. However, the security situation in the industrial city of Karachi, and indeed elsewhere in Pakistan, remains a concern, dampening the outlook for the commercial real estate sector.

We are awaiting clearer developments before reviewing our forecasts.

Despite the ongoing violence in the country, which continues to dampen investors interest in investing in Pakistani commercial real estate, we believe that the May 2013 election and subsequent peaceful transfer of power, followed by by-elections in August, in which the ruling Pakistan Muslim League-Nawaz did well, are an encouraging sign for increased political stability. If this continues, it will have a positive impact on the commercial real estate sector, boosting investor confidence in the country and providing a more stable political environment in which to develop the regulation and transparency needed in the sector.

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Meanwhile, we believe that a hike in interest rates by the State Bank of Pakistan in November 2013 will be positive for the real estate sector in the medium term, cooling inflation and boosting savings, and ultimately investment, in the country.

The biggest downside risk to the sector is the security situation. Risks include urban violence and of course the significant Islamist insurgency in western Pakistan. This has both a direct and indirect impact on the commercial real estate sector. Firstly companies are relocating away from some areas, moving to new cities altogether or to more secure locations within the same city. The security situation also affects investors' appetite for commercial real estate in the country.

However, some efforts are being made to boost real estate investment. The government has asked the Securities and Exchange Commission of Pakistan (SECP) to develop guidelines for the establishment of a real estate regulatory, with the aim of improving transparency in the sector. Meanwhile, talks are ongoing with the SECP on formalising a structure for listing real estate investment trusts (REITs) in Pakistan and efforts within the industry, for example trade shows and new real estate websites, are raising the sector's profile.

We see the retail sector as having particular strength over our five-year forecast period, as consumer spending grows and with it demand for more modern retail environments. In the long term, the growth of mass grocery retail (MGR), from its current low base, will be a driver of retail real estate, but we are not forecasting a large increase in MGR activity over our five-year forecast period.

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