Two of Malta’s largest developers disagree over whether the country is suffering from an oversupply of office spaces.

Mercury Tower developer Joseph Portelli said he was “avoiding” office developments amid a decline in the market fuelled by lacklustre demand and a slew of vacant properties.

But fellow developer and Malta Developers Association (MDA) head Michael Stivala thinks an oversupply of office space is not the issue, instead blaming any slowdown in the sector on a lack of investment and inadequate infrastructure.

Six months ago, a leading real estate agent said the prices of commercial properties had fallen by a fifth, signalling a troubling time for the sector.

And in a recent interview with Times of Malta, the head of the Malta Chamber, Marthese Portelli said studies had pointed to an “oversupply of office space and yet the Planning Authority keeps issuing permits for office buildings”.

She added that the “same applies to supermarkets and shopping malls,” while questioning if the country needed to build any more.

Portelli agreed with the Chamber head, saying rents on office spaces had dropped in recent years due to an exodus of businesses during the pandemic, when working from home became normalised, and these businesses had not returned.

Mercury Towers Joseph Portelli’s landmark Mercury Tower development has no office space.

And meanwhile, new offices were continuing to be built, the Gozitan property magnate said.

“In reality, I’m avoiding offices – and even hotels, there’s such an oversupply,” he said, adding the same was true for supermarkets, in line with the Chamber head’s comments.

He said he had left the office market, noting his recent Mercury Tower development has no office spaces, instead dedicated to shops – which he said were fully occupied – apartments and a hotel.

Stivala said his offices were more than 90 per cent occupied, describing the market as “not as good as a few years ago but not catastrophic”.

He stressed many of the new office blocks springing up were the result of building applications that had started years before, in some cases before the COVID-19 pandemic.

“Many offices are from old permits; if an office is being built, in reality the project started three or four years ago. For example, I started the tower in Gżira 20 years ago – [and] it took about five to six years to get the permit,” he said.

Portelli, meanwhile, would not be drawn on whether new office developments springing up were the lagged effect of permits submitted five or six years ago, but stressed it was “much easier” – and quicker – to get permits in the past.

“Today, we spend a year to get a permit,” he said, partly attributing the delays to environmental and conservation NGOs, whom he said had “organised themselves in a way that makes getting permits very difficult”.

‘Malta not attractive enough’

Stivala thinks the issue is “not an oversupply of office space, but Malta not being attractive enough for some businesses.”

Charging excessive bureaucracy with harming Malta’s competitiveness, the MDA head said, “red tape is affecting local businesses and foreign companies looking to invest in Malta,” adding banks were “reluctant” to lend to foreign companies.

Stivala's ST Tower in Gżira, right. Photo: Matthew Mirabelli

Rather than cutting back on offices, Stivala thinks the country should continue to invest in commercial real estate, provided it is of high enough quality.   “Office jobs are the highest paying in Malta. We need high-quality offices to attract high-quality companies and wages,” he said.

“The offices we’re building now are of much better quality than before; when I started out, developers used to convert residential spaces to offices, now they’re purpose-built,” he said, pointing to developments in St Julian’s and Mrieħel as examples.

Asked about other issues he thought were affecting the country’s attractiveness, Stivala pointed to overcrowding and issues with the country’s transport network. “The country needs more investment,” he said.

Supermarket sweep

On supermarkets, Stivala does not think there is an oversupply and argues their number should be left up to demand in the market.

“The market will dictate how many supermarkets we need, and the minute we start to cap how many we have, the consumer will lose,” he said.

Drawing parallels with hotels, the MDA head said, “as a hotelier, I should not want more to be granted permits, to cut competition – but then prices would go up and there would be a decrease in quality, because I would have less competition.”

“The more competition there is, the more competitive prices will be. We saw this with the taxis; the government started refusing permits and prices shot up. At the end of the day, the customer suffered.”