Dubai real estate on growth curve, prices, rents will rise in 2013: JLL

Prime rents in office segment set to rise; No upturn expected in Abu Dhabi

A broad based recovery will be seen in all segments of Dubai real estate market in 2013, with prime office rents rising for the first time since 2008, according to Jones Lang LaSalle (JLL).

Alan Robertson, Chief Executive Officer, JLL MENA, said: “With an increase of 65 per cent in the number of transactions in 2012, the Dubai real estate sector will continue to shift up a gear in 2013, experiencing a broader based recovery on the back of continued economic growth.”

He added that Abu Dhabi remains 18 to 24 months behind Dubai with the market not expected to experience an upturn this year.

“The foundations are, however, being laid for a recovery from 2014, with a number of major infrastructure projects scheduled to start later this year.”

Total value of real estate transactions in Dubai crossed Dh143 billion in 2011. The Dubai Land Department is yet to officially announce 2012 figures.

Craig Plumb, Head of Research, JLL Mena, while announcing the consultancy’s Top Trends for the UAE real estate market in 2013, said: “Price and rent recovery are likely to be more broader this year than 2012 when it was limited to few selected locations. We saw price growth in Dubai by 20 per cent in 2012... we will not see prices increasing 20 per cent this year, but overall rate of growth will be less than last year.”

Residential stock in close proximity to the Metro stations will see increase in prices and rents, Plumb added.

Plumb, however, said that the new regulation on housing allowances for government employees and a possible reverse migration to the capital due to rental growth in Dubai will have a positive impact on the market.

In September, the emirate’s Secretariat General of the Executive Council said that Abu Dhabi government employees would be required to live inside the capital within a year.

The decision was made to ensure the safety of employees commuting long distances, often in bad weather conditions, the council said. As many as 19,564 people drive into Abu Dhabi in the morning hours.

Nearly 18,000 units will be completed in Dubai while Abu Dhabi will see completion of 16,000 units this year.

Free zones to gain

Prime office rents, primarily in Dubai International Financial Centre, Tecom and Downtown Dubai, with single ownership, will rise this year, Plumb disclosed, adding secondary locations will not see any such increases.

“Office rents have declined in Dubai since 2008, but we expect to see an increase in rents in selective properties in best locations this year. There will be some parts where there will be no increase largely because vacancy rates are as high as 60 to 70 in some office locations.”

Abu Dhabi, he said, will continue see softening of rents due to limited demand from private sector. The market is more driven by government sector, who prefer to occupy their own buildings.

“… there will be more choice of good quality buildings in Abu Dhabi in 2013.”

This year, however, will see more companies in the UAE adopting a better workplace strategy.

“Tenants will remain cautious. They will upgrade to better quality space or even consolidate to one building from different buildings as they seek better return from their real estate,” believes Plumb.

New investors

According to Robertson, the real estate in both markets will benefit from increased economic activity between the UAE and East Asia, specifically China and South Korea, as well as sub Saharan Africa and Australia.

“We also look forward to the Expo 2020 announcement in November. Success will be a significant boost to the domestic real estate market, hence our continued support as an official bid supporter.”

Indians, Britons, Iranians, Saudis and Pakistanis have been the largest investors in Dubai’s real estate sector for the past few years.

The following are the seven top trends for the UAE Real Estate:

Return of confidence to the Dubai market: Factors such as the UAE’s economic growth, increased employment, Dubai’s safe haven status and improved price/rental performance have led to continued market confidence. With many real estate project announcements over the past six months, this increased market confidence has become more pronounced. The government is keen to create a more stable market environment as illustrated by the new mortgage caps from the UAE Central Bank.

Funding real estate development in 2013: Funding constraints will apply a natural brake on the pace of new development. Usual real estate financing routes such as off plan sales, IPO/bond issues or bank lending are already challenged. LTV ratio caps might also act as a deterrent as it will limit availability of mortgage finance to end users. In 2013, new development funding is likely to come from overseas cash purchasers and private money from other businesses.

Increased involvement from East Asia and the Global South: Increased real estate investment is expected from China and South Korea due to greater business cooperation with the UAE. Chinese involvement is particularly pronounced in the retail sector and is likely to continue in 2013 along with possible investments in the hotel and tourism sectors. There is also increasing interest from Sub Saharan Africa, particularly from oil rich countries like Angola and Nigeria

Increased choice as supply levels remain significant: Buyers and tenants will have a multitude of choices in some sectors in 2013, with significant levels of new supply acting as a constraint on the overall performance of the UAE real estate sector, possibly offsetting the positive impact of improved market sentiment.

Operational and financial management: In 2013, there will be greater awareness of the importance of both the operational and financial aspects of property management. Operational issues are getting increased attention due to various factors like health/safety considerations, demanding occupiers, stringent legislations and adoption of best practices. On the other hand, financial issues are also becoming increasingly important as more focus is given towards greater transparency of operating costs. Best value approaches are likely to be more widely applied, rather than lowest cost options.

Sustainability: With continued progress in 2012, sustainability is expected to move into even greater focus in 2013. With Masdar and Estidama regulations, Abu Dhabi will continue to take the lead. Most sustainability initiatives in 2013 are likely to be micro and small scale as there is a general reluctance among owners to accept green leases. Evidence from overseas suggests sustainability is unlikely to be fully embraced until either government regulations force change or there is shift in local market perceptions about the financial viability of green buildings.

Government initiatives: The government will remain a major player influencing the UAE real estate market in 2013. Initiatives such as the UAE Central Bank mortgage cap, approval of the Dubai Urban Planning Framework and consolidation of real estate players in Abu Dhabi will better regulate or tighten control on market conditions. While initiatives such as regulation on housing allowances for Abu Dhabi government employees, announcement of major government back projects and Dh330 billion stimulus package in Abu Dhabi will stimulate demand and market performance.

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