Dubai’s real estate is likely to witness some stability in capital values while Abu Dhabi will see highest value declines over the next 12 months, a latest Jones Lang LaSalle (JLL) survey has said.
“While Dubai is already passed the supply peak, Abu Dhabi is still approaching the peak of the supply cycle. Thus, Abu Dhabi rents and sale prices are expected to continue to decline in the coming year,” the global property consultancy said in its 2011 Middle East and North Africa (Mena) Real Estate Investor Sentiment survey released today.
Respondents to the survey, which comprise top 30 financial institutions investing in regional real estate markets, believe that even as Dubai rents will continue to fall, the rate of decline has slowed significantly and indicators show some locations and sectors are either at, or near, the bottom.
According to the survey, more established residential and commercial areas have experienced price stabilisation and, in select cases, increases. Areas such as Palm Jumeirah, Dubai Marina and prime office locations like Dubai International Financial Centre and Emaar Square have performed best while peripheral and less developed areas with limited infrastructure continue to suffer.
Despite investors remaining optimistic about the Saudi Arabia’s market fundamentals, specifically the high liquidity resulting from a strong petrochemical-driven economy and massive infrastructure spend, capital value decline will be witnessed in the Kingdom.
Buyers outnumber sellers
JLL said that across most of the MENA markets, buyers outnumbered sellers, but there remained a marked divergence between markets that were perceived as secure and stable such as Abu Dhabi, Dubai, Qatar, and Saudi Arabia and other markets where political uncertainty lingers (Bahrain, Egypt, and Syria).
Andrew Charlesworth, Head of Capital Markets for the Mena region at JLL, said: “While recent events have created some uncertainty across MENA, there are areas within the region, particularly the GCC, where there remains a reasonable level of demand among local investors. The problem is one of finding and securing the right product at a price that makes sense.”
The survey found that “until more product were offered at realistic prices, the Mena region will forgo capital flows this year.”
Affordable housing in demand
According to the survey, investor interest for all asset classes in Abu Dhabi, with the appetite being strongest for the residential sector. In Abu Dhabi and the broader region, investors anticipate opportunities in the middle income housing segment.
The residential market in Cairo was the only regional asset class where sellers are expected to outnumber buyers in a year's time. Following the recent events and transfer of political power, this market is facing continued uncertainties. Unresolved legal challenges to the validity of title granted in several major residential projects in Cairo are inhibiting investor interest and sales activity.
Realty investments to rise
Almost 75 per cent of respondents said they were planning to increase their level of investment in the Mena real estate market over the next 12 months compared to just seven per cent who were planning to decrease their exposure level.
Respondents aim to invest up to $6 billion in the real estate market over the next year, but JLL warns that this may be inflated because many funds may be trying to tap the same capital sources. Based on individual transactions, the most common deal size sought was between $20 million and $50 million.
Almost 74 per cent of investors indicated they had the financing in place to fund their acquisition plans for the next 12 months, while the remaining 26 per cent were planning to use a combination of debt financing and syndicated equity to raise the required capital.
Office sector in demand
Although there is general interest for all asset classes, office is the preferred sector with investor interest more focussed on completed and operational properties backed by long-term secure income streams. The logistics/light industrial sector emerges as another target sector, especially in Dubai and Saudi Arabia.
Mena-based investors have also expressed interested in the residential sector, particularly for low- to middle-income housing development which has been neglected during the boom years. More specifically, regional developers and investors see opportunity in partnering with local governments to develop low cost housing.
Abu Dhabi has already been in the forefront and has in place a strategy to ensure that new master developments allocate space to affordable housing as well.
“Backyard investing” favoured
In terms of investment strategy, Mena is the geographic focus with 67 per cent of respondents planning to acquire regional assets over the next 12 months. The majority of respondents are regionally based and favour “backyard investing,” thus it is not surprising that investment strategies focus on areas where investors have greater market knowledge and broader influence.
Compared to regionally based investors, those based outside the region are much less active in Mena. Only a handful expect to be active over the next 12 months, the survey revealed.