Immigration a key factor in development of real estate
(DENNIS B MALLARI)
“We have a positive outlook for all sectors, but the key factor for development of the real estate sector is maintaining suitable immigration levels,” Nicholas Maclean, Managing Director – Middle East region, CB Richard Ellis, told Emirates Business.
Dubai has a total office market stock of approximately 32 million square feet. It is difficult to get an actual figure as residential stock is still being used as office space.
“Large international requirements are not being met, leading to an acute imbalance between demand and supply. This has substantially pushed up rents in Dubai for the last couple of years,” he said.
With zero per cent vacancy rates for commercial space, rents have crossed Dh500 per square foot.The city is moving out, as there is not enough capacity to deliver stock in prime locations such as Sheikh Zayed Road. “We are approaching rentals of $150 per square foot per year here in Dubai. But the big question is if that is sustainable,” he asked.
The Dubai market will see an additional 80 million square feet of office space being added between 2008 and 2011. “Although it is difficult to accurately determine the amount of new supply or the timing of completions, only a limited proportion of new supply will meet the needs and requirements of multinational companies. Moreover, rentals will correct across the board, with some buildings and locations experiencing a sharper downturn,” Maclean said.
According to CB Richard Ellis estimates, global total office stock in the fourth quarter of 2007 was 24.21 billion square feet, with 19.38 billion square feet in the developed world and 4.84 billion square feet in the developing world.
By 2015, Dubai will have 110 million square feet of office space and an estimated 4.1 million population, raising the population to office space ratio to 26.83 square feet per capita. It is similar to Seattle, which had an office stock of 86.69 million square feet in 2007 and a population of 3.26 million, with a resulting ratio of 26.56 square feet per capita.
“It is physically dependent on the level of immigration in this country. The natural demographic is not going to sustain this kind of growth.”
The availability of accommodation will be a prime factor driving the future of office markets. Although prices have shot up in Dubai, they are still far below international standards with prime properties in London and Moscow selling at $3,500 and $3,350 per square foot.
According to CB Richard Ellis, 170,000 new residential units are expected to be entering the market between 2008-2010, if construction delays are kept to a minimum.
There will be a minimum new demand of 70,000 units per annum, topping the current delivery of 57,000 units. The supply pipeline declines sharply by 2012.
There are certain sections of the market that are grossly undersupplied – economical housing and middle-income villa developments. “Dubai has to build affordable housing and it is in the hands of the government to provide incentive schemes whereby private developers can offer affordable housing.”
Maclean believes that the time is still ripe for people to buy properties, but it totally depends on the location. “If you buy in the right location and you have found something unique or which is likely to appreciate in value, then buy now so you don’t miss the boat. But if you buy somewhere in an oversupplied location or it is in a poor location it would give a difficult return,” he added.
About a 4.25 million gross lease area is under development in Dubai and looking at the dollar spend per square foot ($2,003 per square foot) the developments do not look sustainable, he added.
“If you look at where the spending comes from you realise that 55 per cent of every fil spent comes from people outside the UAE – GCC nationals or tourists. If you consider that then per square feet spend reaches $7,131, which is highly sustainable.”
Overall, the outlook for the Dubai property market is not at all “gloomy,” but competition will come from Abu Dhabi, Saudi Arabia, Bahrain and Qatar.
“Downturn from the European and United States market will force institutions to come to new markets and one of the first stops to their route to international expansion will be Dubai. However, we are not making most of that,” Maclean added.
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