UAE office rents rise on growing occupier demand

UAE commercial real estate sentiment is on the rise, with the growing demand putting upward pressure on rents across the market, according to the Royal Institution of Chartered Surveyors (Rics).

In the UAE, the occupier sentiment index (OSI) fell from +42 to +20, but remains comfortably in positive territory, the international association said.

“Growth in occupier demand continues to outpace that of supply of space to let, although less so than last quarter and as a result there remains upward pressure on rents, both in the primary and secondary markets,” it added.

The UAE’s investment sentiment index (ISI) fell from +45 to +24, but as with the OSI, it remains “comfortably optimistic.”

Credit conditions improved over the quarter, while investment enquiries continued to increase, which is putting upward pressure on capital values, Rics said.

James Cresswell, Head of Commercial Valuation at Cavendish Maxwell in Dubai, said: “It’s very difficult to predict what will happen with rents and capital values over the next three years. The market is growing and at the same time stabilising and maturing, but the level of supply could be a concern.

“Although some years off, Expo 2020 will also have an impact on the economy and property pricing across the board. It is quite possible we see a marginal correction over the next couple of years before growth returns on the build up to 2020.”

Elsewhere in the world, forward looking sentiment indicators suggest that Japan will continue to see strong upward momentum in the investor and occupier markets, especially over the next 12 months.

These strong expectations are being driven by the current upbeat tone to market conditions.

The United Kingdom and New Zealand have seen strong sentiment, in keeping with year on year gross domestic product (GDP) growth of over three per cent in both markets.

In Europe, Hungary in particular saw solid momentum, especially on the occupier side, with increased demand in the rental market leading to significant upward pressure on rent expectations for the next 12 months. This is likely due to the sharp rise in employment numbers witnessed during the first half of 2014.

In other parts of Europe, some markets worst hit by the 2008 financial crisis continue to recover as is reflected in the growth in occupier demand and investor interest.

Portugal, Spain and Ireland have seen confidence return since 2013, a trend that seems to be establishing itself going forward. This upward trend is expected to continue to support the outlook for rents and commercial property prices over the medium term.

The emerging markets of Brazil, Russia, India, China and South Africa (Brics) present a varied picture, with India leading on market sentiment with sizable gains projected for rents and commercial property prices of around 10 per cent per annum over the next three years. One factor is the Indian government’s recent approval of Real Estate Investment Trusts (Reits), with expectations among the Indian survey sample that this development could see funding for commercial real estate sector improve as a result.

In China, growth in supply is outstripping that of demand in both the occupier and investment sectors, an indicator that the near term outlook for rents and commercial property prices will likely be flat.

Overall market sentiment remained marginally negative in the Chinese property sector for the second consecutive quarter, the first time this has occurred since 2009. South Africa demonstrates similar trends to those of China, but investor interest has seen an increase over the past three months.

In Brazil, moderating economic growth and higher interest rates appear to be taking their toll on the real estate sector with sentiment deteriorating across the board. Similarly, Russia has seen sentiment weaken due to, what some respondents note, sanctions affecting business and some predicted more sanctions to come.

Of this quarter’s results, RICS Chief Economist Simon Rubinsohn, said: “The global economic recovery remains fairly fragile, despite some encouraging signs in some of the world’s economies. The results of the RICS Global Commercial Property Monitor provide some reassurance and suggest a slightly improved environment for both occupier and investment markets. Whether the more positive trend can be sustained will depend, critically, on whether the macro headwinds can be resisted.”

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