Dubai’s real estate sector gets ‘smarter’
Expo 2020 will have a positive impact on the UAE over the long-term with hospitality, logistics and retail being the major winners, Jones Lang LaSalle, a leading real estate investment and advisory firm, said on Monday.
However, the World Expo will have limited direct effect in 2014 because of restricted short-term activity, the real estate advisory firm said while warning that both price expectations and excessive new supply would require careful management leading up to 2020.
In its “2014 top trends for UAE real estate” report, Jones Lang LaSalle (JLL) brushed aside concerns that Dubai would experience another bubble with unsustainable price growth in the residential market, increasing cost pressures and return of speculative activity.
On the other hand, JLL said there are many differences this time around that makes for a ‘smarter’ market with investors getting more cautious, better regulations, and phased out property development in line with demand.
“There is also less reliance on pre-sales and sub-developers and significant levels of new supply are being provided,” JLL noted.
The International Monetary Fund has cautioned that Dubai might need to intervene in its property market if there are signs of overheating to prevent another boom-and-bust cycle.
“When you see rapid increases in any asset prices then you just need to be prepared to act,” Masood Ahmed, the IMF’s director for the Middle East and North Africa, has said.
In its report, JLL said mega projects that were either put on hold, significantly slowed or were not initiated during the financial crisis are a reality again because of growing confidence in the UAE’s market. “The plans are more measured and there is an increased focus on phasing projects over many years in line with end user demand. In Dubai, these master-plan communities include Dubai Canal, Mohammad Bin Rashid City and Dubai Waterfront. In Abu Dhabi, they include Saadiyat Island and Capital District, now known as Zayed City.”
JLL predicted more varied approaches to funding real estate. It expects that equity would be a preferred funding approach in 2014 rather than debt. Pre-sales will remain important in the residential market and pre-leases and build-to-suit will be funding many new office projects, it said.
“Sale and leasebacks, REITs (real estate investment trust) and IPO’s (initial public offering) and last mile financing will become increasingly popular options for funding as banks remain cautious to enter into new relationships. There may be some further IPO’s and bond issuances in 2014, but these are not expected to be widespread and to be limited to just a few major real estate players,” it said.
Overall, JLL expects that 2014 will remain primarily a tenants’ market with little decline in the current excessive vacancy levels in Dubai or Abu Dhabi. However, with pent-up demand increasing from corporates who are now freeing up more capital for expansion of their business, JLL sees an increase in corporate activity in the UAE in 2014.
“The current two-tier market is likely to continue, with the best buildings experiencing increased take up and little demand for secondary space. As corporates focus on more innovative workplace solutions, such as hot desking and open floor plans, efficiencies are being achieved that will result in the demand for real estate growing less quickly than employment levels.”
JLL also expects more investment sales in the hotel sector across the UAE, as owners now have more realistic expectations and hotels continue to perform strongly.
“There remains strong interest from investors in this sector and the willingness of owners to make strategic disposals will allow this interest to be converted into more sales than have been experienced in recent years.”
Dubai became the first country to back new international property measurement standards (IPMS) in September 2013, and this should help better regulate the market in 2014, the real estate advisory firm observed.
According to JLL, Dubai is growing towards the South with Dubai World Central, which includes the Expo 2020 site and Al Maktoum Airport, driving this trend. There is also a notable trend towards development closer to central Dubai, in filling some of the gaps left by the previous scattered development.
“Mohammed Bin Rashid City is a good example of this trend, incorporating many of the components originally envisaged for Dubailand.”
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