Dubai real estate sees selective recovery
Dubai, January 7, 2013
The real estate market in Dubai is witnessing a selective recovery as optimism returns over the second half of 2012 with a flurry of new project announcements, said a report.
The Dubai economy has seen signs of solid recovery with its gross domestic product (GDP) projected to grow by 4.5 per cent in 2012, backed by the strong performance of tourism, commerce, retail, hospitality and logistics, said Jones Lang LaSalle, a leading real estate investment and advisory firm, in its fourth quarter real estate overview report.
Political stability, world class infrastructure and high quality of life, have contributed to this growth, the report stated.
Commenting on the report, Craig Plumb, the head of research at JLL Mena said, "2012 ended with a flurry of new project announcements as increased confidence has returned towards real estate. While there has been a recovery in rents and prices in the residential, retail and hotel sectors during 2012, this improvement remains focused on a relatively small number of projects."
"As we move into the New Year with renewed optimism, we are likely to see a broader-based recovery in 2013 but this recovery will remain challenged by the current over supply and high vacancy levels," he pointed out.
The recent UAE Central Bank announcement about caps on mortgage loan-to-value ratios shows that government authorities are concerned about market stability and want to avoid any rapid increase in real estate prices," he stated.
Commenting on the industrial sector, Alan Robertson, the CEO of Jones Lang LaSalle Mena said, "Unlike other sectors, the industrial market has been much less cyclical over recent years and continues to be dominated by long term commitments to single light industrial or logistics tenants."
According to Robertson, the rentals and land prices in the Dubai industrial market remain determined by critical mass, clustering and location.
"Rental rates in completed industrial units in Dubai vary significantly from one area to another with many companies willing to pay more for poorer quality space closer to the CBD than for newer and better quality space in more peripheral locations," he pointed out.
"The industrial sector reflects the importance of trade and transport to the Dubai economy and the market is likely to grow in line with the future growth of these activities," he added.
Improving sentiment and stronger economic fundamentals have resulted in a series of new large-scale projects being announced in the emirate. The most significant of these is Mohammed Bin Rashid City (MBRC) to be developed jointly by Emaar and Dubai Properties.
This new city will include the world's biggest shopping mall (Mall of the World), a Universal Studios franchise, hotel facilities and a large public park. The project was initially launched back in 2008 but has been revised since then.
"While there has been a marginal increase in headline rents in some office buildings, prime rents for office space in the CBD remained unchanged in the fourth quarter, while secondary rents continued to face downward pressure," said the expert.
According to the report, the demand remains driven by occupiers’ consolidation and upgrades. With activity starting to pick up towards the end of the year, there remains potential for rental growth in 2013, but this growth will be limited to a few prime office buildings with high occupancy rates.
The real estate investment market has remained quiet over the fourth quarter of the year with no major open market commercial transaction recorded. Despite the lack of transactions, investment sentiment in Dubai is improving, it stated.
The optimistic outlook is reflected in Jones Lang LaSalle’s latest Investment Sentiment Survey, which shows investors from the region perceive Dubai as the preferred market.
The overall residential market has recorded a positive year, with the villa market continuing to outperform the apartment sector, said the JLL in its report.
Prime projects in well established locations continue to see improved performance, but secondary locations are still suffering from rental and pricing declines as tenants relocate to new high quality projects, it added.
The recent announcement of a cap on LTV ratio’s for new mortgages and the significant levels of new supply scheduled in 2013 are likely to limit price increases below the levels witnessed in 2012, said the JLL in its report.
Demand remains strong for retail space in the best performing super-regional malls (eg: Dubai Mall, Mall of the Emirates), resulting in improved prime rents at Dh4,900 ($1333)/sq m. The two-tier market continues, with older malls witnessing subdued demand from consumers and retailers, resulting in a wider gap between primary and secondary centres.
The hotel sector, the report said, has performed well throughout 2012, supported by strong tourist arrivals and the opening of a number of branded hotel chains.
This is reflected by an improvement in occupancy rates to 77 per cent (year to November) compared to 74 per cent in the same period of 2011, as well as an increase in both Average Daily Rates (ADRs) and Revenue Per Available Room (RevPar). This positive trend is set to continue in 2013.
The industrial market has been much less cyclical than other sectors, being dominated by long term commitments to light industrial and logistic tenants.
Given the lack of oversupply and the growth of the trade and logistics sector of the UAE economy, there is increased demand from investors for income producing opportunities in the industrial sector.-TradeArabia News Service