Alan Robertson, CEO, Jones Lang LaSalle MENA said: “2011 was a difficult year for real estate investors with most sectors of the market moving in the favour of tenants, with lower prices and rentals. While these trends appear likely to continue into 2012, the main trend for this year is likely to be an increasing polarisation within each sector of the market. As the performance of the best quality projects will improve, average prices are expected to decline further in 2012 within this increasingly two tier market.
“Beyond investment valuations and rentals, we are continuing to see the evolution of a more mature marketplace in the UAE where valuations and property and asset management, will becoming increasingly important for occupiers, developers and investors.
“The local real estate market will continue be impacted by regional and global events during 2012 as, the UAE is not immune from the on-going impact of the Arab Spring and the economic troubles of the Eurozone. As we enter 2012, the real estate sector will inevitably be susceptible to any potential geo-political changes within the region, with the recent escalation of rhetoric between Iran and the West being the major cause of uncertainty. The worsening European debt crises and its impact on the global economy will be the other major external challenge to the UAE real estate market in 2012.”
This is the fifth year that Jones Lang LaSalle has published its keynote research anticipating the major trends affecting and shaping the UAE real estate sector.
In publishing its 2012 report, Jones Lang LaSalle believes the following will be the key trends for the UAE’s real estate sector over the next twelve months:
More Realism: The UAE real estate sector will generally see more realism in 2012. With consolidation and rationalisation of projects, there will be more focus towards customer requirements and long-term commercial viability. In 2012, affordability will be to housing what budget hotels will be to the hospitality market. Banks are also expected to continue their more selective approach towards lending criteria.
More Choice: There will be more choice for occupiers and tenants in 2012. With significant levels of supply inflow in many sectors, the market is expected to increase in competitiveness which will lead to a wider spectrum of choices for tenants and occupiers this year.
More Sustainability: Globally, there is increased evidence that green buildings have a superior financial performance to others. Despite an increased awareness of the importance of sustainability within the UAE there remain few LEED certified projects. There is likely to be further green measures introduced but sustainability is not likely to be a real game changer in 2012 as the market will remain concerned with more pressing short-term issues.
More Management: The quality of estate management will be one of the factors determining winners and losers as it will be a critical factor in attracting tenants. There is likely to be a shift in emphasis from the management of individual assets to the management of the public areas within master planned projects in 2012
More Quality: As the flight to quality continues in 2012, there will be an emphasis on better quality projects across all sectors. There will also be a greater distinction between winners and losers as performance will vary greatly with preferred buildings outperforming others in an increasingly two-tiered market.
More Transactions: With increasing investor interest in the UAE market, a higher volume of transactions are expected in 2012, with this growth being driven by private investors and high net worth individuals rather than investment institutions. The majority of whole building sales will be in the residential sector, with a preferred asset price of Dh30-Dh70 million. There will remain few sales to institutional investors as this sector remains constrained by the shortage of investment grade stock and unrealistic asking prices.
These key trends are likely to have varied implications on different sectors of the UAE real estate market:
Office: The Abu Dhabi and Dubai office market will become more tenant friendly in 2012 as average effective rents continue to fall in both cities. Increasing realism among Abu Dhabi landlords will result in more leasing incentives offered to tenants with effective office rents falling more than in Dubai during 2012. There will also be portfolio optimisation due to improved space utilisation which will lead to reduced levels of required space and increased levels of sub lease space becoming available to the market.
Residential: In 2012, the UAE residential market will be characterised by variations in performance. These conditions will result in rent and price increases in some locations while remaining stable elsewhere but depressed in some places. This varied performance will apply between buildings of the same project and also between different units within the same buildings. In Dubai, villa projects are generally expected to outperform apartments this year.
Hospitality: The UAE hospitality market will benefit from continued investments in tourism related infrastructure like airports and airline fleet expansion in 2012. The Dubai hotel market will see improved performance while the Abu Dhabi market, which is currently some way behind the Dubai market in its cycle, will see performance stabilise after a period of decline in 2010 / 2011. The UAE’s safe haven status will continue to be a beneficial factor for the sector during 2012.
Retail: There may be repositioning and/or redevelopment of struggling retail centres as increasing competition continues to polarise centres into winners and losers in 2012. Poorer performing malls will need to be repositioned to remain competitive. Some mall owners may also need to consider converting shopping centers into non retail uses.
These key trends will also have a set of implications for the UAE’s major markets:
Abu Dhabi: There is ongoing rationalisation among real estate related government agencies like Aldar and Mubadala as the government rethinks its real estate agenda. Government financial support is being cut back as there is an increased emphasis on financial viability of projects across the board. This is resulting in delaying or scaling down of projects like Saadiyat Island and Capital District.
Dubai: In 2012, the impact of the Dubai master plan and increased infrastructure spending will have a direct impact on the real estate market. The introduction and evolution of business friendly government initiatives, such as the merger of free zone authorities and amendment of foreign ownership laws will also have a direct influence on sentiment.
Craig Plumb, Head of Research, Jones Lang LaSalle MENA concluded: “As the UAE real estate market continues to grow and evolve we will continue to see a shift in focus, with government and private sector players absorbing the new realities and characteristics of the market and rethinking their ‘big picture’ strategies.
“Financial viability will play an increasingly important role as the UAE real estate market becomes generally more realistic during 2012. Lower prices, more choice of higher quality product and its role as a regional safe haven will increase the attractiveness of the UAE market to both occupiers and investors in 2012.
“We can expect ‘more’ positive signals from this year, with some of the key words being affordable housing, budget hotels, infrastructure spending, estate management, selective stability, financial viability, new realism, tenant friendliness and sustainability across the UAE real estate market.”