In its ‘Top 10 for 2010’ report, Jones Lang LaSalle outlined the key trends for the UAE real estate mar- ket.

magazine gets a mid-year update from Blair Hagkull, managing director, MENA

Trend

07

FROM GLOBAL TO LOCAL

The localisation of real estate

 Capital focus on domestic priorities: SWFs; government entities; family wealth funds

 MENA investors and developers will shift focus to local/regional not global markets

 Emphasis on markets with a large domestic demand base: KSA, Egypt, Morocco

Is backyard investing more to do with seizing opportunities or simply going for ‘safer bets’?

It’s a combination of both. Over the last 10 years foreign investors have driven a lot of these local markets, and are fairly atypical but have been openly embraced. The hallmark of a successful society is

where a government invests in the country itself. In the last five years there has been massive infrastructure investment in the UAE. On a per capita GDP basis both Abu Dhabi and Dubai have made substantial investment and it’s about the future. The perception here is that Middle Eastern investors will continue to be large investors overseas, but there is a now a refocus on looking after your home market. This is consistent with the redevelopment of confidence in home markets. We talk about global best practice but real estate really is a local business. We are going to see some more inward investment but that will only happen when core markets become more stable. Around the world most commercial real estate is owned by institutions and corporate funds and here by individuals or family companies. There is a tremendous amount of product

being built, but very little of it meets the criteria of an international investor. They are looking for single ownership, not strata; long-term covenants; and professional management at an international level. There is a greater understanding of

these requirements but the challenge in the commercial market is that so much of it has been stratified. We are going to see some re-engineering of projects but this is at a very early stage.

Trend

06

DEFINING REAL VALUE

Need to accurately reflect current value

 Problem in defining real value on a market with few transactions

 Professionalisation of the valuation industry  Valuations codes/practices to become more aligned with international best practice

Is the valuations process a learning curve for the market and how important is regulated practice in taking regional real estate to sus- tainable levels?

In many parts of the world, large investment real estate is owned by publicly-initiated companies and the integrity of valuation is vital to an understanding of the entire global market, whereas here a lot of it rests with families and individuals and the public-ness of values becomes something far less established. As people are looking to refinance, and as

the market has changed significantly over the last 18 months, what is a real value? It’s all connected to what we call defining a new normal. We are finding that the role of valuations as a strategic decision-making tool is becoming far more important. The issues that organisations like RERA are having now is that many companies say that they provide valuations but very few do it to an international level; there is definitely a connection between confidence in the marketplace and professionalism. In looking at establishing some minimum benchmarks the challenge is in actual execution. What we see is probably best described as a significant flight to quality in terms of valuations. It is one of the key underlying tools in the development and management of the real estate and is coming to the fore like never before. In the future rigorous scrutiny will only increase.

Trend

05

NEW FINANCING MODEL FOR REAL ESTATE

Limited debt will require larger equity invest- ment – cash is king

 Co-investment and consolidation will lead the way forward: family wealth funds; investment houses; HNWIs; private equity

 Prioritisation of projects and focused investment activity

 Focus on the completion of projects under development

 Innovations in project financing i.e. sale and lease-back

Is cash still king for the foreseeable future, and which investors are leading the charge?

From Q4 2008 to end Q3 2009 we saw such a significant change and shift in the real estate market in the region that people were ultimately taking stock and things were frozen. There are issues related to liquidity throughout the entire world, and what we see is that usually it’s the innovative family wealth funds and HNWIs that have the ability to be at the forefront. Real market leadership can bring significant dividends. Our sense is that with first mover advantage we are going to see innovative groups of investors that, by nature, have the ability to see an opportunity and grab it.

➔

Our sense is that with first mover advantage we are going to see innovative groups of investors that, by nature, have the ability to see an opportunity and grab it

jun-sep 2010

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