Trend
01
SELECTIVE STABILITY
Markets cannot be assessed with a broad brush approach
Growth unlikely in 2010 in most sub-markets The rate of decrease, however, will be much less steep than witnessed in 2009
Timing of recovery will depend upon strengthening of investor and tenant demand
Level of returns to become more stable and sustainable as markets mature
Which locations are faring better than oth- ers? Is it purely an Abu Dhabi and Dubai fo- cused market?
Without a doubt the dominant emirates are Abu Dhabi and Dubai. As you find greater supply and greater affordability in Dubai, there will be a knock-on effect in the northern emirates. As the market matures it acts and responds differently. The broader trend is still downwards
across the UAE, anywhere from five to 20 percent or more in the course of this year, but not all properties and neighbourhoods will respond the same. Those areas that will do better are location
based. In Dubai, if you look at the Sheikh Zayed Road spine which has two areas – from World Trade Centre to Business Bay, and then down to TECOM and the Dubai Marina – there are pockets that will outperform others. Areas further inland will likely respond less well because of an absence of transit, school and leisure facilities. One of the areas that goes against this is Arabian Ranches. In the early days it was far away and didn’t have many amenities, but now it is well serviced and well developed. So what you do need is that critical mass. In Abu Dhabi, the market is primarily still
focused on the island and infrastructure work promises easier traffic circulation in the future. The other core areas around Al Raha, the airport and Saadiyat Island are works in progress but with a significant future upside. There is an opportunity for developers to think more about the public parts of their real estate than they have in the past.
Blair Hagkull
On the mark?
HAGKULL REFLECTS ON THE TRENDS AS 2010 REACHES THE HALFWAY POINT
The second trend - generating demand, the key to recovery - is resonating strongly. In real estate markets throughout most of the world, there’s a defined way of dealing with the supply part of the equation. But the creation of demand is more of an art than a science. Certainly in this region, people are looking for demand that’s sustainable, less speculative, more connected to jobs and more about the long-term than today or tomorrow. We’re a bit surprised that people haven’t focused more on demand, which ultimately ensures a sustainable approach. Certainly we’ve seen progress with the market being friendlier to tenants, and the focus on yield and opposed to capital gains. Perhaps it’s still too early in the year, but we expected to
see more third party transactions taking place. We had a few cases where an asset has been identified for sale but the price subsequently changed. People are preparing for some important transactions –
we are working on a number of them right now – but the blockbuster deals are few and far between. We are now focusing more on deals that are manageable – ie bite-size deals that are easier to accomplish. The market has been quite stable for the last few months but in absence of transactions, asset prices continue to be soft. One of the biggest risks that exists now in the regional marketplace is for world-class buildings to be managed in a substandard way. You hear about ‘value creation’ but you can also have ‘value destruction’ if assets aren’t managed properly. There will be major challenges if completed buildings do not have adequate air-conditioning and water circulation, particularly over the summer months. We are starting to see landlords provide greater incentives
to tenants, but nothing like those that are being offered in parts of Europe – on a five year term you could easily get a year- and-a-half rent-free period. The idea of real estate becoming more local is certainly something that we are seeing, and I think the evolution from sovereign wealth funds to what we call family wealth funds is an important trend and something we’ll see more of now. The role of families and the corporatisation of real estate
assets is also a trend that we expect to see more of in the coming months.
The idea of real estate becoming more local is certainly something that we are seeing, and I think the evolution from sovereign wealth funds to what we call ‘family wealth funds’ is an important trend and something we’ll see more of now
jun-sep 2010
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