UAE rents continue to fall across the residential and commercial sectors

The average rents will continue to fall in Dubai and Abu Dhabi across the residential and commercial sectors this year, a senior official of Jones Lang LaSalle said.

“The recovery of real estate in Dubai will vary by sector with the hotel and retail sectors recovering first in Dubai; however, even for these sectors, it could take time for average prices to recover,” Jesse Downs, Director of Management Consulting of Jones Lang LaSalle MENA, told Khaleej Times in an interview.

She said properties cycles are typically five to seven years or longer and, due to various factors, Dubai’s cycle could run on longer end of this range.

How do you see 2011 for real estate sector in the UAE?

In 2011, the main trends for UAE real estate are really about adjusting capital values to meet investor expectations, gradually restoring confidence, and recognition of the absolutely critical factor of quality property management. In other words, it will be marked by shifting real estate perspectives from development to operation. For more than five years, real estate in the UAE has been about development and construction of property. While this is a determining and costly stage in the property cycle, the cost of operating a building over its lifetime far exceeds the development costs. Moreover, proper management is critical for minimising depreciation and protecting asset values.

When is the property sector expected to see an upward trend? When will Dubai’s real estate industry see its 2006 peak again?

The recovery of real estate in Dubai will vary by sector with the hotel and retail sectors recovering first in Dubai; however, even for these sectors, it could take time for average prices to recover. Within each sector, monitoring and projecting average prices do illustrate full market potential. For example, although the hotel sector may experience some additional declines, established beach hotels appear to be reaching the bottom. In the residential market, prices also vary significantly by property profile. On average villas in established communities and select apartment developments in specific locations appear to be approaching the bottom as well. Although some assets show early signs of bottoming out, it is unlikely that average residential prices will bottom out within the next 18 months. Properties cycles are typically five to seven years or longer and, due to various factors, Dubai’s cycle could run on longer end of this range. Inevitably, we will eventually see average prices return to those observed in 2006, and even at the peak in 2008, but it’s a question of time frame. Based on the current situation, this is unlikely to happen in the next few years. The commercial sector is more challenging given the massive supply pipeline, but this also varies by location, especially given the presence of free zones, which are effectively semi-autonomous markets with distinct demand and supply dynamics. On the whole, however, declining office rents bode well for the economy as they lower the cost of doing business in city and can incentivize new market entrants and expansion of existing businesses.

Do you think the unrest in the region will help the real estate sector recovery in Dubai as more companies are relocating their corporate offices here?

There are companies consolidating and relocating staff to Dubai. However, often these companies have existing office space to accommodate short-term demand. Since the anticipate supply is massive, the increased demand is unlikely to significant impact absorption in the short term. However, the general polarisation of investment attitudes to the MENA region around economies operating within a relatively more stable political context, will impact trends in the medium to long term. Falling prices and rents will increase the appeal of relocating businesses to Dubai.

Investors’ trust on Dubai real estate projects is fast restoring due to the unrest in the region?

Regional unrest is not restoring confidence in the Dubai market, rather investors considering the MENA region will gravitate towards those markets — like Dubai — offering greater stability. Many of the causes of reduced investor confidence over the past two years still prevail, as do many of the positive aspects of the local real estate market.

Global economies are fast emerging from recession. Do you think it will help improving property sector in the UAE?

A stronger global economy could potentially help the property market in the UAE. One way is through increased investment; however, we have not seen this yet largely because capital values have not adjusted enough to entice investment.

A lot of infrastructure spending is being made in the region’s property sector especially in Saudi Arabia and Qatar. Do you think it will not impact real estate projects in the UAE?

Infrastructure has a direct and significant impact on the real estate markets. Greater cooperation between cities like Abu Dhabi and Dubai can enhance the overall appeal and competitive advantage of the UAE. Similarly, the development of comparable hubs around the region can augment the appeal of the GCC. There is an element of competition, of course, but it seems each country is carving out its own complementary niche.

How will infrastructure projects impact the property sector, housing demand and supply situation, and rents in the emirate?

Infrastructure is a critical factor determining the value of real estate and this applies anywhere in the world. The old adage is that property is about location, location and location. Infrastructure is one critical component of a “good location.” From a macro-perspective, infrastructure can enhance the value and attractiveness of the city as a whole, attracting businesses and residents.

© Khaleej Times