A resurgence in demand for retail space in Dubai will “firmly” push up rents this year for the first time since mid-2008, according to a survey of 700 industry experts.
The Royal Institute of Chartered Surveyors’ (RICS) Global Commercial Property Survey found the gradual recovery in commercial real estate sentiment across the United Arab Emirates continued during Q4 2012 in both the occupier and investment markets.
Tenant demand in retail and industrial spaces increased at its fastest pace since the onset of the global financial crisis in mid-2008. However, there was “relative weakness” in demand for offices, including Grade A offerings.
“This compares to relative strength in the retail and, to a lesser extent, the industrial sectors, where rents are expected to pick up firmly and the trend in inducements, whilst not negative, is somewhat softer than in the office sector,” the RICS report said.
The improved sentiment led 10 percent more chartered surveyors to expect average commercial rents in the UAE to increase in the second quarter than those who expect them to fall.
That was a significant increase compared to the previous survey, when the difference was 5 percent.
Numerous new buildings are expected to be completed in Dubai and Abu Dhabi this year, but the chartered surveyors did not expect it to be enough to prevent rents from rising.
“Although there is a strong flow of space coming to the market, rents are still expected to increase, if modestly, also for the first since mid-2008,” the report said.
Capital values also are expected to rise, albeit modestly, in the retail sector, as the supply of new properties coming onto the market slows.
However, capital values are expected to remain stable in the industrial and office sectors, partly due to an influx of new developments becoming available, many of which had been stalled during the economic downturn, and an acceleration in new construction.
“Dubai has... seen renewed energy and interest from tenants, both in newly released opportunities as well as highly sought after landmark buildings and locations,” RICS spokeswoman Elaine Jones said.
“The sale of office premises as individual units is yet to see significant changes, although investor interest in buildings is greater now than six months ago. Business activity generally seems to be increasing which will no doubt show positive influence on the real estate market over the coming months."
Jones said the recent completion of high quality office premises in good locations in Abu Dhabi meant tenants there had greater selection and were able to negotiate incentives.
“Due to the increase in supply and a choice by landlords to offer structured incentives to attract large Government organisations as well as private sector business, there has been a positive growth in lease transactions,” she said.
Globally, the UAE ranked the 10th most positive, according to the proportion of surveyors expecting rental increases.
It also was the sixth most positive for anticipated development starts.
“In the UAE, the mood is improving in a tangible way after the most calamitous of downturns, and the US also now seems to be firmly in recovery mode,” RICS chief economist Simon Rubinsohn said. “However, Asia remains a particularly attractive location for investors seeking out commercial real estate assets with sentiment still strongly positive.
“Of course, the global economy continues to face significant risks but the numbers suggest that property continues to be viewed in a generally positive light away from Europe where the flow for real estate still remains particularly challenging.”