By Matthew Green
Real estate: modest strength will persist amid challenges
The UAE is best positioned in the Gulf to withstand ongoing challenges. Strong financial reserves and a relatively diversified economy insulate it from significant financial deficits, allowing economic reforms while maintaining high infrastructure spending. However, widespread cost-rationalisation at public and private companies is evident as policy reforms further streamline fiscal operations.
A notable increase in new capital sources in the property market, from REITS to large private investment vehicles, has increased competition in a market suffering from restricted investment-grade product availability.
Dubai remains a major hub for global corporate occupiers. Their continued expansion will ultimately provide the basis for investable products going forward. The financial regulatory framework and robust legal systems (especially DIFC courts) enhance investor confidence and reduce barriers to entry. Changes in legislation or geo-political factors could impact investor confidence and investment volumes, but market appetite for the right assets will ensure further high-profile assets trade hands in 2018.
Dubai’s office market remains fragmented, with broadly stable conditions within the prime office segment, but greater rental variances in the secondary market over the past year.
While the instructional market for residential property remains limited, international investors’ significant capital has increased transaction numbers for off-plan residential units in Dubai amid the construction boom in the build up to Expo 2020.
The Dubai Land Department estimates total residential transaction value increased by approximately 16 percent in the third quarter of 2017 over the same period last year, driven by growth in overall transaction numbers, which rose by close to 30 percent. Offplan sales witnessed a spike in transaction numbers, growing by approximately 53 percent in the same period. The apartments segment in the residential market witnessed a 17 percent growth in value, coupled with a 33 percent growth in transactions over the same period last year.
There has been pressure on Dubai’s hotel revenues but demand has generally remained quite robust.
Average occupancy reached nearly 76 percent during the first ten months of 2017, marginally up over 2016. The UAE has seen a net increase in visitors, although rapid growth in rooms has significantly deflated room rates, with average daily rates down four percent year to date. In 2018, we expect to see continued growth in overall visitor numbers, helping support the rapid supply growth.
A modest improvement in the UAE’s economic conditions could see some positive impacts on other parts of the real estate sector. As a result, we expect to see sustained demand levels for good quality office accommodation, underpinning relative stability in the prime office sector. This may also translate into increased investment activity for commercial properties with an increase in listed investment vehicles injecting additional capital to investment markets.
With strong momentum already visible in residential transactional volumes, we expect to witness further market expansion in the coming quarters. However, as supply levels grow, so do market the risks, albeit this is not being reflected in terms of current investor appetite for off-plan sales.