By Harshit Magon
New sectors are developing to cater for the changing demands of tenants
The residential sector is the largest of the real estate market in any city and Dubai is no exception, with most developers and investors traditionally considering the residential sector to be the backbone of their business.
The nature of the residential market is, however, evolving rapidly, with new sectors developing as a result of the growth of blended living and the emergence of the sharing economy.
In addition to seeking opportunities in new (alternative) asset classes such healthcare, education, data centres and logistics, many developers and investors are also switching their attention to alternative forms of residential space.
Living represents a broadening of the traditional residential sector to provide for people at different stages of their life.
Student accommodation represents demand in transition, with most tenants remaining less than three years, as students migrate to other living formats after they graduate. Co-living provides a shared living format for individuals and families already established in the workforce. Senior living may not be as large a market in the Middle East as in more mature economies, but this sector still provides some potential opportunities.
While each of these sub markets clearly has unique characteristics, a number of common themes can be identified.
There has been a marked shift in the housing expectations of young adults (millennials) globally in recent years, driven by changing demographics (the median marriage age across the OECD has increased by five years to 32 years since 1990), affordability, and the desire for greater social interaction.
The net result of these trends has been the emergence of a range of new co-living formats as part of the move towards the sharing economy.
Consumers are increasingly seeking an experience from their living (as well as from their working, retail and entertainment spaces). This is resulting in a focus on creating living communities through events and activities, rather than just the physical elements of the residential space.
The emphasis has shifted from creating attractive places to creating dynamic environments that inspire people to live, work, connect and make friends.
As with all other sectors of the real estate market, the growth of proptech is impacting the living sector in a number of profound ways. These include everything from aps for tenants to communicate among themselves (thereby enhancing their sense of community) or to interact with the building managers (reporting faults or problems) to more back of house solutions that allow owners and building managers to better maintain, manage and increase the operational efficiency of their assets.
Accompanying the incorporation of more technology in the living sector, has been an increased focus on design. Design has of course always been a component in the sale and marketing of any residential project, this has however been taken to new heights within the living sector, where developers are spending more time and effort on creating unique and stylish designs to appeal to their ever more demanding customers.
While the specifics will clearly vary between projects, ‘urban chic’ is a phrase that is being widely applied to many of the new generation of living projects being delivered across the UAE.
While these trends are occurring at the global level, they also have a local dimension here in the UAE. Given the relatively young demographic, the focus has unsurprisingly been on the student housing and co-living sectors rather than aged care.
The largest student housing project launched to date is the Nest (by Arada developments in Sharjah). In addition to providing around 1,000 student rooms, this project offers a wide range of shared facilities including libraries, lounges, music and TV rooms, dining and restaurant facilities, as well as fitness facilities.
While most student housing projects overseas are owner operated and targeted at institutional investors, the Nest is targeting individual, strata investors, who are currently being offered an 8% net rental guarantee.
Most of the purpose-built student accommodation (PBSA) projects in Dubai to date are located in or around Dubai International Academic City (DIAC). These include Uninest (operated by GSA, a major global provider of student accommodation) which provides over 420 rooms and KSK homes (around 700 rooms in the current phase). The Myriad Residences will be the largest project in DIAC, (with around 1,800 rooms) when it opens in August 2020.
There remains interest in the PBSA sector and we would expect other projects to be launched across Dubai over the next few years on the back of the expansion of the higher education sector.
A number of major developers have also launched co-living projects aimed at those who have already graduated and joined the workforce.
Emaar’s Collective 2.0 project at Dubai Hills Estate brings a good case in point, offering 1- and 2-bedroom apartments, with shared amenities.
An innovative feature of Dubai Hills estate is the provision of a three-year trade license (issued by DMCC) to purchasers of units, as co living and co-working further converge.
Other mixed living and working projects targeting small, home-based businesses or freelancers include UNA, developed by Nshama at Town Square, and KOA’s Canvas project in Dubailand.
As for senior living, while it is more uncommon in the UAE, the various initiatives by the government such as the introduction of the Retirement Visa, is prompting a number of developers to explore independent senior housing projects.
The changing nature of how we live and work provides a growing level of demand that is underpinning the growth of new living sectors. This demand is long term in nature and less cyclical than that for other forms of real estate, reducing the volatility and susceptibility to short-term cyclical variations in price and performance.
Living categories are also expected to generate higher risk adjusted returns than traditional residential projects due to their generally higher entry yields, the ability to use and operate the space more efficiently, and the potential to generate additional revenue streams. In summary, we believe that these new living formats represent a long-term structural change that will attract a growing level of interest and real estate capital into the UAE and other regional markets.