With Abu Dhabi's real estate market in a holding pattern, developers at Cityscape showed off projects near completion rather than fantastical visions of the future.
Yet again, a gulf cityscape event proved an absolute bonanza for international model makers. Everywhere you looked, lovingly crafted landscapes offered passing investors a glimpse at Abu Dhabi's 2030 plan. But there's a healthy dose of cynicism wafting through the Gulf these days. Visitors to Cityscape Abu Dhabi - and there seemed to be fewer than normal due to a mixture of circumstances - may well have been fascinated by the models, but both developers and investors were more keen than ever to talk about the here and now , rather than the grandiose designs of the past.
Model making triumphs aside, it's fair to say that expectations for Cityscape were never that high, and the fallout from the Icelandic eruption may well have given the organisers an excuse to explain what turned out to be a low footfall. The absence of Proleads Global, whose empty stand bore a sign saying that representatives had been trapped in Europe, was testament to the difficulties that some firms faced. In reality, however, the state of the market in Abu Dhabi - in a ‘holding pattern' as one attendee saw it - meant that companies that might otherwise have exhibited stayed away. For those that remained, several pointed out that they were not exhibiting specifically to sell units, but rather to show faith in a market which is in a state of flux.
In terms of themes, perhaps the most prevalent issue was the feeling that developers are now starting to listen to what the market needs, rather than building from the ‘outside-in' as Harry Goodson Wickes, an associate director at Cluttons Abu Dhabi, sees it.
"This attitude is fine when supply is limited and demand is high, but as more discerning occupiers look at the new supply line in the market, they will be attracted by more functional usage," the director explains.
As a result, future designs for buildings are likely to focus on functionality rather than aesthetics, which can only be good for developers, whose first and foremost priority should be filling their units.
"What we are saying to developers is that you need to cut up your floorplate to match demand in the market," outlines Colliers International regional director Ian Albert. "You have to provide a service and a product that people want; it's no longer a ‘build and they will take it' market."
Albert believes that the abundance of shell and core office space available to consumers is fine in a cash-rich market, but that occupiers are now looking to recoup the outlay they would once have spent on fitting out.
"The advice to clients is that it's better to take the cost of fit-out and put it into the building itself, as the finance loan for that building is over ten-fifteen years and is a lot easier to swallow," the Colliers International director continues.
So not only is there a general shortage of supply, but the actual product that ends up on the market is often not what end-users are after.
"There's just not been enough supply that's been delivered on the residential side, and a lot of the projects have been speculatively driven," says David Dudley, regional director and head of Jones Lang LaSalle's Abu Dhabi office. "It was all about off plan sales and was focused on the investor; nobody even thought about the end-user."
While ordering developers to cater to the new market dynamic is all very well, this change won't take place immediately. Is it too late for the new supply line to be redesigned to cater to this new demand?
"I certainly wouldn't say that developers have missed the boat on this one, although there is a timelag in solving that situation, for sure," Dudley continues. "A lot of the projects that are still able to be changed, developers are changing them from really big three-bedrooms to smaller units that are more affordable. And for new projects coming forward, with two years or more to be delivered, they will be planned to be much more in line with what the market and end-users need."
In response to accusations that they have listened to the demands of investors instead of end-users, developers remain adamant that they are on the right track. In fact, Abu Dhabi's biggest master developer, Aldar, revealed that while demand for office space in its HQ development - the circular
structure that dominates the main road into the city from Dubai - had been high, it hadn't been able to cater to every request to lease units.
"We've been marketing HQ strongly, and we've had a lot of companies asking questions about the property," says Aldar marketing director Ousama Ghannoum. "But we realise that there is interest in smaller offices; unfortunately, the shape of this building means that we can't offer out smaller spaces due to the size of the common areas."
And Aldar is also recognising the need for a new look at the residential sector.
"Things are changing - people don't just want three or four bedroom properties, they want one or two bedrooms maybe," Ghannoum observes. "We are definitely listening to demand."
On the specific projects side, talk this year tended to revolve around two of the UAE capital's biggest developments, Reem Island and Al Raha Beach. A quick look at the biggest model of all - that provided by the Urban Planning Council (UPC), which covered the whole of a completed Abu Dhabi in 2030 - portrayed Reem Island as a hedgehog of relatively high-rise towers in comparison to the rest of the capital. And the trend of looking at the present was personified by the tendency of many companies to focus on a single, often almost-completed, project rather than marketing a series of developments about which investors might have doubts. Tamouh, for example, decided to put all its eggs into Marina Square, which will be the first completed portion of the capital's landmark Reem Island project.
"Delivery of the Marina Square project to institutional investors will start in May, and we are expecting units to be ready for residents after a four-month period," says Tamouh marketing director Samia Bouazza.
A little further down the coast, and Aldar's first Al Raha Beach precincts, Al Bandar, is just days away from being handed over, with work also well under way on the Al Muneera and Al Zeina. And a spokesperson from International Capital Trading (ICT) also revealed during the course of Cityscape that reclamation work on the centerpiece Lu'luat Al Raha island had been completed, and that that was as well "theoretically ready" to be handed over to developers.
Agents believe that this new pipeline of supply, given the constrictions in the residential market, will be heavily subscribed, with potentially disastrous results for landlords used to charging extortionate rents.
"There is already evidence of increased transactions as developments come closer to handover, leading to a potential slight upturn in sales values towards the end of the year," indicates Cluttons' Goodson Wickes. "A growing number of renters will become homeowners as landlords price themselves out of the market as financial constraints continue to ease and buying becomes a feasible alternative."
For Sorouh, Abu Dhabi's second-largest developer, this year was all about Lulu Island, a 60/40 partnership with Mubadala. A conceptualised design for the island, which is 500m off the coast of the Corniche, was completed during the course of 2009, and steady progress onsite should see the full project completed in sixteen years' time.
"We are aiming for the first of fifteen phases to be completed by 2015, with the entire project taking about fifteen years," explains Sorouh managing director Abubaker Seddiq Al Khouri.
But the executive also believes that the liquidity situation in the local market is having a dampening effect on sentiment.
"My biggest concern as a real estate developer is the interest rate," he says. "We are willing to subsidise part of the interest rate and share with the banks, and we have sourced 20 local banks that are now willing to give mortgages to buyers."
But in some bad news for Sorouh, and the UAE's cabal of mega-developers generally, some analysts don't see rates shifting position any time soon.
"Right now we are not seeing any uptick in the US interest rates before the third quarter of 2011, which is a long way away," says Standard Chartered regional senior economist Philippe Dauba-Pantenacce. "With the region pegged to the dollar, we don't see any change in interest rates before then."
Dubai firms tended to be thin on the ground although two major companies effectively portrayed both the past and the future of the neighbouring emirate.
Plans for the Dubai Falcon City of Wonders have been on the drawing board for some time now, and the developer's presence at Cityscape was clearly an attempt to galvanise investor interest in the project. At a colossal size, and featuring several replicas of global icons - like a larger-than-life Eiffel Tower - the city symbolises Dubai's once-dominant real estate scene.
But at the other end of the scale, the Dubai Silicon Oasis Authority is putting the emphasis very firmly on consolidation over the course of the next few years. Tenders are still being issued, and villas are being handed over, but it seems that the government body is happy to wait until demand returns.
"Until 2012, we will be more focused on completing services and facilities, like schools, shopping areas and landscaped facilities," says Muammar Khaled Al Katheeri, vice president of engineering management at Dubai Silicon Oasis Authority.
That healthy dose of reality is perhaps what the sector has needed for some time. Model making has been great for headlines and building investor interest, but the era of the end-user is back with a bang.For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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