The UAE real estate market is becoming increasingly tenant friendly as it faces greater competition by increasing supply, lower demand, falling rents and higher vacancies, said a new report.
This is a beneficial situation for tenants as landlords are expected to offer greater incentives to retain existing tenants and attract new ones, said the Jones Lang LaSalle report.
The UAE market will see a general decline in performance during 2010. The market will experience greater differentiation as some locations will perform better than others. This is in spite of the on-going decline in values plus an oversupply and higher vacancy scenario, the report said.
“This selective stability will result in a polarising effect on the market and will give rise to distinct winners and losers in the real estate sector, the report said.
In 2010 the UAE real estate market will move away from the off-plan sales model towards a longer term model based on secure cash flows, said Blair Hagkull, managing director, Jones Lang LaSalle Mena.
“Real estate investment vehicles are being redefined as more interest is shown towards co-investment vehicles. However the general downturn in market performance is not affecting all locations or assets type equally,” he said.
“ The level of returns is expected to be more stable in quality projects and locations as they are performing comparatively better than others. This flight to quality is significant as these are signs of maturity in a constantly evolving market.”
Jones Lang LaSalle’s key predications for 2010 include:
* From asset creation to asset management: 2009 marked the end of a transformational decade for the UAE real estate sector as the market shifted from a period of asset and value creation to that of asset management and value retention in 2010 and beyond. The shift in focus from creation of new assets to management and value enhancement of existing assets is a sign of maturity for the real estate market.
* Real homes for real people: In the last five years, 60 per cent of the housing stock comprising luxury and secondary homes was targeted at 16 per cent of the market who were mostly investors and speculators. The market is expected to re-position in 2010 as it increasingly caters to the needs of end-users in the middle segment of the UAE real estate sector. This is a significant development for the industry as its priorities are shifting towards the majority of end-users from the earlier focus on investors in the high-end segment.
* From global to local: Middle East real estate developers and investors are increasingly adopting inward looking strategies and are seeking more opportunities in local rather than international markets. Localisation of the real estate industry is an important trend as capital flows from regional entities shift towards domestic priorities.
* New financing model: Cash flow is critical as we expect debt markets to selectively ease in the coming year. Such a scenario results in an increased emphasis on equity and reinforces the need for co-investment vehicles. Scarce debt will make private equity and family wealth funds the preferred option due to their cash strong positions.
* Rebuilding trust and confidence: Lack of transparency and trust are major issues facing the UAE real estate industry. They have negatively impacted the UAE market and have eroded investor confidence. Effective regulation and greater transparency are some of the major industry challenges in 2010 and the years ahead.
Craig Plumb, head of research at Jones Lang LaSalle Mena, said: “Creating an atmosphere of trust is essential for markets to maintain a competitive edge in challenging economic times. The need to rebuild confidence and greater transparency is no longer optional but a necessity in the region’s fast evolving real estate markets. The rate of decline may be comparatively less in 2010 than in 2009 but the timing of recovery will depend on additional demand from both investors and tenants. As the markets mature, investors need to take a longer term view as the levels of returns are expected to become more stable and sustainable.”
By: TradeArabia News Service