Solid growth: Most locations and segments are seeing price increases and expansion

For three days in early October 2013, Cityscape Global took centre stage in Dubai’s resurgent real estate market. The annual property industry gathering is the ultimate barometer of confidence in Dubai bricks and mortar. Underscoring the strength of positive market sentiment, the 2013 event was the largest in four years, with major announcements by 11 of the emirate’s highest-profile developers.

Approximately 70% of the launches were concentrated on high-end residential projects, reflecting general market trends that favour premium locations at premium prices. However, in contrast to the selective recovery of 2012, when the focus was on consolidating or reorienting projects in more established areas of Dubai, 2013 was a year of broad-based recovery, with prices for sales and rentals growing across most locations and market segments.

As a result, for the first time since 2008, all segments of the Dubai real estate market are positioned in the recovery stage of their market cycle, according to global real estate services firm Jones Lang LaSalle (JLL). According to Dubai Land Department (DLD) data, real estate transactions in the emirate totalled Dh236bn ($64.2bn) in 2013, up sharply from Dh154bn ($42bn) in all of 2012. While the residential, retail, hospitality and industrial segments all experienced solid growth, the recovery of the office segment has been more selective and concentrated in prime property. A large supply overhang and high overall vacancy rates have depressed office prices in secondary locations.

Drivers Of Growth

The real estate sector is expected to maintain positive overall momentum through 2014, buoyed by strong fundamentals, as well as persistent speculative activity in the residential market segment. Importantly, the influence given to each of these factors has shifted significantly since 2008, and the improved sentiment and market recovery are now widely attributed to sound fundamentals rather than an excess of speculation.

Dubai has emerged as the investment destination of choice among its regional peers on the back of its well-developed logistics networks, favourable tax structure, healthy population growth of 100,000 new residents per year and the UAE’s reputation as a regional safe haven during the turmoil of the Arab Spring. Other factors that have resulted in stronger investor interest in most segments of the Dubai real estate market include improvements in the regulatory environment, the availability of more investment-grade products, and economic fundamentals rooted in healthy GDP growth of between 4% and 5% per year. The weight of interest generated by these indicators is such that investors are now open to acquiring Dubai assets at yields closer to emerging Europe and higher than established markets such as Moscow, according to a survey published in local newspaper Khaleej Times in October 2013.

Meeting Demand

 Demand for Dubai property seems to be coming from all corners of the world. According to the DLD, Indian nationals invested $2.4bn in Dubai real estate in 2012, followed by the British with $1.3bn, Pakistanis ($1.1bn), Iranians ($826m) and Russians ($640m).

GCC national investors also returned to Dubai real estate in 2012, injecting a combined $4.8bn into the market. Of that figure, 1955 UAE nationals accounted for $3.5bn worth of investments, or around 73% of the GCC total. The percentage share of investment in the Dubai property market remained unchanged through the first half of 2013, with UAE nationals topping the overall list of investors in the emirate at $3.3bn, a figure approaching the entire amount they spent in 2012.

Notable changes in 2013 include growing interest from Kuwaiti investment companies across all asset classes of the Dubai real estate market. The risk appetite of Asian institutional investors is also increasing. Commercial real estate services company CB Richard Ellis (CBRE) has suggested that they are looking to invest more than $150bn in property markets around the world over the next five years, with Dubai as one of their potential targets. These are specifically interested in income-producing assets, driven by an expectation of further growth in rental and capital values.

Mitigating against broader market penetration for institutional investors, particularly in the residential segment, are the premiums that high-net-worth private investors are willing to pay in Dubai.

Impact Of Speculation

 Sector-wide, Dubai has witnessed 20%-plus growth in property sales in 2013, far outstripping the local economy, which is in the middle of a strong cyclical upswing and registering growth of 4% to 5% annually. While significantly lower than the levels experienced in 2007 and 2008, the rate of growth seen over the past year, particularly in the residential market segment, is widely considered unsustainable. Prices in prime areas have already recovered to roughly half of the peak prices of 2008, with reported levels of growth higher than any major global market. Data from the DLD reveals that only 20% of total real estate sales over the first half of 2013 utilised mortgages, suggesting that the other 80% were cash transactions.

Some of these cash purchasers may be end-users or long-term investors, but the levels of price growth suggest that speculators seeking to flip their units for short-term capital gain are included among Dubai’s cash buyers. The influence of these investors, including those looking for a safe haven market, has fuelled concerns about the possibility of a real estate bubble similar to that seen in 2008, when the rapid withdrawal of speculative money from the market led to a property crash. “Although all property markets globally need an element of speculation to fuel developments and investment, it is felt that in Dubai the balance between buyers who are end-users and buyers who have entered the market as short-term speculators is askew,” Nicholas Maclean, managing director of CBRE Middle East, told OBG.

Slower & More Sustainable

 However, there are important differences and good reasons to believe that the next 12 months will deliver a period of slower and more sustainable growth in demand and prices. To begin with, significant levels of available accommodation to rent and buy are expected to temper the rate of price/rental growth and keep the market competitive. There are also higher levels of new supply entering the market than in 2007-08, with almost 45,000 residential units expected to be completed in Dubai before the end of 2015. Half-completed buildings that were mothballed during the downturn represent the low-hanging fruit of this development cycle. The re-launch of these projects and their contribution to market supply are a key differentiator to 2008, when there were no projects in the pipeline to weigh down the market. The market is also less dependent on pre-sales than it was during 2007 and 2008. The number of pre-sale units released from the first quarter to the third quarter of 2013 was relatively limited at 2300. While there have been projects released on a pre-sale basis from developers such as Emaar and Damac, far fewer developers have done the same. Saeed Mohammed Al Qatami, acting CEO of Deyaar, a real estate developer and services company, emphasises the importance of this development, suggesting that “speculation is never going to completely disappear. What is an improvement, however, is that speculation is now centring around existing projects as opposed to plots of land and theoretical structures.”

A corollary to this development is that there have been no recent announcements of master developers selling land plots to sub-developers, which was one of the major reasons for the previous crash as these sub-developers faced funding issues following the onset of the global financial crisis. “With a more structured approach on behalf of developers, we’re seeing more of a direct sales environment between the developer and the end-user, which in turn is lessening the role of speculators and the secondary market,” Ali Rashid Ahmed Lootah, chairman of Nakheel, told OBG.

Principles of corporate responsibility have compelled developers to recognise the need to adopt a more long-term and coordinated approach, with far more emphasis on phasing supply in line with levels of real demand over a five- to 10-year timeframe. “One cannot forget that real estate is an adjunct and supplementary to an economy, and it cannot be the main driver of economic growth simply on principle,” Maclean added. “We believe that real estate’s contribution to GDP should not exceed 18%, while we saw levels upwards of 30% prior to the crash.”

Changing Profiles

Investor profiles have also changed since 2008, with many brokers reporting a sharp increase in regional cash buyers generated by the turbulence of the Arab Spring. The result has been a reduction in the proportion of speculative transactions in the market and an increase in the number of end-user investors looking to buy property as owner-occupiers or as rental investments.

Five years ago the market was largely restricted to off-plan cash buyers with no intention of occupying the premises or using it as an investment. It is hoped that the arrival and activity of these endusers will help push the market toward a sufficient level of maturity to permit moderate and sustainable gains and losses without speculation exaggerating those peaks and troughs.

Regulation

Dubai’s property market is now substantially better regulated than it was in 2008. At the federal level, supportive initiatives include a loan-to-value mortgage cap (see analysis) and debt rationalisation strategies aimed at supporting healthy lending practices. As a means of reducing exposure to state-linked entities, the Central Bank of the UAE has announced plans to better regulate loans to government-linked firms, preventing banks from lending more than 100% of their capital and pushing the Dubai government to reduce debt exposure to its investment vehicles. There was no limit on the size of loans for government-linked companies under previous rules. Scarcity of financing should have a positive cooling effect on sector growth, limiting the number and timing of announced projects that can proceed. At the local level, the DLD has doubled registration fees to moderate speculative behaviour (see analysis) and driven significant developments in investor protection through its regulatory arm, the Real Estate Regulatory Authority (RERA).

Previous legislation aimed at guaranteeing the rights of investors, particularly Law 13 of 2008, required that investor funds be returned if a project is cancelled. But these laws failed to account for contingencies, including the possible depletion of escrow accounts (typically on marketing and construction activities) and the possibility that developers may not own the land they are developing if it has not been fully paid for. This makes it legally difficult to seize and sell for the benefit of investors.

In order to close the loop on investor protection and hold developers accountable for development promises, the DLD has circulated a draft Real Estate Investor Law known as Tanweer. Building on the Tayseer (2010) and Tania (2011) initiatives, the law is aimed at better balancing the relationship between developers and buyers by imposing a series of mandatory contractual conditions. These are aimed at addressing issues including the buyer’s right for compensation on delayed or suspended projects, contract cancellation conditions, restrictions aimed at preventing investors from selling or marketing reserved properties, and requirements for the registration of purchase agreements with the DLD.

Other steps aimed at regulating the sector include a new rental disputes settlement centre within the DLD, a decision to penalise brokers cold calling developers or owners, and a July 2013 decree setting up a special legal committee to liquidate property projects that have been decisively cancelled by RERA as per Law No. 13 of 2008 and its regulations. The ultimate success of these regulations will however turn on execution and enforcement.

The Regulatory Authority

RERA plays a critical role in Dubai’s real estate market, establishing standards and practices for the industry pursuant to the regulations and code of ethics enshrined in Bylaw 85. To address concerns regarding the opacity of the market and its impact on data reliability, the authority provides online information on property projects and developers, giving the public access to up-to-date information. Additionally, the agency is also driving developments aimed at safeguarding the interests of investors by ensuring the appropriate financial standing of developers.

The new regulations require that developers lodge between 30% and 40% of the total construction costs of developments in a project-specific escrow account before any pre-sales can be launched. In addition, developers are required to have 100% ownership of their land and an unconditional performance guarantee for 20% of the construction costs should they wish to sell off plan before 20% of the construction is completed. The raised barriers to market entry underscore a significant difference from the previous cycle, when there was greater involvement from smaller-scale private developers. Partially as a result of the new regulations, most new projects in 2012 and 2013 have been launched by developers with a proven local track record.

Voluntary Regulation

 Real estate in the emirate has typically been funded by one of three sources – bank loans, pre-sales, or off-plan sales and debt financing – and all three sources have fallen off sharply since the peak in 2008-09. Now that the Central Bank now requires UAE banks to reduce exposure to real estate, the market for pre-sales has contracted substantially and developer debt financing is constrained by the fact that many companies have yet to repay loans from the last cycle. As a result, developers are now focused on using generated cash flow, mezzanine financing and equity to fund near- and mid-term project requirements without depending on off-plan sales. Those pre-sales that are moving forward are on a stronger financial footing than in the past boom, when improperly funded projects forced investors to assume a disproportionate percentage of risk. Developers have also voluntarily introduced new clauses to control speculation in their projects. Emaar, for example, prohibits resale unless an investor pays a 40% down payment. The company also bans real estate agents from on-selling any off-plan properties they purchase until handover. Omniyat Properties has gone a step further, implementing a policy of waiting for projects to be fully designed and under construction before going to market. The plan is to secure the funding upfront for a project – up to 60-70% on internal targets – rather than the 20% levels of the previous cycle. These innovations and internal targets underscore continued developer interest in ensuring sustainability as the market ramps up in response to improved confidence, economic growth and rising demand.

Projects In Development

 The biggest developers in the emirate – Emaar, Dubai Properties Group (DPG) and Nakheel – are either partially or wholly owned by the government through various investment vehicles. Of these developers, Emaar and Nakheel are broadly understood to be the market-makers in Dubai. Both are expected to enjoy strong revenue growth over the medium term.

Emaar has recently announced plans to bring to market several new high-profile projects, including The Hills, and Burj Vista and The Address Residence The BLVD in Downtown Dubai. These are expected to be ready by 2016 at the earliest. Emaar and Dubai Holding (DH), the parent company of DPG, are also developing a waterfront city along Dubai Creek within Mohammed Bin Rashid City (MBR City). The project will feature a business district, residential units and hotels spread out over an area three times larger than the popular residential district around Burj Khalifa. At the heart of the project is the Dubai Twin Towers, a mixed-use development.

Nakheel’s new project pipeline includes almost 2800 new units with an estimated sales value of Dh8.5bn ($2.3bn) across the residential, retail, leisure and hospitality segments. The developer made a net profit of Dh1.77bn ($481.8m) in the first nine months of 2013 and intends to dip into its own resources to self-finance most of its projects with no immediate plans to raise funds from the markets. It has now delivered approximately 6700 properties since completing its $16bn restructuring plan in August 2011.

Dubai’s return to building iconic projects reflects a different approach to development than the last cycle. Recent announcements are largely focused on additions to existing master-planned developments rather than new greenfield-type investments.

Expo 2020

 Dubai’s developers will also be using the coming years to fully capitalise on their land banks in the build-up to the 2020 Dubai Expo. Announced on November, 27, 2013, the win constitutes a major catalyst for future growth across virtually all asset classes. HSBC estimates that about 45,000 new hotel rooms will be needed for the event, increasing supply by around 6.4% every year until 2020 at a cost of more than Dh31bn ($8.4bn).

The influx of expatriate workers required to meet this demand would primarily affect the residential property segment, which has already seen a jump of 23% year-on-year (y-o-y) in rental rates. The immediate impact of improved sentiment resulting from the Expo win is “likely to be an increase in the asking price for both land sites and existing villas/apartments in developments close to the Expo site”, according to a recent report from JLL.

The government-owned site planned for the event at Dubai World Central is already the centre of a band of highly sought-after land. The bulk of the new construction over the next two decades is centred around Mohammed bin Zayed Road, with MBR City and Dubai World Central as the core. “Over the next few years we are likely to see the city grow to the south towards Jebel Ali anyway, as the new airport and port grow and as Abu Dhabi and Dubai grow towards each other,” Craig Plumb, head of MENA research for JLL, said.

While prices in the Jebel Ali area will almost certainly increase as a result of the Expo win, the availability of significant new supply will temper this increase and “could result in a widening gap between asking prices and those the market is willing to pay”, according to the JLL report. “Through our portfolio of residential communities, commercial and retail developments as well as our large land bank, we believe we are well placed to meet the increased demand a successful Expo 2020 bid brings,” said Khalid Al Malik, the CEO of DPG. “We are also encouraging third-party investors to develop projects that will cater to the growing number of residents and visitors expected in Dubai over the next decade.”

Residential Segment

 Property brokers report that average residential prices in Dubai continue to rise at some of the fastest rates in the world, with sales and rental values picking up across almost all locations and market segments. A total of 5175 residential property transactions were recorded in the third quarter of 2013 with a combined value of Dh11.15bn ($3bn). This figure is marginally lower than the previous quarter, but is significantly higher in both numeric and value terms than the same period in 2012. Data from Residential Property Price Indices, based on information provided by the DLD, nevertheless suggests that average transaction prices in the residential market increased by almost 18% in the year to August 2013. Significantly, apartment rates outpaced villas for the first time – rising by about 20% compared to 11%. Asteco data records the same pattern, noting that apartment prices rose by approximately 42% year-to-date, compared to 26% for villas over the same period. Though the villa market, which had been leading growth in the residential segment, has started to slow slightly, pent-up demand is expected to sustain growth in planned extensions and greenfield launches. Average residential values remain well below the market peak in late 2007 and early 2008, when the villa segment experienced increases of around 80-90% y-oy . The rates of price escalation in the apartment market are more subdued as well, at around 19% below those seen in the previous boom period.

Housing Supply

 Supply is healthy, with a current residential stock of 364,000 units, and more than 9000 units entering the market in the first nine months of 2013, around 50% more than the number of units handed over during the same period in 2012, according to JLL’s third-quarter report.

The main projects completed in third quarter of 2013 include the Nakheel villa compound in Jumeirah Park, The Villa stage three in Dubailand (306 villas), Burjside Boulevard by Damac in Downtown Dubai (351 units) and Suburbia by Damac in Downtown Jebel Ali (104 units). Other projects have been delivered in International City, Dubailand, Dubai Sports City, Silicon Oasis and TECOM among others.

A total of 45,000 units are estimated to be completed in the freehold areas of Dubai between 2013 and 2015, representing an annual increase of around 16,000 units (excluding labour accommodation and Emirati housing supply). The majority of future completions will be located in the submarkets of Dubailand (16,000 units), Dubai Marina (3700 units), Dubai Sports City (3600 units), Business Bay (3000 units) and Jumeirah Village (2800 units).

Additional supply from within the non-freehold areas of the city will be relatively limited as many of these areas are already heavily built up. Rehan Akbar, an analyst in the EMEA corporate finance office of Moody’s Investors Service, suggests that over-supply is already having a perceptible impact on market activity. “When we speak to these companies, they say that the difference now is that they cannot sell every project. Previously, any project they announced would be sold. Now sales are very focused on areas in the centre of the city rather than the outskirts.”

The strongest demand remains concentrated in the best-quality prime segment, but the fastest growth is actually in mid-market and affordable projects. Underscoring the strong recovery in secondary locations, International City recorded the strongest price growth in 2013 with a 27% y-o-y increase, according to JLL. Projects further from completion in more remote areas are expected to take longer before demand picks up and they perform better.

Rentals

As with the transactional market, the leasing market also shows positive momentum with growing activity across all Dubai locations. Residential rents rose by an average of 3.5% in the third quarter of 2013, similar to the figures for the second quarter. The highest increase was recorded in smaller-sized studios and one-bedroom apartments, with demand for more affordable properties driving a 28% y-o-y increase in apartment lease prices. Prime rents surged by 15% in the 12 months to June 2013.

International City and Discovery Gardens were the top-performing area in terms of rental values growth in 2013, followed by JLT, The Greens area and Dubai Sports City, while Jumeirah Beach Residence (JBR) recorded the slowest growth, according to JLL.

Because regulations prevent landlords from hiking rents at the end of a tenancy contract, the double-digit rise in lease prices can be largely attributed to new arrivals and residents that have relocated. This supports the observation that performance in secondary locations has been improving as tenants move to more affordable neighbourhoods. This trend is consistent across rental markets for both apartments and villas, with lower-cost segments experiencing a stronger performance than mid-range and high-end ones. “Rising rental values are driving tenants towards lower-budget options, which have struggled over the past two to three years, with even more secondary and tertiary locations enjoying renewed activity,” suggests a report by real estate management and consultancy firm Cluttons.

According to local news reports, communities expected to gain momentum as their infrastructure nears completion include Dubai Sports City, Dubai Silicon Oasis and Jumeirah Village. In Business Bay, which has benefitted from significant road improvements and proximity to the Downtown and central business district (CBD) area, rents rose 36% over the year. Countervailing factors that could have a braking effect on rental growth include the strong supply pipeline and soaring rents that drive tenants to consider purchasing a home. According to the Dubaibased property agent Prestige Real Estate, the number of clients looking to buy rather than rent has increased 20% in the past year.

Low-Income Housing

 The Mohammed Bin Rashid Housing Establishment (MRHE) was set up in 2006 as a centralised government department with responsibility for the administration of housing solutions (loans and grants) for low- and medium-income nationals. Land is granted to the MRHE by the Dubai Municipality Planning Department as per requirements determined by the number of applicants.

In 2013 MRHE had a total portfolio of Dh6bn ($1.6bn) with a y-o-y rise in government funding allocations approaching Dh80m ($21.8m). Ongoing projects include a six-stage complex of 1240 houses in Al Barsha and developments in Oud Al Muteena and Hatta. Five new housing projects, including almost 800 villas and a complex of apartment buildings, are being tendered to consultants and projected for turn-key delivery within two years. The MRHE has carried out studies designed to boost engagement with real estate firms, and noted that developers’ offers are consistently too high – by as much as 50%, according to Burhan Abdul Rahman Al Habbai, assistant CEO of the MRHE Engineering Sector. “As we are the government, the land is free. It is better for our clients to keep costs down by limiting private partnerships,” he told OBG. The MRHE has moved to outsource financing and zero-interest loans to commercial banks, including the Commercial Bank of Abu Dhabi and, as of August 2013, Dubai Islamic Bank. The organisation is now waiting for legislation on social housing allowances and policy to determine the precise services that can be offered to end-users and expand eligibility for nationals.

Commercial Segmment

Improvements in economic and demographic fundamentals that have benefitted the residential segment have had a positive impact on the office and retail segments too, where the best-quality products are driving continued improvements in performance.

A two-tier market has developed in the office segment over the past 12-24 months. The highest rates of growth in occupancy and rental values have been concentrated in good-quality office accommodation over contiguous floors in prime locations. Availability in this market segment is limited and demand is outpacing supply. Premium areas including SZR, Downtown and TECOM A & B have vacancy rates of close to 10-12% and will likely fill up by the end of 2014, according to JLL. This is expected to lead to further growth in rental rates and sales values in prime locations as they approach capacity.

Tax-free zones such as the Dubai International Financial Centre, Media City and the Dubai Multi Commodities Centre are also performing well on the back of area-specific benefits that include 100% foreign ownership and repatriation of profits.

Lower-quality office space, on the other hand, has struggled with continued oversupply and widespread migration of tenants towards better-quality assets.

Waning demand for offices in aging and stratatitle buildings (a form of ownership where the units are separately owned by the owners and the common areas are owned by all owners) in the emirate’s secondary office market is the primary reason that headline vacancy rates currently stand at approximately 45%. Over the short term, the expectation among experts is that growth will remain largely building-specific, driven by location, building quality and individual ownership specifications.

As availability shrinks in the prime market segment, there is likely to be a spill-over of demand into secondary locations, which are priced more competitively to attract new tenants.

Occupancy Costs

 Occupancy costs reflect the availability of property in a particular market segment. Costs for prime grade-A quality office in Dubai in the first quarter of 2013 were around Dh1115 ($304) per sq metre per year in 2013. In the bestperforming areas of the CBD, CBRE reported average third-quarter 2013 leasing rates of around Dh1615 ($440) per sq metre per annum. This represents a quarter-on-quarter (q-o-q) rise of 7%.

Secondary office rents (excluding TECOM A & B) are currently averaging Dh955 ($260) per sq metre per annum, representing an increase of 3% q-o-q. High vacancy rates and increased competition for tenants is expected to exert continued downward pressure on rental prices in the secondary market over the next 12 months.

This supply-demand imbalance may be further exacerbated by the roughly 1.2m sq metres of office space expected to enter the Dubai market by 2016. The majority of construction, including towers such as The Burlington, Bay View, Bay Gate and Tamani Art, will be concentrated in Business Bay (713,000 sq metres, 58%). Other locations that will see new office supply are JLT (10%), Dubai World Central (7%), Dubai Investment Park (6%), The Greens (5%) and Dubai World Trade Centre District (4%).

Though prime rents in Business Bay and JLT have grown by 28% and 75% y-o-y, respectively, many buildings in the master developments will not appeal to some occupiers due to their strata status.

Building

Global occupiers generally prefer to consolidate operations into one location to benefit from a reduction in rent and an increase in quality. While single-ownership buildings in prime locations are therefore seeing increased demand, strata-title buildings in secondary locations have yet to see any noticeable rental growth. The strata-type sales and floor-by-floor sell-offs date back to Law No. 27 of 2007 (the Strata Law), which allows for different owners, leasing strategies and landlords for each floor of a strata-title building. The operational and asset management issues for companies seeking office space over more than one floor have made most of these buildings unappealing for big multinational firms. This has contributed to a situation where, according to Plumb of JLL, “the market is oversupplied with a substantial amount of floor space in many buildings that are very good in terms of design, efficiencies, floor plates, size of floor plates, slab heights, vertical circulation, parking – but they’re not owned by a single entity, so multinational corporations will not go near them.”

Given the relative scarcity of available property that meets specifications for quality, contiguous square footage and prime location, international blue-chip companies are increasingly looking at alternatives. The Chinese National Oil Company, for example, invested in an office building in Emaar Business Park 1 as an owner-occupier, and Standard Chartered had a “built-to-suit” constructed by Gulf Resources Development and Investment after attempting unsuccessfully to find a large enough space to host its regional headquarters.

As a regional logistics centre, the emirate is expected to continue to attract and retain international corporate clients. Although future strata office development will likely be capped, the demand for buildings of 7400-11,000 sq metres in prime locations is continuing to grow.

Industrial/Logistic

The industrial segment in Dubai maintained healthy growth through 2013, supported by strong underlying economic fundamentals, well-developed logistics infrastructure and the positive atmosphere surrounding the Expo 2020 bid. Long-term commitments to single light industrial or logistics tenants and a lack of speculative activity have largely immunised the emirate’s industrial segment against the cyclical activity that has characterised much of the rest of the market.

Transactions in the third quarter of 2013 were recorded mostly in the new and modern industrial zones (such as Dubai Industrial City and Dubai Investment Park) and free zone locations that offer better-quality products, well-developed infrastructure, good connectivity and proximity to major infrastructure projects. These areas also offer large plots of land suitable for international companies seeking to build their own units.

Older areas, including Ras Al Khor and Al Qusais, do not have available plots on the same scale, however. Demand is expected to shift to newer areas in the south of Dubai as Al Maktoum International Airport completes its transformation into an integrated logistics platform.

Enquiries for free zone logistics facilities of around 6500-11,150 sq metres spiked in the last six months of the year, with interest from new entrants to the market as well as existing tenants. Demand in this segment is outpacing supply in the free zones and is driving interest in onshore comparables.

“The wish list at the moment is onshore rather than free zone for the 100,000-sq-foot [around 9300-sq-metre] units because you can’t find anything that size,” said Edward Batten, commercial leasing manager at Knight Frank. “There’s an abundance of smaller units out there, but we haven’t got the same sort of interest,” Batten added.

Outlook

The past 12 months marked a period of broad-based recovery in Dubai’s real estate sector. For the first time since 2008, the residential, retail, hospitality and industrial market segments all experienced solid growth. Although the strongest demand in residential real estate remains concentrated in the best-quality prime segment, the fastest growth is being experienced in mid-market and affordable projects in second-tier communities.

Dubai’s developers are also seeking to fully capitalise on their land banks in the build-up to the 2020 Expo. The win constitutes a major catalyst for future growth across virtually all asset classes.

The recovery of the office market is likely to remain more selective and concentrated in the prime segment. A supply overhang and high vacancy rates have depressed office prices in secondary locations.

Factors that mitigate against a repeat of the 2008 bust cycle include the moderating effect on price growth of a larger supply of available accommodation, a steep decline in the number of secondary developers announcing pre-sale projects as well as a host of new regulatory initiatives.

In addition to this, developers are currently demonstrating a renewed commitment to phasing supply in line with the levels of real demand over a timeframe lasting between five and 10 years. Taken all together, it is possible to reach the conclusion that measures such as these should be able to assist in the strengthening of the property market in Dubai. In doing so, they will enable the market to support long-term gains and losses, all the while without speculation exaggerating those ups and downs.