Will commercial property pick up this year? CEO and Founder, Michael Lahyani, discusses Dubai’s high quality infrastructure and geographical location – two factors which position it as one of the best cities in the world to live and do business.
Commercial realty market on the rise
Michael Lahyani (Property focus) / 20 April 2014
Commercial real estate values are on the rise, as Dubai’s office market continues to pick up this year. There are a number of reasons to remain optimistic about the prospects for commercial real estate. For one, market fundamentals are strong. Dubai is also benefitting from its tourism and retail boom, driving up visitor numbers particularly at its malls, which is in turn benefitting big and small businesses. Numerous companies have taken advantage of the surging retail market and asset prices to plan public offerings.
The first quarter of this year was particularly noteworthy for the return of IPO and capital raising activity. Emirates Reit, a UAE-based real estate investment trust, recently launched shares on Nasdaq Dubai. Emaar’s shares rose significantly after the master developer disclosed plans to choose Nasdaq Dubai and London to list its shopping malls and retail subsidiary. By listing in London, the major stock market for emerging companies, Emaar’s move is likely to attract a greater pool of foreign investors.
Dubai holds a unique position from which international businesses can operate globally, due to its central location, lack of foreign ownership restrictions, tax-free environment and international workforce. The city has been identified at the forefront of cities that demonstrate the combination of strong short-term socio-economic and commercial real estate momentum and longer term foundations for success. Earlier last month, Abu Dhabi and the UAE Central Bank agreed to refinance the $20 billion loan that was extended to Dubai at a lower rate — positive news for Dubai and further reassurance for investors of Dubai’s economic growth. Further, the emirate’s huge concentration of high-net-worth individuals and improved global connectivity are driving international investors to seek opportunities in the emirate. Dubai Internet City and Dubai Outsource Zone recorded strong growth in 2013, with around 181 firms joining the two clusters.
Whilst Indian, British and Pakistani nationals continue to lead the Dubai property charge, investment from other overseas markets is growing. Chinese investors are ramping up their investment in the Middle East in order to diversify their asset base. Not only has China’s biggest contractor tied up with a Dubai firm to build a luxury resort on the Palm, individual Chinese investment and the numbers of companies setting up operations in the region are expected to grow strongly. The emirate’s diversifying investor base was also reflected in Dubai Land Department’s report which revealed that in 2013, buyers from 162 countries purchased over Dh100 billion of real estate.
Throughout 2014, property values are expected to rise markedly in line with the improving business outlook and economic confidence. Over 600,000sqm of office supply is expected to come online by the end of 2014 and infrastructure projects worth over Dh12 billion are in the pipeline to get Dubai ready for 2020. Given that job creation is key to increasing demand in the commercial real estate sector, with over 250,000 jobs estimated to be created in the next six years, more multinationals and fledgling enterprises are expected to establish offices and invest in expansion into Dubai. The increase in employment is in turn likely to cause consumers to spend more and positively impact businesses, large and small.
Our quarterly report for 2014 revealed that Business Bay remains the most searched community for buying and renting office space in Dubai — in addition to accounting for close to 50 per cent of the new supply between 2014 and 2016. Dubai International Financial Centre and Dubai Silicon Oasis are also tipped to see new completions during this period. Additionally, there has been a considerable uptick in rental values. For instance, rents in Business Bay in Q1 2014 were 27 per cent higher than those in Q1 2013 whilst leasing prices in Jumeirah Lake Towers rose by over 15 per cent during the same period.
In a bid to make Dubai attractive to global investors and businesses, the Dubai Investment Development Agency was formed earlier this year. By reviewing the emirate’s business climate, drawing up policies and strategies and planning new long-term projects, the new body is expected to ramp up the inflow of investments worldwide.
Over the years, valuable lessons have been learnt and everyone’s grown smarter and wiser. As the retail market continues to improve alongside the launch of new real estate projects and burgeoning tourism and hospitality industries, there’s little doubt that the commercial property sector will emerge as one of the key talking points this year.