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WARNING AGAINST EXUBERANCE

All segments of Dubai real estate post growth

Dubai, April 14, 2013

 

All sectors of the Dubai real estate market are positioned in the recovery stage of their market cycle for the first time since mid-2008, according to a report.
 
However, the positive performance remains largely concentrated in the best quality projects in prime locations with secondary locations and poor quality projects continuing to experience high vacancy rates and stable or even falling rental values, said the report by Jones Lang LaSalle,  a leading real estate investment and advisory firm.
 
Alan Robertson, CEO of Jones Lang LaSalle, Middle East & North Africa, said: “For some months now, we have seen sustained confidence in the Dubai real estate market, although it remains selective with the best performance focused on high quality assets in prime locations.”  
 
He added: “An initial glance might suggest that many of the conditions that led to the unsustainable growth in real estate prices in Dubai in 2006 and 2007 have returned. However, there are important differences as the Dubai market has matured. The excesses of the last speculative boom will hopefully be replaced by a period of slower but more sustained growth in demand and prices. The challenge is to ensure that this confidence does not lead to undue exuberance. 
 
“If the market has learnt anything from the past decade, it is that an extended period of sustained growth is far more beneficial than a short period of unsustainable growth followed by an inevitable crash,” Robertson said JLL’s Dubai Market Overview -  Q1 2013 highlights include:
 
Investment: The real estate investment market has been very active in the first quarter of 2013, with a growing number of residential transactions closing. There has also been increased interest in the commercial sector, resulting in the recent sale of an office building on SZR to a private investor. Continued uncertainties in the Eurozone, highlighted by the Cyprus banking crisis, could lead to a transfer of capital into the Dubai real estate market as it is perceived as politically stable and attractive to offshore investors. 
 
Office: Prime office rents have started to recover in Q1 2013, with the “flight to quality” remaining the main trend in the market. Demand remains driven by larger companies seeking portfolio optimisation and upgrades of their premises, rather than new entrants to the market. 
 
Residential: The residential market has maintained the strong performance of 2012, with villas and apartments showing similar increases in sale and rental prices in Q1 213. Well established locations continue to attract strong demand, while projects in newly developed areas are still lagging behind and will need more time before picking up.
 
Retail: The retail market continues to be dominated by the best performing super-regional malls (eg: Dubai Mall, Mall of the Emirates). Secondary and older malls continue to witness subdued demand and falling occupancy rates & rents, resulting in a wider differential between primary and secondary malls. 
 
Hotels: The hotel sector maintained its strong performance, supported by a growing number of tourist arrivals in Dubai. Occupancy rates have been rising to 86% while Average Daily Rates (ADRs) reached $276. This positive trend is expected to continue throughout 2013.
 
Industrial: The market remains dominated by the traditional onshore areas that have organically grown with the city over time and are now located in dense residential and commercial areas. However, the trend is moving more towards newer areas such as Dubai Industrial City, Dubai Investment Park and Jafza which offer well developed infrastructure, good connectivity, proximity to major infrastructure projects, in addition to better quality products.
 
Craig Plumb, Head of Research for Jones Lang LaSalle in Mena,  added: “The Dubai economy is expected to sustain its growth momentum as macroeconomic fundamentals are stronger than they have been since the start of the global financial crisis. Dubai could even benefit from the continued uncertainties in the Eurozone which may lead to a transfer of capital into the Dubai real estate market, given its safe haven status and attractiveness to offshore investors.
“On the development side, the new projects being launched are as ambitious as ever. We are however seeing signs of a more considered and targeted approach which is only going to benefit the long term health and credibility of the real estate sector. The key to the success of individual projects and the future performance of the overall market will be the adoption of a realistic phasing strategy in line with market demand.”
 
He concluded: “In terms of rentals, demand is generally picking up and the best quality products are driving the continued improvements in performance that we are seeing across the residential, office and retail sectors. For these properties we would expect to see further price and rental growth over the rest of 2013.  However lower quality space in secondary locations will continue to struggle with the continued legacy of oversupply and high vacancy.” – TradeArabia News Service
 



Tags: Dubai | real estate | Jones Lang LaSalle | warning |

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