DWC 'key to Dubai construction boom'
Dubai, May 4, 2013
The revitalization of Dubai World Central for the World Expo 2020 and the creation of the Muhammad Bin Rashid City will be the heart of the growth of the construction sector in the coming decade, said an expert.
"These massive projects are expected to lead to an influx of white collared workers to Dubai. It is projected to create a fiscal multiplier effect as expenditure in developmental and infrastructure projects ratchets higher (currently 16 per cent of overall GDP; expected to surpass 20 per cent by 2014)," remarked Sameer Lakhani, the managing director of UAE-based Unitas Consultancy.
"This “Big Push” is expected to stimulate demand drivers, as industries in real estate, tourism and logistics witness an influx of capital and human resources, similar to the one witnessed in 2005-2008. Over time, we expect the trickle-down effect to simulate more conventional sectors such as finance and professional services, as Dubai continues its march towards a tier one city," he added.
In developed markets such as the US and UK, commercial property prices have empirically followed residential real estate prices with a lag, implying that the latter has been a leading indicator for the former, said the real estate consultancy.
Dubai’s residential and commercial real estate markets exhibits a similar relationship to that in the US and UK, it stated.
"In 2011, residential prices in Jumeirah Lake Towers and Business Bay reached an inflection point following a price recovery. This is reflected in the increase of demand for office space from 2011 to 2012 and Unitas expects this trend to continue," it added.
In both cases, commercial prices in these areas underwent a gradual price increase commencing in the second half of 2012, as business activity started to pick up across the city. In both situations, a lag period of approximately 12 months was witnessed between the inflection points of residential and commercial price movements, said the consultancy.
A granular analysis indicates the number of office transactions in JLT have increased by 30 per cent and Business Bay by more than 100 per cent. Even though supply overhang issues remain, vacancy rates are projected to decline steadily in 2013, as economic growth rates continue to accelerate, said Unitas.
Vacancy rates are expected to fall below 20 per cent by the start of 2014 especially in the free zone and prime office areas, as the rate of small business formation and MNC expansion gathers momentum, stated the property expert.
The report also highlights that this revival has been greatly accelerated due to exogenous factors, such as the Arab Spring. Dubai stands out like a ‘safe haven’ within the region, making it an attractive place to live and work.
“The growth in Free Zones clearly indicates a shift in the outlook of developed economies regarding Middle East as a lucrative market. As per reports, Free Zones account for 20 per cent of the total licenses issued in Dubai but contribute to 33 per cent of GDP," explained Lakhani.
"They have been pivotal in harboring the influx of new businesses in the region, as reflected in the superior growth rates of business formation in these areas compared to onshore Dubai," he added.-TradeArabia News Service