Within a general atmosphere of improving investor confidence and an optimistic business outlook across the UAE, Dubai remains a more robust market, while Abu Dhabi is way behind its neighbouring emirate in terms of the timing of recovery, said a report.

The Dubai economy is still on a recovery path with the gross domestic product projected to grow by 4.5 per cent in 2012. This performance is being driven by the strong growth of key sectors such as tourism, commerce, retail, hospitality and logistics, said real estate expert Jones Lang LaSalle (JLL) in its Q3 reports for Dubai and Abu Dhabi.

Releasing the report ahead of Cityscape Global, which starts tomorrow in Dubai, JLL said Dubai’s real estate sector is witnessing selective growth as rents and values continue to improve for prime properties in the hotel, retail and residential sectors.

However, in Abu Dhabi, despite demand for high quality retail space, most sectors of the market remain tenant favourable, with rents yet to bottom out, the JLL report added.

Commenting on the reports, Alan Robertson, the CEO of JLL Mena said: "Market sentiment is definitely improving and both Dubai and Abu Dhabi remain major drivers in the regional real estate market, but we are continuing to move away from one holistic model."

As the market continues to mature we will see more divergence, he stated.

"Well managed, high quality assets in prime locations will continue to perform whilst those in secondary locations will need to be ever more creative to attract and retain tenants who now have ever more choice and are moving with their feet to source and find the best deals available," Robertson added.

In terms of market specifics, the expert said it was a very fragmented picture. "Dubai is generally ahead of the curve as rents are finally starting to pick up whilst indicators suggest Abu Dhabi has yet to bottom out."

"In terms of sectors, retail remains a driving force with significant opportunities in both the emirates. On the investment and development fronts, we expect to see more major deals announced in the weeks and months ahead, reflecting the improved economic climate," he remarked.

"However we also expect the market to move away from a construction led environment to one more focussed on asset management as owners look to safeguard their investment and drive rental growth," he added.

On the Dubai scenario, JLL said the real estate investment market has been quiet over the summer months, with no major open market commercial transactions reported in this seasonally quiet period.

The most significant sale over the quarter was a residential tower in the Deira area of Dubai that was reportedly sold to a Saudi investor for Dh130 million ($35.3 million).

Asking rents for prime office space remained flat in Q3, while secondary rents faced more downward pressure. In line with global trends, occupier consolidation and portfolio optimisation remain the key focus in Dubai, said the JLL report.

Larger companies continue to show interest in upgrading premises with more flexibility in their leases. There has been limited new office supply entering the market in the third quarter and a number of projects have been delayed into 2013, it added.

According to JLL, the overall residential market in Dubai has recorded another positive quarter, with the villa market continuing to outperform the apartment sector in Q3.

Prime residential buildings in well established locations continue to see improved performance, but secondary locations are still suffering from rental and pricing declines as tenants relocate to new high quality projects, it stated.

The property expert said there was a strong demand for retail space in the best performing super-regional malls (Dubai Mall, Mall of the Emirates), resulting in sustained prime rents of Dh4,700/sq m.

However the retail market is becoming increasingly two-tier and older, less popular malls are seeing weakened demand from consumers and retailers, with mall owners having to consider new marketing techniques and product positioning, it added.

With regard to Dubai hotel sector, JLL said the emirate continued its strong performance in Q3 with occupancy levels improving to 77 per cent from 74 per cent in the same period last year.

On the Abu Dhabi market, JLL said the market remained tenant favourable for most asset classes as completions were limited in the third quarter.

The property expert said there were no significant additions to the office market over the past quarter with the total office stock remaining at approximately 2.7 million sq m.

Significant new supply is due for delivery in Q4 2012, which will push down average rents, particularly for secondary quality assets, but  in turns this will also drive occupier relocations improving, take-up rates, it stated.

Also the residential market continued to see sale price and rent declines. Since the market peak in 2008, the average prime rent for a two bedroom apartments in Abu Dhabi has fallen in excess of 48 per cent, JLL said it its Q3 review.

The executive council has announced a new regulation requiring all employees of the Abu Dhabi Government and its affiliated entities to live within the emirate.

This regulation, which is planned to take affect from late 2013 could strengthen the negotiating position of landlords and help stabilise rentals in the residential market, said the JLL.

The expert pointed out that no additional retail malls were completed in the third quarter, with the opening of several centres delayed until the first half of 2013.

An estimated 200,000 sq m of retail GLA could be delivered to the market by mid-2013. Rents in prime retail malls on Abu Dhabi Island have remained unchanged over the past quarter, it added.

With regard to the hotel sector, JLL said no new supply entered the market in Q3, but a number of major hotels were due for delivery in Q4. "This will put additional downward pressure on Average Daily Rates (ADRs) and hotel occupancy rates," it added.

Commenting on the reports, Craig Plumb, the head of research for JLL Mena said, "While the Dubai market is certainly starting to recover, this improvement remains largely focussed on a limited number of high quality assets/locations, and has yet to trickle down to the overall market where rents and values have remained largely unchanged during 2012."

"The overall market still faces challenges of high new supply and limited demand for secondary assets, that is providing tenants and occupiers with significant choices," he added.-TradeArabia News Service