Jones Lang LaSalle has released its 'Top Trends for 2011' shaping UAE real estate in the coming year and beyond.
Craig Plumb, Head of Research, Jones Lang LaSalle MENA said: "The UAE is a continuously evolving and maturing real estate market. It is increasingly reverting to its core strengths such as services, trade, tourism, transport and logistics. In terms of capital values and rental trends, we continue to observe the unfolding of two tier markets across different sectors. Good quality product remains attractive particularly in the logistics and residential markets. With continued commitment to developing infrastructure, the UAE will remain attractive to investors around the region."
The key predictions are:
1. Infrastructure is key driver for real estate recovery
The UAE has over US $45 billion of future projects announced in the pipeline and has one of the highest levels of per capita transport infrastructure spending globally, augmenting its investment edge within the broader MENA region. Across the UAE, this investment will stimulate growth and will be a key driver for market recovery in 2011. Increasing investments in major transport infrastructure across the UAE will fill development gaps, create jobs and ultimately create more demand for good quality real estate in the country.
2. From competition to coordination in UAE
Increasing functional harmony between the emirates will see greater economic integration across the UAE, which will lead to greater economic stability, job growth and ultimately benefit the UAE real estate market. More specifically, the two primary markets, Abu Dhabi and Dubai are complementary and have strong synergies, which together enhance the UAE's competitiveness in the region.
3. Transaction levels to remain subdued in 2011
Low transaction volumes persist and are expected to remain subdued in 2011. Even though there is growing investor interest in the local real estate markets, the shortage of investment grade properties at realistic prices will continue to constrain transaction activity. This reflects an international trend among investors seeking lower risk and higher returns, which is currently resulting in capital outflows.
4. Light industrial/logistics offers low risk and stable yields
In 2011, the light industrial/logistics segment will be the best performing sector in the UAE real estate market. Within the MENA region, the UAE is expected to be the preferred location for logistics firms, a trend further strengthened by the country's refocus on and increasing investment in trade and transportation. Occupier demand will cluster around locations with strong infrastructure and transportation connectivity. Investor interest remains focused on institutional grade properties with long term leases and strong tenant covenants because of the stable yields and lower risk.
5. From return on ego to return on equity
In 2011, the Dubai hotel market is expected to stabilize while Abu Dhabi will continue to soften. The UAE's hospitality sector will see a departure from the grandiosity of previous projects, often driven by publicity and ego and a return to fundamentals. We expect to see greater focus on core factors such as the return on equity and financial performance, which in turn, will drive the decision making process.
6. From super regional malls to community centers
The UAE's retail market will shift focus from super regional malls to community retail centers over the coming year. The market for super regional malls, driven by tourism and built as entertainment driven destinations, is now saturated. In terms of new development and repositioning of existing projects, the next opportunity is community-oriented retail centers with a focus on meeting the needs of residents within the catchment neighborhood. Various municipal authorities in the UAE are encouraging a local focus, providing additional support for this trend.
7. Increased office leasing activity
Persistent oversupply of office space continues in th