The Magazine Cityscape April 2012

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A Middle East perspective on global real estate
Issue April 2012

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The Magazine Cityscape April 2012

  1. 1. Visit us at Cityscape Abu Dhabi 2012 Stand # AA10 www.alqudrare.ae
  2. 2. APRIL 2012 FOCUS ON ABU DHABI ROOM WITH A VISION After a successful year, find out about the future of Abu Dhabi’s growing tourist industry SUSTAINABLE FUTURE Leading sustainability advocates discuss the region’s forward-thinking green initiatives INFRASTRUCTURE BOOM LICENSED BY INTERNATIONAL MEDIA PRODUCTION ZONE Nicholas Publishing International FZ LLC Multi-billion dollar schemes to ramp up the economy and reignite property demand
  3. 3. APRIL 2012 FOCUS ON ABU DHABI ROOM WITH A VISION After a successful year, find out about the future of Abu Dhabi’s growing tourist industry SUSTAINABLE FUTURE Leading sustainability advocates discuss the region’s forward-thinking green initiatives INFRASTRUCTURE BOOM LICENSED BY INTERNATIONAL MEDIA PRODUCTION ZONE Nicholas Publishing International FZ LLC Multi-billion dollar schemes to ramp up the economy and reignite property demand
  4. 4. WELCOME LETTER W ith Cityscape Abu Dhabi just around the corner, we welcome you to the latest edition of the Cityscape magazine. In this issue, we focus on the UAE’s capital city and the forthcoming sixth edition of Cityscape Abu Dhabi taking place from 22nd -25th April, which will once again showcase the major projects and developments from across the Emirate. The event will bring together real estate investors, developers, consultants, architects and other senior-level real estate professionals from across the region and indeed, around the world. Participants can look forward to hearing about investment opportunities and networking with some significant international real estate investors and developers at what is the capital’s only international real estate event. Previewing the upcoming exhibition, this issue of the Cityscape magazine takes a look at some of the major infrastructure developments taking place in the Emirates, including the creation of the UAE’s first cargo railway line, with the first trains slated to start running in 2013. We also review some of the large scale industrial projects such as Kizad, a port and trade zone two-thirds the size of Singapore, set to comprise around 15 percent of Abu Dhabi’s non-oil GDP by 2030. A brief glimpse into the projects coming on line in 2012 is impressive. January saw a government announcement that work is set to resume on the Abu Dhabi branches of the Louvre and Guggenheim museums after a “review of their viability.” Notable developments that are expected to complete in 2012 include Nation Towers, on the Abu Dhabi cornice; the Central Market, Aldar’s flagship downtown three-tower development and the continued phased opening of Etihad Towers. Tourism focused development in Abu Dhabi is also progressing at pace. While Dubai has been heavily promoting tourism for the last decade, in the capital, Abu Dhabi, it is a newer, but growing, phenomenon. ‘Brand Abu Dhabi’ is now taking off, after studious behind the scenes tourism development work. Abu Dhabi recorded its most successful year ever in 2011 in terms of hotel guest arrivals, with some 2,111,611 people staying Rohan Marwaha Managing Director, Cityscape in the Emirate’s hotels and hotel apartments. Last year also saw substantial additions to Abu Dhabi’s hotel and resort inventory – some additional 2,000 rooms in the last quarter alone – including several five-star beach properties opening up Saadiyat Island. Investment and development in this key industry sector is sure to be high on the agenda at Cityscape once again. This year, Cityscape Abu Dhabi will also play host to the Middle East Real Estate Summit, the only business platform serving institutional investors, dedicated to regional real estate investment. Bringing together leading regional private equity houses, investment banks, sovereign wealth funds, family offices, private banks, asset managers, real estate developers and Government officials, the Summit will discuss new deal structures and portfolio strategies for maximising profits in the region, as well as debate the roles of both the public and private sectors in increasing vital regulation, security and overall market activity. We look forward to welcoming you to Cityscape Abu Dhabi 2012l Project Director Simon Cole Designer Davis Mathai Advertising Sales Adam Fox Editorial Claire Malcolm, Will Rankin, Simon Cole, Rohan Marwaha and NGI Context Although every effort is made to ensure the accuracy of information contained in this magazine is correct, Cityscape cannot be held responsible for any errors or inaccuracies contained within the publication. All information contained in the magazine is under copyright to Cityscape and cannot be reproduced or transmitted in any form, without first obtaining written permission from the publisher. For advertising sales or editorial enquiries please contact Simon Cole Tel: +971 4 408 2836, Email: simon.cole@informa.com Zabeel Printing Press, P.O. Box 5143, Dubai, UAE, Tel: +971 4 2626171, Fax: +971 4 2696067 COVER: © Emirates Palace Abu Dhabi APRIL 2012 I CITYSCAPE I 1
  5. 5. 22-25 April 2012 Abu Dhabi National Exhibition Centre United Arab Emirates Pre-register to attend Visit: www.worldecoConstruct.com/CN1 Register now for the region’s only exhibition focusing on sustainable design and construction for the built environment Find ways to capitalise on the billions of dollars committed to major construction projects within Abu Dhabi and the surrounding region: Improve building efficiency, reduce costs and increase production with the latest innovative materials and technologies in one vibrant space Discover ways to ensure your business is complying with building and energy codes and leave with kits of sustainable know-how to enhance your work Build profitable relationships for the future whilst networking with government officials plus the elite of the real estate and construction industries Register FREE OF CHARGE today at www.worldecoConstruct.com/CN1 For more information contact the team on +971 4 407 2528 or email register@worldecoConstruct.com 30,000 Professionals 12 Days of Content 2 Summits 60+ Summit Sessions 70+ Leading Speakers 150 Suppliers FEATURING Training Seminars Foundation Partner Future Build Sponsors Sustainable Knowledge Partner Showcase Strategic Partner Co-located with Endorsed by Supporters Principal Sponsor
  6. 6. CONTENTS 7 20 Great stall of China Bubble and creak of People’s Republic housing market 34 26 Eurozone investment Investors playing a waiting game in mainland Europe Regional Spotlight 8 Kingdom on the rise From central Amman to coastal Aqaba, the Kingdom of Jordan is - quite literally - on the rise 4 5 6 7 Latest News 22 Bahrain Bay appoint new CEO Emaar launch premium golf homes Etihad Airways accommodation offer Le Meridien debuts in Turkey 34 Industrial development Sector outperforming rivals in the capital 36 Mortgage UAE Market shows signs of recovery International Insight 12 Turkey opens to investment Is Turkey the next big destination for savvy investors? 42 Room with a vision The future of Abu Dhabi’s growing tourist industry 12 22 New era for Egypt With a new spring comes new impetus in North Africa 45 Plan Al Gharbia 2030 Focus on the Western Region 45 38 Sustainable future The region’s forward thinking green initiatives Abu Dhabi Focus 28 Capital upturn Impressive projects coming online in 2012 30 Infrastructure boom Real estate bolstered by multi-billion dollar schemes 32 Project focus Midfield airport terminal development 32 48 UAE visas Residence visas not top priority for investors Events 41 Cityscape Awards Abu Dhabi awards and cocktail evening 16 London calling UK real estate attracts Middle East sovereign riches 18 London residential market Supply continues to lag behind demand in central London 50 Middle East Real Estate Summit Dedicated to regional real estate investment 52 Cityscape Abu Dhabi Plan your visit to the capital’s only international real estate event APRIL 2012 I CITYSCAPE I 3
  7. 7. NEWS Bahrain Bay appoints new Chief Executive Officer International Real Estate expert, Robert Lee, to spearhead project’s ongoing progress M ANAMA, BAHRAIN: Bahrain Bay, the country’s highest profile masterplanned waterfront community, has appointed a new CEO, Robert Lee, to lead the management and development team through the next phase in the project’s progress. Lee joins Bahrain Bay with 25 years of real estate investment experience including development, investment, sales and marketing, asset management, and advisory. His portfolio of past projects includes green-field city planning, large-scale mixeduse development, institutional/infrastructure, leisure and hospitality, and retail & entertainment. Since arriving in the Gulf in early 2000, Lee has held senior executive positions at leading real estate companies in the Middle East including Emaar, Al Futtaim, and Nakheel, where he was instrumental in bringing some of the iconic projects, such as Dubai Marina and Palm Jumeirah, to their successful fruition. “I’m proud to have this opportunity to continue to establish Bahrain Bay as the premier real estate project in the country” says Lee, “I plan to unite all stakeholders under a common vision and continue to deliver the top-level results Bahrain Bay is renowned for, within the time-budget-quality constraints. All the excellent progress achieved until now will serve as a perfect foundation for the exciting future the project has lined up for this year and beyond.” Welcoming Lee to the development, Deputy CEO Abdulla Al Doseri commented: “Mr Lee joins us at an important time in Bahrain Bay’s progress with the project moving into its next chapter of delivery. With four Third Party Developers already on site, and more due in 2012, Mr Lee’s expertise will be invaluable to the ongoing success of the development.” Lee replaces former Bahrain Bay CEO Bob Vincent, who offered his full support to the transition: “From both a commercial and personal perspective, it is appropriate for me to step aside and endorse the ongoing commitment of the BBD team. Deputy CEO Abdulla Al Doseri and the Bahrain Bay management team remain in place to ensure full continuity, with new CEO Robert Lee overseeing the project’s next phase.” Vincent will continue to work closely with Bahrain Bay in his new role with Four Seasons Hotel Bahrain Bay l AECOM establishes Global Advisory Board to be chaired by Sir John Major Former U.K. prime minister to lead advisory board focused on high growth markets L os Angeles: AECOM announced today that it has established a Global Advisory Board that will be chaired by the former U.K. Prime Minister, The Right Honourable Sir John Major KG CH, and composed of other independent leaders in business and geopolitical affairs. The AECOM Global Advisory Board will support the company’s efforts to enter and grow in new geographies, business lines and high-growth service areas. In addition to Sir John, who also served as the U.K. Foreign Secretary and Chancellor of the Exchequer, charter members of the advisory board include: • Emeritus Senior Minister Goh Chok Tong, former Prime Minister of • • Singapore Mr. Deepak Parekh, Chairman of India-based Housing Development Finance Corporation Limited Dr. Daniel Thorniley, President of Vienna-based DT-Global Business Consulting 4 I CITYSCAPE I APRIL 2012 “I am pleased to announce the formation of the AECOM Global Advisory Board,” said John M. Dionisio, AECOM chairman and chief executive officer. “The global insight and marketplace visibility of our advisory board members, led by Sir John Major, will provide a valuable business perspective as we advance AECOM’s diversified global growth strategy. In addition, our advisory board members offer expert knowledge for issues at the intersection of global business operations and society at large, including humanitarian affairs, socially responsible business practices and sustainability. “The advisory board will be especially valuable in offering guidance as AECOM increases its participation in geographic areas of focus such as Africa, Asia, Eastern Europe, India and Latin America as well as highgrowth businesses such as oil and gas, energy, mining, and national security,” said Dionisio. “I am delighted to Chair such a distinguished Advisory Board of members prepared to offer their experience and expertise in support of one of the world’s most ethical companies,” said Sir John Major l
  8. 8. Emaar Properties launches sale of premium Golf Homes at the Arabian Ranches Golf Course • • • • Only 18 luxurious villas set in vast premises of 17,000 to 27,000 sq ft Offer customers the opportunity to customise the interiors to their individual tastes and preferences Choice of three types of homes designed in elegant Spanish architectural style All homes overlook the swaying grass dunes of the Arabian Ranches Golf Course D ubai, UAE: Emaar Properties PJSC, the global property developer of iconic projects, has launched the sale of the spectacularly designed and premium Golf Homes, set in the heart of the rolling green fairways of the Arabian Ranches Golf Course. Only 18 palatial villas, each in a plot area of 17,000 to 27,000 sq ft, are for sale. The villas are specifically developed in a shell and core form enabling potential customers to customise the interiors to their preference and taste including the ability to even extend the developed area. Available in three floor plans, the Spanish architectural works of art reflect high-end residential luxury, complemented with the uninterrupted views of the golf course. Mr Ahmad Al Matrooshi, Managing Director, Emaar Properties, said: “The Golf Homes at the Arabian Ranches Golf Course bring a new dimension to luxury residential development in Dubai. From the choice of location within the championship golf course to the elegant architectural style and extensive lawns, the homes will be an ideal choice for connoisseurs who value the finest luxuries in life. The Golf Homes provide customers with the advantage of benefiting from Emaar’s overall construction quality, being part of a superior golf community living and the convenience of shaping the homes to their individual choice.” The 18 luxury villas are part of the established Arabian Ranches community, a much sought-after residential development in Dubai. Promising a leisurely lifestyle, the homes feature Hispanic elements such as arches and courtyards and mosaics. Customers can choose from three home styles – Hacienda, Castilla and Suncadia. Hacienda homes are exceptional family and reception estates nearly 7,000 sq ft in area, while Castilla homes have an area of 8,270 sq ft and the Suncadia homes are palatial at nearly 9,000 sq ft. Customers can further construct additional 1,000 sq ft to 5,000 sq ft depending on the size of their respective land plots. Potential customers can visit the Emaar Sales Office at Emaar Square, Downtown Dubai or call toll-free 800-EMAAR (36227) for more details. The Arabian Ranches Golf Course, spread over 247 acres comprising 120 acres of grass land and desert vegetation, is part of the Arabian Ranches Golf Club. The 18 hole, par 72 signature course was designed by Ian Baker-Finch in association with Nicklaus Design. Adding to the lifestyle choices available for residents at The Golf Homes, the Spanish Colonial style Arabian Ranches Clubhouse features the Ranches Restaurant, with a terrace offering panoramic scenic views over the 9th and 18th holes l APRIL 2012 I CITYSCAPE I 5
  9. 9. NEWS Etihad airways offers stopover passengers one night’s free accommodation in Abu dhabi E tihad Airways Chief Commercial Officer Peter Baumgartner (left) alongside Abu Dhabi Tourism Investment and Development Company (TDIC) Senior Manager of Business Partnerships, Revenue Development and Operations Guy Epsom as they celebrate the launch of the Abu Dhabi stopovers program. Etihad Airways, the national airline of the United Arab Emirates, will offer one night›s free accommodation to passengers stopping over in Abu Dhabi for a minimum of two nights before December 1, 2012. The Essential Stopovers offer, part of the Essential Abu Dhabi program, can be redeemed at 25 hotels, ranging from three to five star. Further nights in five and four star accommodation can be purchased at rates as low as US$59 per person, based on twin occupancy, and US$43 for three star accommodation. Etihad Airways passengers taking advantage of the stopover offer can also enjoy two-for-one deals at Ferrari World, Saadiyat Beach Golf Club, Abu Dhabi Golf Club, Yas Links and Monte Carlo Beach Club. Two-for-one safaris or tours can also be claimed from operators Desert Safari and Abu Dhabi City Tour. The stopover program offer is available to all Etihad Airways guests, as well to passengers travelling on Etihad Airways marketed flights. All passengers must have an onward booking beyond Abu Dhabi. Etihad Airways Chief Commercial Officer Peter Baumgartner said: We are delighted to invite people from all over the world to experience Abu Dhabi for themselves. The capital city of the United Arab Emirates has so much to offer both business and leisure travellers. This offer is intended to encourage people to make time to get off the aircraft at Abu Dhabi and explore the emirate - be that with a visit to the Arabian desert, a trip to one of the world›s largest mosques, a tour of the attractions on Yas Island or by sampling the emirate’s world class hotels and restaurants. Abu Dhabi is a magical place with something to offer everyone l Hyderabad Real Estate Update Q1 2012 Residential Real Estate Residential property buyer sentiments in Hyderabad have improved considerably over the last three quarters. There has been a gradual but certain increase in residential demand and absorption. That said, the market is still a long way from touching the 2007- 2008 levels. There has been a marked increase in activity by developers scouting for suitable land parcels for residential development. More than anything else, this is a convincing indication that they want to proceed with their expansion plans and not hold on to their land, which had more or less been the trend since 2008-2009. We definitely expect an increase in PE investments into residential real estate projects in Hyderabad in 2012. Until now, institutional capital flows had been slow in Hyderabad when compared to some of the other cities. The reasons for this were specific to the period: • In 2007-2008, the main reason was high valuations • In 2008-2010, the global financial crisis was clearly the culprit • In 2010-2011, the state-level political scenario depressed institutional investment sentiments At this point in time, the real estate valuations are once again making sense, and developers as well as end users are once again in action mode. There is every reason to believe that the political scenario will take a turn for the favourable for PE investment in 2012-2013. On the more sombre side, it also looks like residential supply is likely to outstrip demand in the foreseeable future. There is clearly a 6 I CITYSCAPE I APRIL 2012 supply–demand mismatch, and unsold inventory is quite high. This fact will definitely have an impact on residential property pricing in the mid-term. That said, there are also going to be selective price rises for projects in high-demand locations having good amenities. Commercial Real Estate The commercial real estate sector in Hyderabad has reacted very differently from the residential sector over the past few years. In 2008-2009, the Grade A office space absorption in the city stood at approximately 2.2 million square feet. Thereafter, in 2010 and 2011, Hyderabad saw absorption of 4.4 to 5.0 million square feet year on year. This clearly indicates that corporate client did not let the political scenario upset their expansion plans in Hyderabad. In fact, all our large corporate clients such as Cognizant & Accenture have expanded their office bases over last 2 to 3 years. What is worrisome is the fact that very few new companies have set up their base in Hyderabad over last couple of years. Notable exceptions would be JP Morgan and Facebook, along with a handful of others. Almost 90–95% of the city›s commercial real estate absorption has been via expansion of existing companies. In 2012, the lack of SEZ supply will result in city absorption being lower than in 2010 and 2011. There is a huge supply of STPI/Commercial space available for corporates amounting to approximately 4.5–5.0 million square feet, but as 50-60% of the absorption is in SEZs, landlords and developers owning STPI/Commercial spaces might feel the pressure of unsold and un-leased inventory l
  10. 10. STARWOOD DEBUTS LE MERIDIEN IN TURKEY WITH THE NEW LE MERIDIEN ISTANBUL ETILER The First New Build Le Méridien Hotel in Europe in a Primary Destination, Designed by Award-Winning Turkish Architect Emre Arolat I STANBUL: Starwood Hotels & Resorts Worldwide, Inc. (NYSE: HOT) announced the debut of the first Le Méridien hotel in Turkey with the opening of the highly anticipated Le Méridien Istanbul Etiler. Owned by Makyol Construction Industry Tourism and Trading Co. Inc. and designed by leading Turkish architect Emre Arolat, the hotel is situated in Istanbul’s most exclusive neighbourhood and overlooks the Bosphorus with panoramic views over two continents. “We are delighted to partner with Makyol as we introduce Starwood’s Le Méridien brand to Turkey”, comments Roeland Vos, President, Starwood Hotels & Resorts, Europe, Africa, and Middle East “Istanbul continues to evolve as a metropolitan centre of culture, design and cuisine, making it an ideal match for our Le Méridien brand. This flagship hotel will enable us to showcase Le Méridien’s contemporary lifestyle and sophisticated origins in one of the world’s most remarkable destinations.” “Le Méridien has undergone a comprehensive brand relaunch in the past six years since it was acquired by Starwood,” said Eva Ziegler, Global Brand Leader, Le Méridien and W Hotels Worldwide. “In this new era for Le Méridien, we are proud to celebrate Le Méridien brand’s best portfolio ever with the grand opening of the flagship Le Méridien Istanbul Etiler, which marks the first new build Le Méridien to open in a primary European city.” Adnan Çebi, Makyol’s Chairman says, “We are extremely excited to be expanding Makyol’s tourism portfolio with an internationally renowned hotel group such as Starwood Hotels & Resorts and to bring the contemporary Le Méridien brand to Turkey. With the brand’s artistic cosmopolitan touch, we believe Le Méridien Istanbul Etiler will bring a fresh flavour to the city, perfectly suited to the rich and sophisticated cultural blend of East and West.” Set to become a landmark in the city, the 34-storey hotel features iconic architecture and a dedicated curated art programme showcasing Turkish contemporary artists, reflecting Istanbul’s inspiring and culturally diverse atmosphere. Designed by award-winning Turkish architect Emre Arolat, the hotel features three distinct, vertically-stacked blocks inspired by the neighbouring buildings in Etiler. The building gradually becomes transparent as it rises towards the sky, providing guests with impressive views of the Bosphorus and a new perspective of Istanbul. The hotel’s interiors were designed by renowned Turkish designer Sinan Kafadar of Istanbul-based Metex. The hotel provides a comprehensive contemporary lifestyle experience, featuring 259 guest rooms, including 21 long-stay residence suites all with floor-to-ceiling windows providing inspiring views of the Bosphorus and the city. Featuring a timeless chic design, all guest rooms are outfitted with Le Méridien Bed® and amenities such as a docking station, rainforest shower and a separate bathtub. Le Méridien Istanbul Etiler’s signature spa offers visitors a new perspective inspired by European spa traditions and features eight treatment rooms, a Turkish Hammam, an indoor pool, an outdoor heated pool, and a state-of-the art fitness centre. Le Méridien’s UNLOCK ART™ programme features an artist-designed key card collection that offers access to both the guestroom and affiliated contemporary cultural centres. In Istanbul, guests can enjoy access to Istanbul Modern, the hotel’s UNLOCK ART™ partner, using keycards designed by :mentalKLINIK – a contemporary artist duo from Istanbul and recently appointed as the latest LM100™ members. Selected by Jérôme Sans, Le Méridien’s Cultural Curator since 2006, LM100 is a group of international innovators chosen from the worlds of art, architecture and cuisine who use their creativity to develop original, interactive programs that transform the Le Méridien guest experience. The hotel offers the newly developed Le Méridien Hub experience which re-interprets the traditional lobby into a social gathering place for creative people to converse, debate, and exchange. Dining facilities include an allday restaurant, Latitude Bar serving illy coffee and other refreshments, and a rooftop bar with spectacular 360-degree views of the city. Le Méridien Istanbul Etiler also features over 2,000 square metres of meeting space, including a 766-square metre ballroom and nine individual rooms. Acquired by Starwood in November 2005, Le Méridien has undergone a full brand relaunch to transform into a contemporary, design-led lifestyle brand that seeks to provide a new perspective through a curated approach to culture. The opening of Le Méridien Istanbul Etiler is a milestone for the brand’s transformation as it continues to attract a growing audience of creative, world-travelling guests. Starwood Hotels & Resorts currently operates six hotels throughout Turkey, including three in Istanbul – W Istanbul, Sheraton Istanbul Maslak Hotel and Sheraton Istanbul Atakoy Hotel, as well as Sheraton Ankara Hotel & Convention Centre, Sheraton Cesme Hotel Resort & Spa, and The Lugal, a Luxury Collection hotel. The company is set to open three new hotels in Turkey in the next few years: Sheraton Adana Hotel, Sheraton Bursa Hotel, and Aloft Bursa. l APRIL 2012 I CITYSCAPE I 7
  11. 11. JORDAN KINGDOM ON THE RISE Never the development poster child, unlike some of its higher profile neighbours, Jordan has been quietly getting on with the job of diversifying its real estate product. From central Amman to coastal Aqaba, the Kingdom is - quite literally - on the rise. With a young demographic make-up, active monarch and strong focus on education and development, Jordan is a solid prospect in a region beset by recent turmoil. Its long-term links to the GCC are also driving inward investment and, backed by its series of special economic zones, the country is taking its tourism and industrial offering to the next level. COASTAL GATEWAY In late 2006, the Jordanian Red Sea port of Aqaba unveiled plans to woo the international investment community with a then US$3 billion development project on an unprecedented scale. Located 330 kilometres south of the capital, Amman, and 80 kilometres from the World Heritage site at Petra, the 375-square-kilometre site has ‘mega city’ ambition with tourism as its centrefold, supported by demand for its emerging logistics and industrial hubs. Its status as the Aqaba Special Economic Zone (ASEZ), is being supported at both Government and private sector level with a raft of investorfriendly initiatives and programmes in place to drive ongoing levels of inward investment into what it hopes will transform the area into a major international gateway. Development of the King Hussein International Airport, with its ‘open 8 I CITYSCAPE I APRIL 2012 skies’ policy is leading to growing interest in using the airport for regional freight delivery – with an eye on facilitating reconstruction project access to Iraq, offering another dimension to the logistics possibilities served by development of its sea port. A handful of high profile projects have already made headlines, including the US$10 billion waterfront UAE-backed Marsa Zayed project, which is the Kingdom’s largest ever real estate and tourism development, and which hopes to become a global yachting destination contender. The US$1 billion Saraya Al Aqaba mixed-use development will be home to a sextet of luxury hotels as well as residential properties and a convention centre, while the US$1.4 billion Venetian waterway-inspired Ayla Al Oasis project will dramatically transform Aqaba by creating 17 kilometres of new seafront. ASEZ and the Aqaba Development Corporation, which owns Aqaba’s seaport, airport and strategic parcels of land as well as the development and management rights for these assets in addition to key infrastructure and utilities, acknowledge that the challenges of bringing the master plan to fruition are colossal, but argue that in creating a mega city with mixed-use appeal, tourism projects will rub shoulders with residential communities, and health, education, business and transportation opportunities will be maximised l
  12. 12. INSIGHT: MARSA ZAYED T he US$10 billion Marsa Zayed mixed-use waterfront project in Aqaba, Jordan is a multi-phase development covering 3.2 million square metres of desert and mountain along with two kilometres of waterfront, and is the Kingdom’s largest ever tourism and real estate project. Under development by UAE-headquartered developer Al Maabar, which is part owned by Abu Dhabi state investment vehicle Mubadala and Aldar Properties, phase one of Marsa Zayed, which is on track for completion in 2014, will see the construction of 263 village flats, 151 townhouses and the Sheikh Zayed Mosque, which will accommodate 2,000 worshippers. Yousef Al Nowais, Managing Director, Al Maabar What was the appeal of Jordan as an investment destination? “Al Maabar is always looking for new opportunities and in our search we look for extremely significant projects that will add real value to the countries we join forces with. We saw this potential with the Marsa Zayed development. In recent years, Jordan has been undergoing comprehensive economic reform in a long-term effort aimed at improving living standards and this has put it on the map for foreign investors. “When assessing an opportunity, Al Maabar looks for strategic locations as well as the potential of a nation, and actual market demand over the long-term. The countries of most interest to us are those with great heritage and in need of a more developed tourist infrastructure for coping with the international tourist arrivals on an annual basis – and this is true of Jordan. As for Aqaba itself, we see enormous tourist and economic potential for the city due to its strategic location on the Red Sea coast.” Why the decision to focus on a mixed-use project centered on hospitality and tourism? “Mixed-use developments add real value to various sectors of an economy. They create vibrant and attractive urban centres through greater activation of urban areas for more hours of the day, a variety of housing options, a reduction in car dependence and the development of local sense of space. Al Maabar’s projects always respond to genuine, unfulfilled market demands and we have seen this in Aqaba – and Jordan – in the hospitality and tourism sectors.” Is Jordan an investor-friendly destination within the region? “With the country’s ongoing strategy to push comprehensive economic reform, we continue to see significant potential in Jordan and are working closely with the Jordanian Government and Jordanian Investment Board on MARKET SNAPSHOT Asteco Jordan Q4 2011 real estate report Residential compounds are expected to gain momentum as new developments are offering good-sized quality products at affordable prices. Some projects will be completed by the end of 2012 Pricing averages are expected to remain similar to 2011 levels. Demand will continue for medium-sized and larger apartments (350-400 square metres) in prime locations Demand for offices has been slow as companies preferred leasing over buying APRIL 2012 I CITYSCAPE I 9
  13. 13. JORDAN “Last year we continued to see steady progress and important milestones met for both our developments in Aqaba and Amman. We awarded the Phase One Infrastructure Contract for Marsa Zayed to a Jordan-based contracting firm in July 2011, and we also signed an agreement with Starwood for the The St. Regis Amman and The Residences at The St. Regis Amman. Our business model at Al Maabar is all about helping to create long-term, sustainable developments through strategic partnerships.” the Marsa Zayed and St Regis Amman developments. “Last year we continued to see steady progress and important milestones met for both our developments in Aqaba and Amman. We awarded the Phase One Infrastructure Contract for Marsa Zayed to a Jordan-based contracting firm in July 2011, and we also signed an agreement with Starwood for the The St. Regis Amman and The Residences at The St. Regis Amman. Our business model at Al Maabar is all about helping to create long-term, sustainable developments through strategic partnerships.” INDUSTRIAL FOCUS Jordan Industrial Estates Company (JIEC) oversees the country’s burgeoning industrial asset class, with responsibility for the newly labelled official Development Zones “Over the years, JIEC has developed five operational industrial estates across the Kingdom and we have two other projects in the pipeline. We provide companies and plants that invest in any of our industrial estates with a number of incentives that help reinforce their industrial activity,” says Kay Marwan, JIEC’s Head of Marketing. “As per the new Development Zones law, numerous incentives, sales tax and custom exemptions are given, and we also encourage investment through the provision of various support services that lead to better efficiency and performance,” she adds. Benefits driving interest and investment include a streamlined ‘onestop-shop’ service for new start-ups, well-developed infrastructure and ancillary services, 100 per cent ownership and access to international markets through negotiated trade agreements. JIEC is financially and administratively autonomous, which is proving to be a major attraction for foreign investors and, in addition to the one-stop-shop concept, also established Investor Services Bureaus for each industrial estate, designed to fast track businesses to get them up-and-running with a minimum of bureaucracy. According to Marwan, Jordan’s potential across all asset classes is undeniable, as she explains: “Jordan is a regional hub for trade and culture, and occupies a strategic position in the Middle East. We are also blessed with political and economic stability, modern legislation, a strong and independent legal system, are on a democratic path with a free economy led by the private sector, and a government promise to support and sustain the flow of investment into the country. “These elements blend together to create an economically-feasible destination; offering global investment opportunities in a world-class business environment to both regional and international investors ” l Jordan’s Big 4 Amman: Abdullah II Ibn Al-Hussein Industrial Estate • 2.5 million square metres • Largest industrial estate in the country in terms of total invested capital and number of companies • Pharmaceuticals, chemicals, engineering and food industries Aqaba International Industrial Estate • 2.75 million square metres • Located one kilometre from Aqaba International Airport in the Aqaba Special Economic Zone • JIEC’s third QIZ Irbid: Al-Hassan Industrial Estate • 1.17 million square metres • The first Qualified Industrial Zone (QIZ) worldwide. • Home to many foreign investors, with a focus on textiles, readymade garments and engineering Karak: Al-Hussein Bin Abdullah II Industrial Estate • 1.85 million square metres • Second QIZ approved industrial zone in the country • The second qualifying industrial Zone (QIZ). • Strategically located in the south on the highway connecting north and south • Jordan • Textile and garment industries 10 I CITYSCAPE I APRIL 2012 Coming up Three other development zone projects are underway. The 2.5 million square metre Al-Muwaqar Industrial Estate on the periphery of Amman is moving ahead with phase one of the project which is targeting logistical services and technology industries with over 1.44 million square metres of space. A major draw for companies requiring international connectivity, it is within close proximity of the highway linking Jordan to Iraq and Saudi Arabia. On the Amman drawing board is the Al-Zarqa Industrial Estate, which will be strategically located closed to the Jordan-Iraq border, and the Madaba Industrial Estate, situated 35 kilometres south of the capital with close to 500 million square metres of space pegged for investor use.
  14. 14. TURKEY TURKEY OPENS TO INVESTMENT Topping the list of European global investment hotspots and with the abolition of the country’s real estate reciprocity law imminent, Turkey is looking to new markets including the Middle East – to secure its position as the next big destination for savvy investors. T he final draft of the bill to abolish Turkey’s existing reciprocity law in favour of open foreign investment is currently under scrutiny by the Turkish parliament, and the country is preparing to welcome a flood of new market investor interest upon ratification later this year. According to the recent Emerging Trends Real Estate 2012 report by PricewaterhouseCoopers and the Urban Land Institute, Turkey is the number one investment hotspot in the survey’s development and investment categories, and was also ranked as the third most attractive emerging market real estate investment destination in 2012 by the Association of Foreign Investors in Real Estate. And its real estate market has a solid base, underpinned by the sound fundamentals of a relatively high-performing economy, good banking system, secure levels of employment, industrialisation potential and the government’s investment into social housing projects. This is being further buoyed by amendments to the Land Registry Law, the Mortgage Law, and the redrafting of tax laws, which is all designed to improve the competitiveness of the Turkish real estate sector 12 I CITYSCAPE I APRIL 2012 MIDDLE EAST APPEAL The Turkish Statistical Institute reports that the number of apartment units sold in Turkey in Q2 2011 increased by 18 per cent against 2010, and with tourism from the Middle East set to grow in 2012, developers and real estate consultants across the country are preparing for an influx of demand, not just for residential purchases but also for land and hotels. With the extension of the size of a piece of land that a foreign national can own from 25,000 square metres to 300,000 square metres, the price of prime real estate in key locations in Istanbul and the coastal resorts of Bodrum, Kalkan and Gocek is expected to climb sharply, despite a growth contraction in the country’s construction sector due to increased materials costs and a slowdown in home sales in H2 2011. Kerim Cin, Managing Partner for Colliers International in Turkey breaks down demand further. “We are witnessing revived activity from Middle East buyers in certain residential locations in Istanbul such as districts like Tarabya and İstinye on the cost of Bosphorus, as well as weekend
  15. 15. MARKET SNAPSHOT: ASSET CLASS OPPORTUNITIES Housing loans increased from TRY 3.5 billion in 2004 to TRY 68 billion as of September 2011. The share of housing loans as a proportion of Turkey’s GDP is estimated to hit 15 percent in 2015 Retail development is on the up with the number of malls growing from 44 to 284 between 2000 and 2011 with a number of completed projects across the country, and not just sited in major cities such as Istanbul, Ankara and Izmir Demand for office space, especially in Istanbul’s most desirable districts, is growing, with limited supply lowering vacancy rates and effecting rent increases Logistics is the leading industrial sub-sector and is being driven by increasing industrial production and growing export-import and retail markets, with increased outsourcing to third-party logistics companies Courtesy of Invest In Turkey, www.invest.gov.tr; Business Monitor International Turkey Real Estate Report Q1 2012 locations like the Prince’s Islands, plus newly-developed upscale city centre projects,” he says. “Resort locations on the southwestern coastline haven’t seen much demand before, however we are now starting to see acquisitions of upscale villa developments or hotels in places like Bodrum and Antalya. These buyers typically purchase big-ticket property under local legal entities where 100 per cent shares can be own by foreign individuals; so the reciprocity law had little impact on these sectors and submarkets,” he adds. Cin reports that institutional investors from Qatar, the UAE and Bahrain as leading the investment wave, with individual buyers from Saudi Arabia, Yemen, Iraq, Egypt, Lebanon and Syria also eyeing up deals. “Lately, there has been strong demand from foreign investors in refurbished residential or commercial buildings in Istanbul’s city centre, and end user demand for such developments is high. “We are also seeing interest in newly-developed residential villas managed by reputable five-star or luxury boutique hotel companies in resort areas like Bodrum and Çeşme. These investments are favoured by high income Middle Eastern buyers as they can use the hotel management to maintain the property and generate income when not in use by the owner.” With high-end brands including Mandarin Oriental, Four Seasons and Viceroy identifying opportunities in the popular coastal resort of Bodrum, this also augurs well for the future. However, Cin has a word of caution for prospective investors, as he explains: “I believe that zoning rights and procedures must be more transparent, and with less bureaucracy at municipality level, in order to get more foreign investors to invest into real estate development. “This lack of transparency is currently driving foreign investors to partner up with local companies and developers, which makes it less profitable for them to engage with new projects and thus keep foreign direct investment at lower levels than other industry sectors” l APRIL 2012 I CITYSCAPE I 13
  16. 16. TURKEY INSIGHT: DEVELOPER PERSPECTIVE C em Atakan, Managing Director, Mediterra, the Turkish subsidiary of Dolphin Capital Investors Limited, and a developer of high end residential projects in Mediterranean Turkey. Are you expecting a rush in demand once the reciprocity law is abolished? “When the new law comes into place it will lift restrictions on citizens of 89 countries worldwide from owning a property in Turkey. With Turkey already a hotspot for property investment with foreign sales in real estate reaching US$ 2.5 billion in 2010, some experts predict the lifting of the law could see this double in 2012. We have no doubt that this will pave the way for a major boom, and we envisage significant demand from the Gulf countries, Russia and the Turkic states of Central Asia.” Is there already significant investment interest from the Middle East? “We can only speak anecdotally, based upon our own experience, but we have definitely seen an increase in demand. Much of this has come from property rentals at LaVanta, in Kalkan. Many of our homeowners enter into rental programmes to generate a second income from their property, and over the last two years we have seen an increasing number of Middle Eastern guests. Maybe it is because they can enjoy visa free travel or because of increasing flight availability; but we have had guests from Egypt, Saudi Arabia, Dubai, Qatar and Bahrain and without exception our guests have shown interest in buying property at LaVanta. Interestingly, we also have a number of British expat owners who also live and work in the Gulf. Most clients enquire about villas. All of our villas have private swimming pools, which allow families privacy, plus they can also see the capital growth that is achievable from larger properties.” 14 I CITYSCAPE I APRIL 2012 Which particular regions are key centres of development? “Last November saw an increase in average property prices in Turkey – one of the few countries in the world to experienced a rise. Istanbul, Izmir and Adana are currently the highest performing areas and saw the greatest growth. For anyone looking to invest in a city then Istanbul simply cannot be ignored. But most of the action is on Turkey’s Mediterranean coast. For a short to medium term return then it has to be the Mediterranean coast of southwest Turkey. The infrastructure is developed, and improving all the time, and there is still sufficient undeveloped coastline. “Antalya, Fethiye, Gocek and Kalkan offer the best prospects along the coast. Rental yields of eight per cent are possible in these areas, with an average yield of six per cent, which is higher than you can achieve anywhere else in Europe. Within its Tourism Strategy for Turkey 2023, the tourism ministry is looking to create tourism cities and corridors with a view to enhancing the attractiveness of regions with tourism potential. Kaş, which is a neighbour to Kalkan, been designated as such, and this will have a positive knock-on effect for Kalkan.” Is there any other legislation needed to boost foreign direct investment? “I think we have to let the dust settle before considering anything else. There have been lots of change in recent years, and the whole process of foreign nationals applying for residency was only simplified and made more affordable in 2011. As foreign ownership increases I am sure there will be ongoing discussions as to how foreign nationals can integrate more fully and contribute more positively to the economy ” l
  17. 17. UK LONDON CALLING UK real estate attracts Middle East sovereign riches M any of the construction cranes over the City of London bear the stamp of Gulf countries as they emphatically alter the skyline of Europe’s financial hub and arguably the Arab world’s most appealing investment safe haven. Sovereign wealth funds (SWFs) and cash-positive pension funds from the Middle East are an ever-increasing force behind the high level of global capital currently flowing into the central London commercial real estate market, according to the latest research from global property adviser CBRE. Post-‘credit crunch’ this trend has increased substantially, with central London attracting about 41 per cent of all European property investment from outside the region since 2008, compared to 17 per cent in the previous three-year period (2006-2008). Since the financial crisis there has been a notable increase in central London property investment market share by investors with long-term hold strategies such as cash-positive pension funds and SWFs. Many of these players are from the Middle East. To put this investor diversification growth in context, over the past three years only one buyer from the UK, Legal and General, has invested more than £500 million in Central London commercial property. Over the same period the largest non-UK buyers all invested more than £600m, with cash-positive foreign pension funds and SWFs being key players in the current cycle. Simon Barrowcliff, executive director, Central London Capital Markets, 16 I CITYSCAPE I APRIL 2012 CBRE, said: “The fundamental drivers of growth in cash-positive pension funds and sovereign wealth funds are expected to continue and capital from these sources will continue to enter and power the Central London property investment market.” The London 2012 Olympic Village has become the latest UK sports investment for Qatar following the joint purchase of the site for £557 million. The Olympic Deliver Authority (ODA) confirmed the sale of the Village in a joint deal between British real estate firm Delancey and Qatari Diar, the property company of the Qatar’s royal family. The ODA said that Delancy and Qatari Diar would take over 1,439 of the 2,818 homes on the site along with six adjacent development plots with the potential for a further 2,000 new homes. The Mayor of London Boris Johnson said that the deal showed “great confidence” from big private investors in the future of the city and the east London area. Qatari Diar group CEO, Mohammed bin Ali Al Hedfa, said: “Our commitment to the UK market and to building long-term relationships with our partners and the wider community is of paramount importance to us.” For years, Middle Eastern family funds have invested in the glamorous and wealthy West End of London, buying residential buildings and offices in fashionable neighbourhoods like Kensington and Knightsbridge. But when turmoil engulfed the financial services industry, these investors shifted their focus to the capital’s financial centre. Prices for commercial real estate there dropped as much as 20 per cent in eight months, while those in the West End barely moved.
  18. 18. “London’s reputation as a safe haven for investors is being reinforced by global troubles not undermined. Additional incentives such as a weak sterling and a favourable tax system are also making it more attractive amongst a range of potential foreign investors” Snapping up high-profile buildings on the cheap is not the priority for Gulf investors. London skyscrapers are attractive to them as long-term investments with an almost guaranteed income. Strife in the financial market may force some companies to cut back on office space for a while, but in the long-term these investments will probably pay off, said CBRE. The Pinnacle, for example, a 66-storey office building financed by Arab Investments and designed to have the highest restaurant in the city, is expected to be completed shortly. Construction started in 2008, then stalled, but Arab Investments took over and got the project moving in return for 90 per cent stake. Pierre Rolin, a London-based real estate investment adviser whose close ties to the Middle East led to a $900 million investment by Oman in the Heron Tower, another skyscraper, is confident his clients will get a 20 per cent return on the investment this year. Meantime, Qatar Investment Authority, the country’s sovereign-wealth fund, has just bought Credit Suisse Group AG’s London headquarters and leased the building back to the Swiss lender. And Qatari Diar also bought most of Royal Dutch Shell’s headquarters campus in London with Canary Wharf Group in July. Canary Wharf is controlled by Songbird Estates, in which Qatar Holdings owns almost a 28 per cent stake. In 2010, Mohamed al-Fayed sold Harrods to the Qatari royal family’s investment arm for £1.5 billion in one of the highest-profile sales in the UK for many years. Qatar also holds a 20 per cent stake in Camden Market in north London and owns Chelsea Barracks. “London continues to offer solid growth potential and its twinned status as an accessible capital city and financial centre, alongside a stable political system and transparent legal framework, continues to attract interest from across the Middle East,” Ben Stroud, associate director of residential agency, development & investment at Jones Lang LaSalle London, said in a statement. “London’s reputation as a safe haven for investors is being reinforced by global troubles not undermined. Additional incentives such as a weak sterling and a favourable tax system are also making it more attractive amongst a range of potential foreign investors.” Middle East investors accounted for nine per cent of all Jones Lang LaSalle’s sales in central London last year, up from five per cent in 2010, making them the second largest group of foreign investors behind nationals from Asia Pacific. Sport plays its part with probably the highest profile investment being Abu Dhabi United Group’s purchase of Manchester City football side. Plans include a $158 million training complex adjacent to its home ground, Etihad Stadium. Etihad Airways also chose Manchester as the location for its European hub. Arsenal plays its home games at the spectacular Emirates Stadium. Half the top ten sovereign wealth funds — including Abu Dhabi Investment Authority — have offices in London. A close working partnership has also helped secure Emirati funding for major projects such as Europe’s largest wind farm, the London Array, and the UK›s most ambitious port and logistics centre, the London Gateway, near the mouth of the River Thames. Last year, a Qatari investment fund bought the naming rights for the inaugural British Champions Series, which will include 35 of the top flat races in the British horse-racing calendar including outings at Royal Ascot, the Derby and St Leger meetings. David Wootton, Lord Mayor of the City of London, on a recent visit to the UAE, perhaps summed it up best when he said: “I do not doubt that 2012 will be a year of great challenge, for London, for the UK, for the UAE and for the world. But through our continued partnership we have the capacity to transform these huge challenges into an enduring legacy for both nations” l APRIL 2012 I CITYSCAPE I 17
  19. 19. UK LONDON RESIDENTIAL MARKET INSIGHT By Nicholas Barnes, Head of Research at Chesterton Humberts Chesterton Humberts are a multi-disciplinary property business covering residential sales and lettings, international, rural and commercial with 70 offices in the UK and international offices in Europe, Asia, Australasia, Africa and the Middle East. L ondon is an attractive proposition from a residential real estate perspective, offering a large stock of high quality properties and a long and proven track record of strong growth performance and market transparency. The legal system as it relates to property is straightforward with clear title assured while transaction costs are relatively low by international comparison. Moreover, with careful planning, it is possible to reduce the tax burden both on acquisition and disposal of property. The ongoing turbulent international economic and geo-political environment has enhanced London’s reputation as a safe haven for investors. Consequently, overseas buyers dominate in the prime central areas, many of them benefitting from favourable exchange rates against the Pound. Indeed, the majority of mid-high end developments have recently been sold via overseas exhibitions either directly or through follow-up activity. In spite of the uncertain economic outlook, buyer demand remains robust in the prime locations, which has helped push prices above their pre-recession peak levels. For example, average prices in Kensington & Chelsea and Westminster are now, respectively, some 17% and 15% above their previous peak. This compares to average London values which remain a little over 1% below peak. periods and displaying lower volatility. The lettings market is expecting a short term boost this year as a result of the large visitor numbers expected for the Queen’s Diamond Jubilee and the Olympic Games. Figure 1: Prime London prices as at December 2011 versus pre-recession market peak Interestingly, we have noticed that Middle Eastern buyers have extended their traditional focus on prime centrally located, high-end lifestyle properties to include mid-market units in secondary locations acquired purely for investment. There is also increasing corporate interest in the sector, mainly from international groups. The outlook for the prime London property market remains healthy. Although the UK’s economic prospects are still uncertain, the prime residential segment has become more of an international than a domestic market and will be increasingly influenced by the behaviour of internationally mobile HNWIs rather than by domestic events l Source: Land Registry Supply continues to lag behind demand, which is helping to sustain prices. Average annual completions in London since the recession have been running at around 76% of their long term trend. This is particularly apparent in the prime segment which has triggered a number of speculative schemes that have generally attracted strong buyer interest. The continuing expansion of the private rented sector is encouraging investors, including a growing number of corporate players, to enter the market. Recent data from IPD (Investment Property Databank) reveals that residential compares favourably with other mainstream assets over the longer term – for example, outperforming equities over 5 and 10 year 18 I CITYSCAPE I APRIL 2012 Figure 2: Nominal total returns, ungeared, as at December 2011 Source: Investment Property Databank
  20. 20. Looking at LONDON? With an international network of over 70 offices, including 25 in London and two in the UAE, Chesterton International is an expert in prime residential property and perfectly positioned to help MENA-based clients invest in London. To find out more about the properties we are offering, visit us on stand AD40 at Cityscape Abu Dhabi or, for a private consultation to discuss your investment needs contact: Simon Gray, Managing Director MENA Region: M: + 971 50 4588725 E: simon.gray@chesterton-mena.com
  21. 21. CHINA GREAT STALL OF CHINA Bubble and creak of People’s Republic housing market E conomic forecasters around the world are maintaining a nervous watching brief on China’s ominous housing bubble to see if the country can succeed where the US failed, and avoid the kind of meltdown that triggered the global financial crisis. The possible spin-offs for the Gulf are immense as China is considered one of the safest places for GCC countries to invest and experts say the People’s Republic will be the Arab nations’ most important trading partner by 2020. But to avoid a crash akin to that in the US, China is making efforts to cool the overheated property sector which has seen average home prices across 100 mainland cities fall five months in a row. The average cost of a home in the Shanghai metropolitan area has plunged roughly 40 per cent since peaking in 2009 and home prices in major Chinese cities are expected to fall up to an additional 20 per cent this year, according to a report in the South China Morning Post Englishlanguage daily. Unlike the US housing meltdown, there is method rather than madness in China’s correction. From the spring of last year, Beijing introduced a number of measures to put the brakes on home prices. They included tightening lending standards, hiking interest rates, requiring larger down payments, raising taxes in some cities, and discouraging speculation by barring home buyers from buying more than two properties. While that’s straight-forward enough, the impact in China and on the global economy is less certain. Falling property prices in China undercuts consumer spending and weakens demand for foreign goods. China’s building boom in recent decades is also a major contributor to the increase in the price of oil, steel, and other commodities. But Chinese consumers typically also carry much less debt than borrowers in the West. “I don’t think China is in danger of a US-style housing crash,” said Alistair Thornton, a Beijing-based analyst for IHS Global Insight. “They still retain a lot Three months ago, Shanghai property developers started slashing prices on their latest luxury condos by up to one-third. Crowds of owners who bought apartments at full price converged on sales offices throughout the city, demanding refunds. Some angry investors went on a rampage, breaking windows and smashing showrooms. 20 I CITYSCAPE I APRIL 2012
  22. 22. of levers of control, should the property market slide faster than expected.” For now, all signs point to China continuing to lean on those controls. The country’s economy, while no longer producing year after year of doubledigit growth, still expects 2012 GDP of around 9 per cent. Whatever the impact may be, China’s National Statistics Bureau reports that home prices only rose during December in two of the 70 cities it measures. Prices in 52 of those markets fell. Three months ago, Shanghai property developers started slashing prices on their latest luxury condos by up to one-third. Crowds of owners who bought apartments at full price converged on sales offices throughout the city, demanding refunds. Some angry investors went on a rampage, breaking windows and smashing showrooms. And similar steep price reductions are upending real estate markets across China. Centaline, a leading property agency, estimates that developers have built up 22 months’ worth of unsold inventory in Beijing and 21 months’ worth in Shanghai. Chinese radio reports that half of all real estate agents in the southern city of Shenzhen have shut up shop. According to Centaline, more than 100 local government land auctions failed last month, and land sale revenues in Beijing are down 15 per cent this year. Lon John, the vice rector of Chinese University of International Business and Economics said in a recent seminar that total trade between China and the Arab world was likely to hit US$190billion when the final tally for 2011 is revealed. The figure represents a significant increase on 2010 when the year-end total reached US$145.4billion. It was just US$36.4billion seven years ago, according to the Saudi Press Agency (SPA). Meanwhile, the investment between the two sides is expanding every year. By the end of 2010, the total amount of Chinese investment in Arab states had exceeded US$15 billion and investment from Arab states in China reached US$2.6 billion cumulatively. And the Economist Intelligence Unit (EIU) said in a report that China is expected to be the GCC’s most important economic partner by 2020. Ironically, some are suggesting China should learn the lessons of Dubai. Professor Huang Yiping of the Chinese Centre for Economic Research at Peking University said: “In China, soaring real estate prices have led to deep concerns over expanding bubbles. Especially against the backdrop of the world economic slowdown, some local authorities have turned to the real estate market to fuel the local economy. “Both the ratio of home prices to per capita incomes and the ratio of vacancies are indications that bubbles in the Chinese real estate market have expanded to a dangerous position. The Dubai experience tells us that once bubbles occur, they’re sure to burst, which will inevitably lead to steep declines in home prices” l APRIL 2012 I CITYSCAPE I 21
  23. 23. EGYPT NEW ERA FOR EGYPT The inevitable stalling of the country’s real estate market in 2011 had both local developers and international investors sitting on their hands for most of the year, but with a new spring comes new impetus, and Egypt is once more looking ahead on the development front A new era of democracy and stability is being trumpeted for Egypt as the country moves on from the Arab Spring; and despite a slowdown in the housing market in 2011; early Q1 performance sneak previews are indicating a more respectable first quarter for 2012. The sector contributes nine per cent to Egypt’s GDP, and with the sense of uncertainty slowly receding, and a move towards greater transparency fuelled by the headline-grabbing lawsuits that challenged land deals between the Government and real estate companies, Egypt’s internal demand for property is being given renewed impetus. And even nonresident Egyptians are being given a chance to get in on the action with a Ministry of Housing plan to sell 8,000 plots of Cairo land to expats. 22 I CITYSCAPE I APRIL 2012 MODEL FOR THE FUTURE Lamia El Allamy, Director of Marketing & PR for Cairo-headquartered Citystars Properties, developer of large-scale integrated mixed-use projects including Citystars Heliopolis, Citystars Katameyah and Citystars Red Sea Riviera, is optimistic about the country’s mid to long-term potential. “We are optimistic about long-term growth endorsed by solid fundamentals - namely the largest population across the Arab countries. Population growth, accompanied by growing per capita incomes, will result in the increased demand for quality developments which, in turn, will drive increased foreign investments within the market to accommodate
  24. 24. INSIGHT: INVESTMENT LANDSCAPE Ayman Sami, Head of Egypt for Jones Lang LaSalle Where is FDI interest coming from or is internal investment the main driver? “Towards the end of 2010, the investment landscape was growing at a tremendous rate. Following the January 2011 revolution and, until today, investors are in a wait-and-see mode - apart from a few UAE and Qatari investors who decided to push ahead with their projects. Local developers or investors have put many of their plans on hold, but some did work to complete projects that were planned for prior to the revolution.” What effect have the elections had on the real estate market? “I believe that the parliamentary elections did not have such a big impact on the real estate sector, however, confidence did return slightly to various areas and this is mainly due to the partial restoration of security.” Which asset classes and regions are receiving the most interest? “The main drivers for growth are marriage and population growth driving the demand for housing - especially in the mid to low income segment and value retail, mainly fast moving consumer goods and petrochemicals which reflected on the continued expansion of hypermarkets, value fashion and food and beverage outlets even during 2011. We have also seen office occupiers especially in the FMCG and petrochemical industries looking to relocate into larger or more modern office spaces.” How is the country’s hospitality sector looking, post Arab Spring? “The hospitality sector was hard hit during 2011 with more than a 30 per cent drop in tourist arrivals over the previous year. The most affected area was Cairo, where we witnessed occupancy rates as low as 15%. Tourism is definitely an opportunistic segment with many areas in Egypt that are untapped. Not too many projects were under development over the past year as there was major concerns over the future of this sector, however, it seems that there is no alternative or substitute for this sector and the new parliament knows that very well as tourism provides jobs to more than 12 per cent of the countries› labour force.” What kind of legislation is needed to encourage foreign direct investment? “Egypt has come a long way and is becoming a more open market. The main barrier at the moment is the political situation. I believe that the final steps of electing a new president will help drive further investments.” How can the development community come together to send out a positive message to potential investors looking at Egypt? “Cityscape is a good example where the development community came together to help promote Egypt. I believe we are moving towards a more favourable environment, and investors are already wandering about waiting to catch the right opportunity. The local community should also use third party providers like us to communicate the message as we can combine trusted sources whether locally or globally. Packaging and positioning the whole country as an attractive destination with increased transparency will help create a strong impact, avoiding confusion and attracting investments.” APRIL 2012 I CITYSCAPE I 23
  25. 25. EGYPT such demand, and facilitate the construction of these developments in accordance with international standards,” she says. El Allamy also points out that Egyptians are generally selective in their investment picking, and will only invest with reputable, trustworthy and secure developers. And Citystars is banking on its existing credibility to attract new investors for its six-strong portfolio of mixed-use developments. “We are pursuing several developments similar to our Heliopolis model that are currently under construction throughout Egypt, and which include groundbreaking worldwide attractions. These include urban resorts, coastal resorts and residential compounds; which reiterate our confidence in the Egyptian economy,” she remarks. “The Egyptian economy is resilient and able to recover quickly despite the current challenges at this critical stage. We are making rapid progress on many mixed-use developments including tourism and real estate developments, which reflect our confidence in Egypt’s stable investment climate and tourism sector,” she adds. SODIC, another leading Egyptian real estate company with a diverse portfolio of commercial, residential, retail and hotel properties is also looking forward – and ahead – to a positive change of fortune, as Mohamed Kharma, Chief Project Development Officer, explains: “Every political milestone achieved contributes to the stability of the country. Real estate will always be a strong sector in the country since it enjoys real demand across different segments and classes; and currently, there is massive potential with a captive audience in the middle income bracket.” And the company already has a physical track record, with projects like the award winning Allegria, which debuted Cairo’s first signature golf course, and Eastown and Westown, Cairo’s two new suburban cities centres; as well as the contemporary-styled Kattameya Plaza project. In terms of legislative change to benefit the real estate sector El Allamy believes that the new Government will have a strong desire to actively support and encourage foreign investment, and Citystars expects that it will consider providing more incentives to foreign investors, similar to other countries in the region that strive to create a favourable environment for foreign investment. For Kharma, it’s on-the-ground changes benefiting local investors, that are needed first. “The Government needs to address the mortgage law to create reasonable products. Proper mortgages products will increase the purchasing power of the middle-income segment and then foreign direct investment will follow suit,” he points out. But he also believes that demand is the key driver for the future success of the sector, as he explains: “It’s a growing region and country supported by unwavering demand, no matter what kind of political turbulence is experienced.” “The real estate sector cannot flourish nor develop without the presence of strong investors who take the lead to build cities and develop suburbs, and thus revive the market. We are giving a direct message to both Arab and foreign investors that Egypt is capable of surpassing recent events,” concludes El Allamy l MARKET OUTLOOK: COMMERCIAL Jones Lang LaSalle reports current and active demand for between 5,000 and 15,000 square metres of office space from the international FMCG and petrochemical sectors Cairo Festival City will deliver its first office phase in mid-2012 and Damac is looking to open its retail and office project opposite Dandy Mall before the end of the year Around 60,000-120,000 square metres of Grade A office space is set to open in metro Cairo in 2012, including in Cairo Festival City, Mivida by Emaar Misr and Citadel Plaza by Alkan Holding. Total mall-based retail space stood at approximately 786,000 square metres at the end of 2011. Major completions included Phase 1 of Mall of Arabia in Sheikh Zayed, and Sun City Mall in Heliopolis Up to 260,000 square metres of new retail space could enter the market before the end of 2013, including Cairo Festival City. This could push total retail floor space in Cairo to as high as 1.8 million square metres by 2014 with 29 per cent of supply comprising super regional and regional malls by 2015 Courtesy of Jones Lang LaSale Misr LLC 24 I CITYSCAPE I APRIL 2012
  26. 26. INVESTMENT Waiting game for investors in the eurozone 26 I CITYSCAPE I APRIL 2012
  27. 27. I t’s a confusing time if you’re looking to invest into property – private or commercial across the eurozone. With such disparity between markets, even referring to the area as one coherent ‘eurozone’ seems something of a misnomer. Take Italy, for example. While stars such as George Clooney and Mel Gibson are buying there; the Hollywood rubber stamp has done little to lift prices. The word from a range of international property experts eyeing Italy is “buy, buy, buy,” with a strong pound generating a great deal of interest from the British in buying across Italy. But there are strong caveats. While the more adventurous property investor may be tempted to take advantage of the current eurozone woes to seek ‘distressed’ bargains; the crisis is far from over and the risk to property values in some countries is still unacceptably high - according to analysts. Distressed property in Portugal and parts of Spain, for instance, which can be snapped up at less than 50 per cent of pre-downturn prices, is attracting the interest of long term, risk-taking investors who intend to benefit from potential capital growth when demand recovers. “But until the Greek crisis is over, prudent investors are advised to take a wait and see approach towards buying properties in high risk countries, such as Spain, Italy and Portugal,” said one industry watcher. “The persistence of the crisis, coupled with slow growth projections and a weak performance from European Union authorities and governments, means things are likely to get worse before they get better,” said Stuart Law, chief executive of buy to let specialist, Assetz. It might be an extreme scenario, but if the eurozone broke up, the impact on sterling or dollar denominated property values for foreign investors could be devastating in weaker countries, if they exited the Euro and returned to a devalued national currency. While property may look appealingly cheap in some cases, it could be worth half of today’s values to a foreign owner, if it was suddenly being valued in drachma, for example, which analysts suggest could face a 50 per cent devaluation if Greece leaves the euro. Risk premiums? Investors putting money into eurozone real estate markets should be demanding higher risk premiums - due to the potential repercussions of the sovereign debt crisis, according to industry experts. A recent report from AEW Europe and investment bank Natixis calculated the “average probability risk yield premium” that should be taken into account across different European property markets to convey the likelihood of each country exiting the single currency. The study did not apply this suggested premium to Germany, the Netherlands or Austria due to their stable public finances. However, it recommended a risk premium of ten basis points for France and Belgium, while 375 basis points was suggested for Greece. Madhi Mokrane, head of research and strategy at AEW Europe, said investors should be “demanding” these higher risk premiums. He added that his firm anticipates “non super-safe yields will be rising across the board in the eurozone by year-end unless a convincing solution to the crisis is found to satisfy financial markets”. CB Richard Ellis believes global real estate investors are focusing their attention on a small number of core markets on the continent, with London attracting the highest volumes of capital, followed by Paris, Berlin, Moscow and Frankfurt. While the most desirable regions where demand exceeds supply - such as France’s Cote d’Azur and Paris – will always remain popular; raising finance remains a challenge in the eurozone. Cash-rich second or holiday home buyers who can afford to take a longer term view and buy for the location and climate, may still feel the time is right to seek out a bargain. Reports and market watchers suggest that investors would do well to “sit tight” until the situation becomes clearer - or concentrate on safer countries with less exposure to a partial Eurozone break-up such as the UK, USA or France. Retail growth in new markets Meanwhile, capital flows into the European retail property continue to follow economic performance, with Germany and those markets just outside the eurozone, such as Russia, clear favorites with investors, according to global real estate adviser CBRE. European retail property investment grew to €9.4 billion in the final quarter of 2011; bringing the annual total to €37.2 billion. The defensive characteristics of good quality retail assets continue to attract local and international investor demand despite an uncertain economic and political environment. As a result, retail in 2011 generated a large share of the overall commercial real estate investment across many European markets, growing to just above last year’s record of 32 per cent on the panEuropean level. Capital flows continue to favour Europe’s stronger, faster growing economies, with Germany, some of the Nordic and Central and Eastern European (CEE) markets seeing robust activity. The German retail market has seen remarkable growth – tripling since 2009, while the retail share of overall commercial property investment jumped to 48 per cent in 2011, up on 2010’s 42 per cent. Iryna Pylypchuk, associate director, EMEA Research, CBRE, said: “Germany, the Nordics, and some CEE markets have been the biggest beneficiaries of investor demand, especially when it comes to international capital looking for new retail opportunities. In an uncertain economic and political environment, investor strategies will remain risk-averse.” John Welham, head of European retail investment, CBRE, said: “Some of the CEE markets will become extremely attractive from both an economic and pricing perspective. One step removed from the eurozone crisis, these younger economies offer further potential, especially as Russia becomes more of an international market” l APRIL 2012 I CITYSCAPE I 27
  28. 28. CAPITAL INSIGHT Clear signs of capital upturn A t the time of writing, stocks on Abu Dhabi’s ADX General Index (ADSMI) were at their highest level since November 2011; bolstered by the news that 2001 profits of Aldar (Abu Dhabi’s biggest property developer) beat estimates; while Sorouh Real Estate Co., the emirate’s second-largest developer, headed for the highest close in almost five months. Aldar, the company behind the Yas Marina Formula One circuit and the Ferrari World theme park, made a fourth-quarter profit of AED182.1 million, Reuters calculated, compared with a loss of AED11.14 billion during the same period in 2010. “Recent news on the real estate sector, including progress on Aldar and the commitment of the United Arab Emirates to some key projects, provided a rebound,” said Ahmed Talhaoui, Abu Dhabi-based head of investment and asset management at Royal Capital PJSC. A positive wind is blowing across the construction-filled skyline of the UAE capital, after a few rocky years. Aldar is on an even keel; a new iconic building seems to be unveiled almost every month, and property pricing is on a gradual upward curve. With a plethora of exciting, world-class developments slated to come 28 I CITYSCAPE I APRIL 2012 on line this year, the real estate market in the capital will be anything but stagnant. Developers are going out of their way to generate interest in the thousands of new homes, offices and retail space they are creating across the city. Property experts CBRE suggest the Emirate might still be in for a bumpy ride, however, according to its most recent local market report. Despite an increasingly strong economic outlook, bolstered by the continued flow of petrodollars, Abu Dhabi’s real estate sector still faces some downside risks, according to CBRE. This year, supply is forecast to outstrip demand. CBRE suggests a further drop in rental rates is inevitable, although with a highly fragmented market, the impact will vary, dependent on the quality and location of individual products. City centre (on-island) real estate will continue to command premium prices, both residential and commercial - particularly as Abu Dhabi awaits completion of Sowwah Square and further delivery of developments in Marina Square, Reem Island, although the overall trend for office rents has been downwards. The last quarter of 2011 saw a marginal fall in office lease rates, ending the
  29. 29. year 3 per cent lower than Q3 2011. For developers, the next 12 months could be tough, but it’s a buyer’s market. “Landlords are becoming increasingly flexible and realistic in their approach to leasing, with rent free periods offered as standard market practice. For occupiers with strong covenants, extended rent free periods of up to eight months per five years of term can be secured as landlords try to limit their risk exposure by avoiding extended rental voids,” a CBRE commentator said in the report. Modest decline Even the somewhat bleak market outlook from CBRE concedes that the capital’s residential sector is only seeing modest price declines. “The market appears a little steadier than at this time last year. However, delivery delays during 2011 have arguably helped to alleviate the onset of more aggressive deflationary pressures, and with this in mind the outlook for the year is for further downside,” it said. On the main Abu Dhabi island, average residential rents fell by around 4 per cent over the previous quarter and 16 per cent year on year. For Abu Dhabi mainland, the decline was more pronounced with a quarterly decline of 5 per cent against a 30 per cent drop year on year. “With a considerable development pipeline looming for handover during 2012, we anticipate that rents will continue to fall, although the rate of decline is likely to be more moderate than in previous years,” the CBRE analysis stated. Bright future A brief glimpse into the projects coming on line in 2012 is impressive. January saw a government announcement that work is set to resume on the Abu Dhabi branches of the Louvre and Guggenheim museums after a “review of their viability.” Nation Towers is a US$436 million development from International Capital Trading, on the Corniche, comprising two towers (one of 64 storeys, and one of 51) which include a five star hotel, loft apartments, office space, a retail area, recreational amenities and beach club. Nation Towers has incorporated sustainability features throughout the build concept. Aldar’s profits look set to continue with Central Market, its flagship downtown three-tower development, which includes 76,500 square metres of retail space, 591 residential units, 72,000 square metres of office units, two hotels and leisure space. The five Etihad Towers – on the map since 2006 – intend to “change the skyline of Abu Dhabi forever.” This half a million square meter development, with towers ranging from 54 to 75 floors, is again mixed-use and offers a lifestyle that might just ensure residential property prices are on the up by year-end l APRIL 2012 I CITYSCAPE I 29
  30. 30. INFRASTRUCTURE Abu Dhabi’s infrastructure boom set to bolster real estate Multi-billion dollar schemes to ramp up economy and reignite property demand A bu Dhabi’s bid to diversify its economy away from oil received a significant boost in January when the UAE capital gave the green light to a raft of infrastructure and real estate projects. Alongside investments in housing, healthcare and education, the emirate’s Executive Council signed off immense rail, road and airport schemes worth billions of dollars. On completion, these plans will overhaul the city’s connectivity and provide vital links for trade and tourism. High on the agenda is the creation of the UAE’s first cargo railway line, a AED40bn ($11bn) track set to span 1,200km, connecting ports and factories in the Gulf state’s seven emirates. The first phase of the track will allow Abu Dhabi National Oil Co to ship products from its facilities in Habshan, to the port in Ruwais for export. The first trains are slated to start running in 2013. A second track will link Abu Dhabi and its huge industrial free zone Kizad to the port of Jebel Ali in Dubai, before linking up with Saudi Arabia and Oman. A third line is expected to run from Dubai to the five northern 30 I CITYSCAPE I APRIL 2012 emirates, including Fujairah and Ras al Khaimah. Crucially, the track will give industrial companies an alternative to slow road and sea journeys for bulk shipments, accelerating transit times for materials. This feeds into Abu Dhabi’s push to grow industry, attracting firms eager to capitalise on the city’s strong trade ties, said Shadi Malak, commercial executive director at Etihad Rail. “Our network will be a rapid, cost-efficient means to transport incoming raw materials and finished goods for distribution,” he said. Any boost to industry also spells good news for Abu Dhabi’s property market. An influx of new companies will provide new jobs, and attract new residents to the emirate, helping to mop up the thousands of new homes set for completion in the next few years. Some 28,000 new properties are scheduled to come online in Abu Dhabi in 2012 alone, according to real estate consultancy Jones Lang LaSalle. “It’s good for the property sector,” said Loshini Lawrence, operations manager at Better Homes, Abu Dhabi. “Any kind of upward investment in
  31. 31. terms of infrastructure or industry will encourage new investors, people who didn’t know Abu Dhabi before, to look again at the market. Particularly those from the region who want to invest in a more stable economy.” In another boon for the real estate sector, Abu Dhabi’s Executive Council confirmed it had carved out financing for a metro and rail system to cross the capital. The long-discussed project was thought to have stalled in the wake of the financial crisis, as the city reviewed its spending budget and infrastructure plans. Initial designs for the Abu Dhabi Metro show a 131km track backed by tram and bus feeder systems. The network, which is scheduled to launch by early 2017, is geared towards easing traffic congestion in the capital and supporting a predicted jump in the city’s population. The metro is expected to connect Abu Dhabi’s Central Business District with newer residential areas, including Reem Island, Saadiyat Island and Sowwah Island. Eventually, the network will link to the Dubai Metro and other key points across the UAE. Further details about the project’s budget and completion dates have not yet been released but, if the impact of the Dubai Metro is any indication, the network may help push up rents. According to real estate consultancy Asteco, apartments near stations in Bur Dubai and Al Barsha districts have seen an up to 20 percent rise in rents as tenants favour locations with good transport links. “Land, property values and ultimately rentals within the vicinity of stations linked to metro lines increase significantly,” the company said in a recent report. “Close proximity to a station is becoming a priority for many [Dubai] tenants, who are prepared to pay up to 20 percent extra for the privilege.” Rail aside, Abu Dhabi is pouring funds into a revamp of two key roads connecting the oil-rich emirate to neighbouring Dubai and to Saudi Arabia. The first, a planned expansion of the existing Emirates Road to the capital, is expected to slash driving time for commuters and industrial traffic travelling from Dubai. Abu Dhabi has also earmarked funds for the long-delayed Al MafragGhuwaifat road, which will connect the city to Saudi Arabia, the GCC’s wealthiest state. The scheme is “one of the most important road developments in the emirate… to keep pace with economic growth,” according to the Executive Council. The plan calls for extending the current road by 246km and building 15 new overhead interchanges. Unsurprisingly for an emirate home to one of the world’s fastest-growing airlines, aviation is at the heart of Abu Dhabi’s infrastructure strategy. The emirate is funnelling AED25bn into readying its international airport to handle up to 40 million passengers a year by 2017, aided by the creation of a purpose-built terminal for state-backed carrier Etihad Airways. The focus of the strategy is to exploit the Gulf’s location as a hub between Asia, Africa, Europe and South America to draw transit traffic and increase connectivity. “The extent of the development here will encourage investors to come and set up their business, to benefit from those economic links,” said Better Homes’ Lawrence. “Rising trade drives job creation, which will aid Abu Dhabi in attracting residents and reigniting property demand,” she added. The city’s 2030 development blueprint forecasts a population of up to five million in less than two decades, up from an estimated 1.6 million in 2008. “There is a direct correlation between infrastructure investment, population growth and real estate demand,” Lawrence said l APRIL 2012 I CITYSCAPE I 31
  32. 32. PROJECT FOCUS Midfield Airport Terminal, Abu Dhabi A bu Dhabi signalled its intent to fight for a larger slice of global air traffic market in January, with the final approval of a long-delayed terminal building at the city’s international airport. The Midfield Terminal Complex, scheduled to open in 2017, is the cornerstone of the oil-rich emirate’s bid to position itself as a business and tourism hub. The 700,000 sq m building is part of a wider AED25bn redevelopment plan for Abu Dhabi International Airport (ADIA), as the city vies with neighbouring Dubai to attract long-haul transfer travellers. On completion, the terminal will be home to the emirate’s flag carrier, Etihad Airways, with capacity to welcome up to 30 million passengers a year. “This development represents one of the largest investments by the government to deliver the needed infrastructure… [to] cater to the growth of the aviation sector in the region,” said Khalifa Al Mazrouei, chairman of Abu Dhabi Airports Company. Demand for the expansion has been driven by the rapid growth of Etihad, the Arab world’s third biggest carrier. The state-backed airline carried 8.3 million passengers in 2011, a number set to surge further thanks to a slew of new routes and more than 30 codeshare deals. 32 I CITYSCAPE I APRIL 2012
  33. 33. ADIA itself saw traveller traffic jump 14 percent to 12.4 million last year, stretching capacity at Abu Dhabi’s largest airport and creating demand for fresh infrastructure and jobs. “The new terminal can’t arrive soon enough for Etihad,” said Saj Ahmad, chief analyst at StrategicAero Research. “With the carrier taking new deliveries of Airbus and Boeing jets almost every other month, it needs the capacity to cater for and handle passengers.” The overhaul of the airport is, Ahmad said, a “vital piece of the infrastructure jigsaw” that will help Abu Dhabi to lure lucrative long-haul traffic away from established tourism hubs. “The new terminal will allow a greater number of passengers to transit to the city or for onward flights. Either way, that›ll translate into a big market for local trade and tourism,” he said. “The benefits to the wider local economy cannot be understated. Just as Dubai has captured the minds of tourists and shoppers, so too can Abu Dhabi.” ADAC has received six bids for the Midfield terminal from groups including Hyundai Engineering & Construction, Larsen & Toubro, and consortiums featuring local companies Al Habtoor and Al Jaber Group. Construction is expected to begin in the second quarter. The building itself is set to be Abu Dhabi’s largest on completion, visible from more than 1.5km away. The central space of the terminal could hold three full-sized football pitches, with a ceiling that reaches 52m tall at its highest point. The complex will include retail and F&B space spanning more than 20,000 sq m, roughly equivalent to the current size of Abu Dhabi’s Marina Mall l APRIL 2012 I CITYSCAPE I 33
  34. 34. INDUSTRIAL Industrial real estate outperforms rival sectors Abu Dhabi developments are reaping the benefits of emirate’s industrial push K izad, Abu Dhabi’s sprawling new industrial zone, hit the headlines in December when it signed up its second long-term tenant, Taweelah Extrusion Co, in an AED735m ($200m) deal. A reported 30 more clients have signed on to secure space in the free zone, at a cost of billions of dirhams, while nearly 100 firms are waiting in the wings for their tenancy deals to be approved. The demand for industrial real estate is evident with the sector clearly reaping the rewards of Abu Dhabi’s push to transform itself into a global trading hub, the is. The UAE capital, home to around seven percent of the world’s proven oil reserves, plans to pour $500bn into industry and other sectors through 2030 to scale back its reliance on oil. At the heart of this blueprint are projects such as Kizad, a port and trade zone two-thirds the size of Singapore, set to comprise around 15 percent of Abu Dhabi’s non-oil GDP by 2030. 34 I CITYSCAPE I APRIL 2012 This and other industrial zones are angling to attract foreign companies keen to tap the UAE’s strong trade links and capitalise on its tax-free business policies and cheap utilities. Kizad’s $7.2bn phase one development is set to open in the fourth quarter, with other industrial clusters to follow. Up to 80 percent of its production will be earmarked for export. “Abu Dhabi is laying the groundwork for a boom in industrial real estate,” said El Fatih Said, CEO of warehouse and office development Abu Dhabi Business Hub (ADBH), based on leased land within Industrial City Abu Dhabi, in Musaffah. The first two phases of the project include 32,000 sq m of leasable office space and 67,000 sq m of warehouse space. “These zones offer opportunities for people such as us to establish
  35. 35. projects of scale, to rent and convert land. The government is establishing them to boost investment.” This investment underpins Abu Dhabi’s industrial ambitions. Without quality facilities that match the stock on offer in established markets, the city will struggle to attract the multinationals key to driving growth. “It’s essential to have the quality to attract these large, anchor tenants. They are crucial because they attract the other companies,” said Said, who counts Etihad Airways, the UAE Army and oil services giant Petrofac among his clients. “[Grade A facilities] are one of the deciding factors for a company, alongside utilities and infrastructure.” It also translates into better returns for landlords. In neighbouring Dubai, where Jebel Ali free zone contributes some 25 percent to the emirate’s GDP, high quality, pre-let warehousing can command rents of up to AED35 per sq ft. Average industrial rents are closer to AED18-20 per sq ft, said property consultancy Cluttons in a January report. From an investment perspective, industrial real estate has seen little of the market woes suffered by Abu Dhabi’s residential and commercial sectors. The market emerged comparatively unscathed from the UAE’s property crash, thanks to a lack of speculative building and close ties to the Gulf state’s core area of business, trade. “Every [real estate] market has gone down, but the industrial sector didn’t have the speculation to drive oversupply levels, as we saw in the residential and office markets,” said Matthew Green, head of UAE research and consultancy at real estate broker CBRE. “Industrial market is owner- occupier led - typically you are leasing rather than buying. Investors buy land and then lease it on. “The fundamentals are also solid; the UAE is a strong import/export market, the ports and airports here do well and so the industrial market does well from that as well. All these components have held steady over the past few years, despite a small blip in the downturn.” Combined, these factors have made industrial real estate an increasingly attractive asset class for investors searching for long-term, stable returns, said ADBH’s Said. “That’s why we’re in the market. The risk is lower and the returns are longer, by which I mean rents are often lower than in other sectors but leases can run for 20 to 30 years.” That’s not to say that industrial projects in the UAE capital haven’t scaled back their plans in line with new economic realities. The Al Markaz development, owned by Waha Capital’s real estate arm, has stripped out a planned low-income housing element in favour of building only warehouses and storage solutions. The residential element was “not profitable” use of the six sq km plot, Waha Capital CEO Salem Rashid al-Noaimi told Reuters in February. ADBH, meanwhile, now exclusively custom-builds industrial space for tenants, rather than speculatively building and then trying to source a client to lease the property. “We changed course slightly in the downturn,” said CEO Said. “Now, we build to suit and in exchange we benefit from the tenant taking a long lease” l APRIL 2012 I CITYSCAPE I 35

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