Top trends for UAE Real Estate in 2014

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Top Trends is JLL’s forecast of the major trends that will characterise the real estate market in the UAE in the year ahead. Now in its 7th year, our recently released Top Trends for 2014 reviews the likely trends that will influence the development, funding, sale, leasing, management and valuation of real estate in the UAE and how these trends will impact upon the office, residential, retail and hotel markets in both Dubai and Abu Dhabi.

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Top trends for UAE Real Estate in 2014

  1. 1. T Top trends for UAE O P Real Estate in 2014 T R E N D S 1
  2. 2. Presentation Outline 1 2 3 4 Review Of 2013 Trends Mega Trends Influencing UAE Real Estate in 2014 Implications for Major Markets Q&A 2
  3. 3. Mega trends Influencing UAE Real Estate in 2014 6
  4. 4. Jones Lang LaSalle’s – Top Trends for 2013 01 Return of confidence impacts the Dubai market 02 Funding constraints will apply a natural brake to development activity 03 Increased involvement from Chinese and the Global South 04 Significant supply levels could offset improved sentiment 05 Greater attention to operating costs and property management 06 Sustainability – more talk than action 07 Government Initiatives will influence market conditions Correct Partially correct Incorrect 7
  5. 5. Improving Macro Economic Climate UAE outperforms global economy in 2013 Brighter prospects for 2014 Global Middle East 2.5 3 2.5 4 • Global Economic Situation has improved UAE • 3.9 4.3 Regional geopolitical situation remains mixed Real GDP Growth (%) 8
  6. 6. Jones Lang LaSalle’s – Top Trends for 2014 1 Avoiding another bubble 6 Two speed investment market 2 More measured mega developments 7 Workplace transformation as corporate activity increases 3 Future directions of growth 8 More hotel investment sales 4 Expo 2020. Limited impact in 2014 9 Sustainability – From talk to action 5 Varied approaches to finance real estate 10 Improved valuation and measurement standards 9
  7. 7. 1: Avoiding another bubble in Dubai – Smarter the 2nd time around Worrying signs of over heating  Unsustainable price growth in residential market  Increasing cost pressures / resource constraints  Return of speculative activity 50% 40% 30% 20% 10% 0% -10% -20% -30% Sale Price Index % change Y-o-Y 10 % change Y-o-Y 400 350 300 250 200 150 100 50 0 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13  Expo 2020 causing irrational exuberance Index, Jan 2003=100  Land sales on generous financial terms Dubai Residential Sale Price Index
  8. 8. 1: Avoiding another bubble in Dubai – Smarter the 2nd time around Differences this time around  Significant levels of new supply  Larger projects are being phased in line with demand  More caution from investors  Less reliance on pre-sales and sub developers  Better regulations – aimed at calming the market 11
  9. 9. 2: Return of mega projects - Dubai  Dubai Canal – Meraas / RTA  Mohammad Bin Rashid City – Emaar / DPG  Dubai Waterfront – Nakheel      Bluewaters (Meraas) Habtoor City Dubai World Central (DWC) Dubai Trade Centre District (DTCD) Dubai Design District (d3) 15
  10. 10. 2: Return of mega projects – Abu Dhabi  Zayed City (Capital District) UPC  Masdar (Mubadala)  Al Maryah Island (Mubadala)  Saadiyat Island / TDIC  Yas Island / Aldar 16
  11. 11. 2: More measured mega projects – Key Messages  Resumption of previously stalled projects  More awareness of need to phase projects in line with demand  More co-operation between master developers  Reduced role for sub developers  Improved regulations on pace of development 17
  12. 12. 3: Future Growth : Dubai 9 E311 Sheikh Zayed Road 8 6 5 3 10 2 11 E311 Sheikh Mohamed Bin Zayed Road 4 7 1 15 12 E311 Emirates Road Free Zone 13 14 1 Dubai Industrial City 3 JAFZA 5 JLT 7 Dubiotech 9 Dubai Maritime City 11 DAFZA 13 Academic City 2 TechnoPark 4 IMPZ 6 TECOM 8 DIFC 10 DHCC 12 Dubai Silicon Oasis 14 Dubai Outsource Zone 15 Dubai World Central 18
  13. 13. 3: Future Growth : Dubai E311 Sheikh Zayed Road 3 5 1 4 6 2 E311 Sheikh Mohamed Bin Zayed Road E311 Emirates Road Commercial District 1 CBD 3 TECOM A & B 5 JLT 2 Business Bay 4 TECOM C 6 Jebel Ali 19
  14. 14. 3: Future Growth : Dubai E311 Sheikh Zayed Road 1 E311 Sheikh Mohamed Bin Zayed Road 2 3 4 5 E311 Emirates Road High Priority Low Priority 1 Business Bay 3 Mohamed Bin Rashed City 2 Lagoons 4 Dubai World Central 5 Dubai Land 20
  15. 15. 3: Future Growth : Dubai E311 Sheikh Zayed Road E311 Sheikh Mohamed Bin Zayed Road South – towards Abu Dhabi Infill – filling in the gaps E311 Emirates Road 21
  16. 16. 3: Future Growth : Abu Dhabi Mina Zaved Hydra Village Saadiyat Al Maryah Shams Lulu Yas Island Saraya Reem Island Naimat Al Reef Bateen Peninsulas Raha Beach Danet Airport City Rawdhat Masdar Hudayriat Capital Centre ICT Arzanah BMC Capital District 1 Horizontal + Vertical Development 2 Master Planning and / or infrastructure stage 22 Source: Jones Lang LaSalle
  17. 17. 4. Expo 2020 : Limited impact in 2014  Positive long term impact on UAE  Limited direct impact in 2014  Greatest benefit will be to the hospitality, logistics and retail sectors  Two potential problems will require careful management in the short term: - Excessive price expectations - Excessive potential new supply 23
  18. 18. 5: Varied approaches to finance real estate Focus on equity rather than debt  Pre-sales remain important in residential market  Sale and leasebacks  Pre leases / build to suit  Limited use of IPO’s and bonds  Last mile financing  REIT’s  Banks remain cautious 24
  19. 19. 6: Two Speed Investment Market Limited Interest from Western institutions  Constrained by lack of investment grade product  More ME institutions looking in Dubai Strategic relationships  Chinese investment in the Pearl is Government backed means of selling expertise  Increased interest from debt investors 26 25
  20. 20. 6: Two Speed Investment Market Strong interest from private investors  DLD report transactions of AED162 billion in 2013  Sales to more than 120 nationalities  Most sales either land or individual homes / units 26
  21. 21. 7: Workplace Transformation as Corporate Activity Increases Increasing Demand from Corporate Occupiers  Overall market is improving – more corporates now growing again  Mixed implications for the real estate market  Continued two tier market  2014 will remain primarily a tenants market, with no decline in excessive overall vacancy 26 27
  22. 22. 7: Workplace Transformation as Corporate Activity Increases Key Drivers and business objectives driving work place transformation: Reducing property costs  Improving business performance  Attracting and retaining staff  Merging of organizations  Consolidations 27 28
  23. 23. 8: More investment sales in hotel sector across UAE  A larger number of operating hotels  Loan maturities  Current diversity of players  Specialization on core activities (real estate developers vs hoteliers) • Hotels perceived as ‘income generating’ assets • More professional asset management places greater emphasis on financial performance 28 29
  24. 24. 9: Sustainability – From talk to action Case study of U Bora Tower • Energy savings of 15% • Water reduction • Waste reduction  Small scale / low capital cost  Payback of less than 3 years  Reduces service charges  Increases tenant appeal 29 30
  25. 25. 9: Sustainability – From talk to action  Increased awareness of importance of sustainability  Abu Dhabi continues to lead the way  Dubai introduces new regulations  Emergence of a ‘sustainability premium’  More focus on small scale initiatives that can be retrofitted 29 31
  26. 26. 10: Improved valuation & measurement standards Measurement standards  Plans to introduce global measurement standards  Could impact measured areas and therefore values by 25%  Variety of standards currently used in UAE causes confusion and inhibits transparency  Quote all projects in sq m rather than sq ft  Standard approach to convert BUA (supply data) into GLA (demand). 30 32
  27. 27. 10: Improved valuation & measurement standards Valuation standards  Better Quality - All Valuations will have to adhere to International Valuation Standards  Better Transparency - Levels of openness and transparency laid down in IVS  Better Local Knowledge and skills - Valuers required to have expertise in both the relevant asset class and geography. 31 33
  28. 28. Mega trends Implications for Major Markets 34
  29. 29. Market Directions - Dubai - Prime Rental Clock Q4 2012 Rental Growth Slowing Rental Growth Accelerating *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle Rents Falling Rents Bottoming Out * Hotel Residential Retail Office 35
  30. 30. Market Directions - Dubai - Prime Rental Clock Q4 2013 Rental Growth Slowing Residential Rents Falling Rental Growth Accelerating Rents Bottoming Out * Hotel *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle Retail Office 36
  31. 31. Market Directions - Dubai - Prime Rental Clock Q4 2014 Residential *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle Rents Falling Rental Growth Accelerating * Hotel Rental Growth Slowing Rents Bottoming Out Retail Office 37
  32. 32. Market Directions - Abu Dhabi - Prime Rental Clock Q4 2012 Rental Growth Slowing Rental Growth Accelerating *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle Rents Falling Rents Bottoming Out * Hotel Retail Office Residential 38
  33. 33. Market Directions - Abu Dhabi - Prime Rental Clock Q4 2013 Rental Growth Slowing Rental Growth Accelerating *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle Rents Falling Rents Bottoming Out Residential Retail * Hotel Office 39
  34. 34. Market Directions - Abu Dhabi - Prime Rental Clock Q4 2014 Rental Growth Slowing Residential *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle Rents Falling Rental Growth Accelerating Rents Bottoming Out * Hotel Office Retail 40
  35. 35. Jones Lang LaSalle’s – Top Trends for 2014 1 Avoiding another bubble 6 Two speed investment market 2 More measured mega developments 7 Workplace transformation as corporate activity increases 3 Future directions of growth 8 More hotel investment sales 4 Expo 2020. Limited impact in 2014 9 Sustainability – From talk to action 5 Varied approaches to finance real estate 10 Improved valuation and measurement standards 46
  36. 36. Question and Answers 47
  37. 37. Alan Robertson CEO, MENA alan.robertson@jll.com David Dudley Director of MENA Operations david.dudley@jll.com Andrew Williamson Head of Retail andrew.williamson@jll.com Chiheb Ben Mahmoud Head of Hotels & Hospitality Andrew Rotteveel Head of Project and Development Services andrew.rotteveel@jll.com Deepak Jain Head of Strategic Consulting deepak.jain@jll.com Gaurav Shivpuri Head of Capital Markets Gaurav.shivpuri@jll.com Fadi Moussalli Regional Director – ICG fadi.moussalli@jll.com Craig Plumb Head of Research craig.plumb@jll.com Simon Brand Head of Valuation Advisory simon.brand@jll.com chiheb.ben-mahmoud@jll.com Dana Williamson Head of Agency dana.williamson@jll.com Graham Howat Head of Asset & Property Management graham.howat@jll.com 48
  38. 38. Thank you twitter.com/ JLLMENA youtube.com/ joneslanglasalle linkedin.com/company/ jones-lang-lasalle joneslanglasalleblog.com/ EMEAResearch 49

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