The mood at this year’s Cityscape Global in Dubai was one of cautious optimism from developers as the real estate sector, worth Dhs114 billion at its peak in 2008, shows signs of recovery.
Gone was the euphoria of past events – there were no mega-project announcements – and in its place was a realistic business-to-business atmosphere at an event that had reduced a third in size in terms of space and exhibitors.
According to Jones Lang LaSalle rental prices in the office and residential sectors are bottoming out and the retail and hotel sectors are already showing a growth buoyed by tourism.
This follows a dip of around 18.6 per cent in the real estate sector in 2009 and a recovery by around 2.5 per cent in real terms in 2010 according to the National Bureau of Statistics.
The real estate sector’s contribution to real GDP grew exponentially from Dhs95.7 billion in 2006 to Dhs111.1 billion in 2007 and to Dhs114 billion in 2008 before slumping to Dhs92.7 billion in 2009.
The real estate crash saw property prices plummet 60 per cent in Dubai with the ensuing financial crisis hammering the massive unplanned levels of construction leading to many projects being put on hold or shelved.
But with factors such as continued government spending on infrastructure, with the Dubai metro and new roads, and visitor numbers increasing, the real estate sector rebounded to Dhs95.1 billion in 2010 and this is expected to grow by the end of this year.
One of the hardest hit developers during the real estate crash was Nakheel, which is currently going through a Dhs16 billion debt restructuring programme and has been handed $8.71 billion by the government and written off Dhs78.6 billion of its real estate assets due to the emirate’s property crisis.
Nakheel’s ambitious plans to follow the completed Palm Jumeirah with two more manmade palm-shaped islands in Deira and Jebel Ali, as well as other manmade islands including and The World islands, saw it overexposed during the onset of the global financial crisis.
But CEO Ali Rashid Lootah said he expects the company to post profits in 2011 in line with the Dhs860 million in 2010 and announced the new Palm Residence project consisting of 102 beachside town houses at the Cityscape event.
“A new project is being launched, which says that Nakheel is back, alive and kicking,” he said. “We are also building a park on the palm along the golden mile. This is a good time to buy as prices are rising.
“Our leasing is up to 70 per cent occupancy from 40 per cent in 2010 and this should rise to 80 per cent in a year’s time,” he said.
“I am extremely positive about the next 12 months, that’s why we are launching new projects. We are showing we are confident and this is a clear message. The demand is there on The Palm and in certain areas the demand is very high.”
According to Jones Lang LaSalle’s report Dubai City Profile – September 2011 the Arab Spring has confirmed Dubai’s role as a safe haven, resulting in more visitors to Dubai benefitting the hotel and retail markets and investors seeking a home in the emirate.
However, the report stated that following a growth period in the first half of 2011 the sovereign debt crisis in some European countries had led to a more cautionary outlook.
“The mood has changed. It is no longer about new project launches, it’s about existing projects,” said Craig Plumb head of research at Jones Lang LaSalle.
Absent at Cityscape were the large Abu Dhabi developers such as the Tourism Development and Investment Company, behind the capital’s Saadiyat Island and there was only a splattering of foreign property firms from Thailand and Malaysia.
“There are very few end users at Cityscape; it is now more an event for B2B contractors and suppliers. There has been a transition and it is more realistic with the overall market becoming a lot quieter because sales activity and the projects have slowed with people reassessing prices making it all much more competitive,” he said. “The retail sector is growing because tourism is such a major part of the retail sector.
Meanwhile, the residential market is already starting to bottom out and the villa sector is starting to improve. Apartment rentals are still declining but their will be a growth in residential sector rents in 2012. But the big cloud hanging over the market at the moment is the Eurozone and US recovery as Dubai is very closely linked. If Greece defaults this will slowdown the recovery.”
In its Dubai City Profile, Jones Lang LaSalle says the office market is feeling the brunt of the economic uncertainty and is the worst performer.
But the report points out key drivers for the Dubai real estate market stemming from the increase in passenger traffic to Dubai International Airport, increasing by 15 per cent in 2010 and continuing to increase in 2011 and hotel occupancy rates at 78 per cent as of July 2011, up on the 60 per cent recorded in July 2009.
The luxury property sector is reflecting this growth with companies such as Damac Properties launching a new company, Damac Suites and Spa, at Cityscape to tap into the strong hospitality and tourism market.
“The company will oversee Damac Properties’ first serviced apartment development Burjside Boulevard and will provide a list of services for residents,” says Niall McLoughlin, Senior Vice President at Damac.
This will include spa treatments, housekeeping, concierge services, chauffer driven cars and private yacht charters.
“In October 2008 the real estate market fell off a cliff,” McLoughlin adds.
“Damac Properties quickly realised what we needed to do as an organisation. We went through a consolidation period with no new projects and since 2008 we completed 30 builds and 21 of those in 2011 opening up 6,000 units. Our primary focus for the past two years has been construction and delivery. We are one of a handful of Dubai developers that has still been building and delivering to customers even during the downturn.”
The company recently delivered Damac Tower in Beirut June 2010, a 28-storey with all interiors designed by Versace Home and Demac Residencies Jeddah, which also has interiors by Versace Home.
In the MENA Real Estate Market Overview, a report commissioned by Cityscape Global and carried out by Ventures Middle East, analysts concluded that while Dubai suffered the most from the global economic crisis it remains a force in the construction world.
“The prevailing trend across the various segments of the building construction industry in the UAE, clearly shows that while the country has been the worst hit by the adverse impact of the credit crisis in 2009, it continues to hold its position as the world’s largest construction industry,” the report stated.
“The construction sector’s contribution to real GDP expanded from Dhs86.1 billion in 2006 to Dhs94.7 billion in 2007, around Dhs104.4 billion in 2008, Dhs105.8 billion in 2009 and nearly Dhs114.9 billion in 2010.
“With projects resuming normalcy gradually on the back of government-backed spending programmes and investment in infrastructure and mixed use development on the one hand and the gradual revival of tourism, retail and commercial activities on the other fuelling the growth of the tourism, hospitality, leisure and retail segments on a greater scale than other segments and at a more cautious pace than yesteryears,” the report added.
Undeterred by the downturn, one of Dubai’s most ambitious projects, Dubai Properties’ mixed-use Business Bay is still forging ahead and is expected to be complete by 2013.
With an 80 million square foot area Business Bay offers an array of individually designed office blocks, apartments and retail space and has extended the Dubai Creek – the historical waterway and heart of Dubai’s Dhow trade – from its roots in Bur Dubai to the edge of Sheikh Zayed Road.
“As a developer we go with demand and develop what is required such as Tecom, apartments and villas.” says Khalid Al Malik Dubai P
roperties’ Group CEO.
“There’s a positive mood this year and retail growth is tremendous from JBR to Business Bay. We have sold all the components and the second part of Business Bay will open next year.
“The downturn was a time for review and it wasn’t really one side it was everyone.
It was very difficult to anticipate what was going to happen next. It was related to the banks and finance and that’s what caused a bigger problem for us.
“But there are three things I would depend on to convince people to invest in Dubai. The first is that Dubai is committed to investing in itself as we have seen with massive infrastructure projects such as the new airport.
“The second is stability. During the Arab Spring the UAE has remained calm and everyone is here to be happy and make business.
“And thirdly, Dubai is always going to bounce back faster than other markets, because the hard work has already been done to lay the foundations of business.”
Amid this period of slow recovery, landmarks such as the world’s tallest building, Burj Khalifa, have been completed and although the emirate’s glory days are unlikely to be bettered in the near future, there is good reason for those at Cityscape Global to look on the bright side of a long, drawn out property slump.