dubai real estate - trends and outlook
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Dubai Real Estate - Trends and OutlookTRANSCRIPT
Kuwait Financial Centre “Markaz” REAL ESTATE RESEARCH
Dubai Real Estate Trends and Outlook
RE macro fundamentals 2010 2011 2012
Economy - Trade - Tourism & Financial Services - Real Estate & Construction
Population Income growth Financing Among the three main pillars of Dubai’s economy listed above, we
expect trade to continue to grow during 2010-12, thereby leading the economy out of its current malaise which would result in an overall
recovery by 2012. Growth in population being directly related to the economic activity levels, would materialize during 2011. We expect
growth in income level to reflect economic growth trends more closely
as well and financing to trend flat until banks garner the ability and willingness to lend post the negotiated settlement of the current debt
overhang.
Residential segment 2010 2011 2012
Transactions Rentals Prices While we expect contractions in transactions, prices and rentals during 2010 and stability during 2011-12, astute investors can benefit from
non-sequential price trends resulting primarily from cannibalistic
demand among the various communities and properties. Moreover, as the property management matures from the current scenario,
properties better positioned in terms of location, income stream and operational efficiency would provide attractive returns both from high
current yields and from possible yield compressions.
Office segment 2010 2011 2012
Vacancies Rentals Prices While the office market in Dubai is backed by solid fundamentals we
expect the slow recovery in financial services sector and the forthcoming supply to drag the prices and rentals downwards until
2012.
Warehouse/Logistics segment 2010 2011 2012
Rentals Prices While we expect prices to trend downwards due to macro risk
perception, we expect rentals to hold up given the positive trends in demand fundamentals which would provide attractive yield capture
opportunities with a possibility of yield compression during 2012.
April 2010
Research Highlights: A study to analyze the trends
and to provide with an outlook
on the Dubai Real Estate market
Markaz Research is available
on Bloomberg Type “MRKZ” <Go>
Venkateshwaran Ramadoss Senior Research Analyst
+965 2224 8000 ext 1144
Bassam N. Al-Othman Senior Vice President
+965 2224 8011
M.R. Raghu CFA, FRM Head of Research
+965 2224 8280 [email protected]
Kuwait Financial Centre “Markaz”
P.O. Box 23444, Safat 13095,
Kuwait Tel: +965 2224 8000
Fax: +965 2242 5828
markaz.com
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 2
Macro Fundamentals – three pillars
Metrics 2010 2011 2012
Economy - Trade - Tourism & Financial Services - Real Estate & Construction
Population Income growth Financing
Economy
The economy of Dubai was driven by three major sectors, trade, tourism & financial services and real estate development, while the
other sectors are essentially freewheels to the economic engine. In order to understand the current state of the economy and to estimate
the possible future trends, we need to study and understand the state
of the above three sectors. The excesses in the real estate sector that we observed early 2008 in our report “Dubai Real Estate Meltdown”
caused the downturn in the sector the effects of which are widely known right now. The sector reportedly contracted c.50% in terms of
prices and as per our analysis of the project cancellation statistics, real activity in real estate construction slowed down by 19%
approximately. The extent of contraction in prices and activity
suggests that future construction activity would be muted and thus one pillar of the economy would be static and under downward
pressure for the coming two years.
The other pillar that needs to be studied is the tourism and financial
services. We can use the statistics on tourism licenses provided by
the Central Statistics Department to gauge the state of the sector during 2009 amidst the global economic slowdown. New licenses
issued contracted by 31.4% year on year from 172 licenses during 2008 to 118 licenses in 2009. This suggests the slump experienced by
the sector during 2009. The main reason behind the slump is the external linkage it has with the global economy which was facing a
downturn of proportions during 2009. As the global economy recovers
and picks up pace in terms of growth during 2010-11, we can expect moderate growth in this sector. With regards to financial services, the
number of brokerage companies contracted by c.5% from 103 during 2008 to 98 during 2009. The daily average executed stock market
deals contracted by 8% from 8663 deals during 2009 to 7,937 deals
during 2008 and the average stock market trading value contracted 44% to AED 694 Mn (c.USD 190 Mn) in 2009 from AED 1.2 Bn (c.USD
337 Mn) in 2008. These statistics were the result of the fall in the values of risk assets in general due to the heightened risk perception.
The structural issues that came up with the Dubai World debt restructuring bid contributed heavily and restricted the transformation
of the boost experienced in many economies across the globe. For
2010, we can expect flat trends due to the continued impact of the structural issue getting settled and for 2011, we expect a moderate
growth in financial services sector when the sector gets ready structurally to absorb the growth potential.
Trade, Tourism &
Financial Services and Real Estate &
Construction are the
three main drivers of Dubai’s economy
Excesses in the real
estate sector contributed to the
economic downturn both from price and
activity contraction
We expect real estate
sector to remain static and under downward
pressure for the
coming two years
Tourism sector suffered from a downturn
caused by global economic downturn
We expect moderate
growth in tourism from 2010-11 as the global
economy recovers
Financial services industry contracted due
to the systemic issues with the economy and
due to the global
downturn
We expect the impact
of the structural issues to get settle by 2011
followed by a moderate
recovery
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 3
The last pillar, which had in fact been the founding pillar of Dubai’s economy is the trade services which can be classified into internal and
external trade. To gauge the trends in internal trade, we can study the
commercial licenses issued statistics, which suggests that new commercial licenses issued contracted by 28% during 2009 due to the
faltering economy. On the external trade front, imports contracted 28% during 2009 in Dubai and 40% in free trade zones. However,
exports staged a 23% growth year on year and stood at AED 52.4 Bn
during 2009. Re-exports grew by 19% Y-o-Y as well and stood at AED 153 Bn during 2009. This suggests that the foundation economic
activity is still intact and growing which would lead to growth in other sectors and in the overall economy as well. However, we expect the
growth to be more muted due to the mixed pace of recovery in key
global economies during 2010 leading to a stable recovery only by 2011.
Population
The official statistics on population provided by the Central
Department of Statistics indicates that the population grew by 7.59% during 2009, counterintuitive to the various estimates of exodus
widely expected. However, the extent of overall growth replicates the
official growth estimates during the past four years at 7.59% and hence, this number could represent the preliminary official estimates
which could get changed (Exhibit-1). It is highly unlikely that the population grows at the same fixed rate year on year constantly for a
period of four years, especially when the overall economic scenario
underwent a sea change both in terms of growth and decline. However, it is highly likely that the population growth dynamics would
have got impacted negatively by the economic downturn. Dubai has a high proportion of expat population which is estimates to be at c.90%,
as per the Ministry of Economy-UAE, and an economic downturn results in job losses and resultant exodus. A moderate positive impact
would have resulted from the cross movement into Dubai from other
Emirates attracted by lower rentals and better amenities. Population growth in Dubai is highly driven by economic growth and we expect a
significant growth in population in the historic range of 4-6% only by 2011 driven by the strength of the economic recovery we expect by
that year.
Exhibit-1 : Population growth estimates are preliminary
8.57%
6.06%
6.44%
6.23%
4.58%
8.91%
7.5946%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1975
1980
1985
1993
1995
2000
2005
2006*
2007*
2008*
2009*
1975
1980
1985
1993
1995
2000
2005
2006*
2007*
2008*
2009*
Population ('000s) YoY Growth
Population Population growth (%)
Source: Dubai Statistics Centre, Markaz analysis
Trade had been the
founding pillar of Dubai’s economy.
Internal trade and imports contracted due
to the overall economic slump
Exports and re-exports
expanded during 2009
thus providing a lead to overall economic
recovery
Official statistics on population appears to
be preliminary estimates
Possible negative impact from job losses
and exodus and likely
positive impact due to migration from other
emirates
We expect negative
impacts to population growth to have
dominated the positive
We expect population to grow at historic 4-
6% range only by 2011
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 4
Income growth
Exhibit-2 : Trends in job creation continues to wane
Source: gulftalent, various jobsites, Markaz analysis
The trends in income level growth can be best estimated by looking at the job creation statistics for which we can use the online job listings
as a proxy. A study of the data shows that job creation in Dubai as a
proportion of overall job creation in GCC is still on the downtrend from a high of 48% during 9M-08 to a low of 22.4% as on Mar-10. This is
due mainly to the current state of the economy and we expect the downturn in the share of job creation to continue moderately during
2010. As the economy starts to revive by 2011, we can expect stability in this trend and stage a gradual recovery from then on.
Financing
Exhibit-3 : Eminent slowdown in credit creation
Source: Central Bank of UAE, Markaz Analysis
Exhibit-3 above provides an indication of the macro picture with respect to overall credit creation and availability in UAE. It clearly
depicts the past excessiveness in terms of overall credit growth vis-à-
43.0
%
48.0
%
30.0
%
31.0
%
22.5
%
22.4
%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
H1-08 9M-08 H1-09 9M-09 As of
Feb-10
As of
Mar-10
Dubai KSA Other UAE Kuwait Qatar Bahrain Oman40.1
%
38.4
%
89.8
%
16.5
%
36.0
%
107.5
%
6.1
%
5.2
%
11.7
%
0%
20%
40%
60%
80%
100%
120%
Total Assets Domestic Credit & Investment
Real Estate Mortgage
Y-o
-Y g
row
th (
%)
2007 2008 2009
Trends in income levels
can be best inferred from trends in the job
creation
Overall job creation
contracted due to the economic crisis
Job creation is
continuing to wane in
Dubai compared to other GCC countries
from 43% during H1-08 to 22.4% during
Mar-09
Balance sheets of
banks indicates
slowdown in asset creation and credit
growth
Real estate mortgage
poses a better growth than overall credit
growth for UAE as a
whole
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 5
vis bank asset size growth and finance extended to the real estate sector compared to the overall credit creation during the boom. On
the other hand, the data for 2009 suggests that real estate mortgage
continued to outgrow overall credit creation and asset growth while credit growth remained muted compared to asset growth. However,
this depicts the growth in UAE as a whole and this would be of use to understand the extent of the excesses during the boom period. To
understand the trends in Dubai, we need to study the mortgage
transactions registered with the Dubai Land Department.
Exhibit-4 : Trends in mortgages registered signals turnaround
Source: Dubai Land Department, Markaz Analysis
Seasonally adjusted mortgage transactions contracted 75% over a
period of 16 months from its peak during Jul-08 before turning around during Nov-09. The turnaround from Nov-09 indicates that the
persistent contraction got abated which by itself is a positive indicator.
However, we expect the trends to remain flat during 2010 as Dubai banks manage the issues arising from the negotiated settlement of the
Dubai World debt standstill which would hamper both the ability and willingness to lend in general and in specific to real estate projects.
Bank deposits are facing a downtrend from Nov-09 following the debt standstill announcement and contracted by 4% during the three
months till Feb-10. Deposits growth would face constraints from the
lackluster economy as well which would hamper credit to the sector.
Sector trends – segment wise
Residential
Metrics 2010 2011 2012
Transactions Rentals Prices
0
500
1000
1500
2000
2500
3000
3500
4000
0
20000
40000
60000
80000
100000
120000
140000
Nov-0
4
May-0
5
Nov-0
5
May-0
6
Nov-0
6
May-0
7
Nov-0
7
May-0
8
Nov-0
8
May-0
9
Nov-0
9
TT
M N
o.
of
tra
nsa
cti
on
s
TT
M V
alu
e t
ran
sa
cte
d (
AE
D M
n)
TTM No. of transactions
TTM Value of transactions (AED Mn)
Seasonally adjusted trailing twelve months
total mortgage transactions suggests
that mortgage issuance
turned around during Nov-09
Strains in bank deposits growth and the ability
and willingness of
banks to lend in general and to real
estate projects in specific
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 6
Transactions
Seasonally adjusted trends in land transactions continue to trend
downwards as in Exhibit-5 by contracting 66% from its peak during
Sep-08 in terms of number of transactions and 80% in terms of value transacted during the same period. Similar trends were observed in
property transactions as well with seasonally adjusted apartment transactions continuing to contract at an average pace of 4% per
month in terms of number of transactions and 1.1% in terms of value
transacted for the past six months. Seasonally adjusted transactions in Villas continued to contract too during the past six months at a higher
pace of 6% in terms of number of transactions and 9% in terms of value transacted. Given the state of the real estate fundamentals as
discussed above, we expect transactions to contract further until
conditions stabilize towards the end of 2010. However, we expect the extent of the contraction to be limited to 0-2% month-on-month.
Exhibit-5 : Land transactions trending downwards still
Source: Dubai Land Department, Markaz Analysis
Rentals
A market with weak macro fundamentals tends to lack a secular trend in rentals with the trends in extent and quality of supply creating
cannibalistic demand from within communities even in a situation
where the overall demand is lower than the existing and forthcoming supply. This has lead to highly unstable trends in rentals which lacks a
steady direction. Although exhibit-6 below suggests a seemingly declining overall rental trends, Appendix-1 highlights that trends in
rentals have not been sequential and positive growth periods have
been followed by negative growth and vice versa.
Exhibit-6 : Trends in rentals – freehold Apartments & Villas
Period Studio - Min
Studio - Max
1-BR - Min
1-BR - Max
2-BR - Min
2-BR - Max
3-BR - Min
3-BR - Max
Apr-09 -24.8% -22.1% -27.3% -25.5% -24.3% -21.1% -32.6% -34.4%
Oct-09 -17.7% -15.9% -5.5% -7.9% -9.7% -9.3% -2.2% -3.1%
Mar-10 -10.9% -6.8% -12.0% -9.4% -12.3% -8.1% -7.1% -3.8%
0
1000
2000
3000
4000
5000
6000
7000
0
10000
20000
30000
40000
50000
60000
70000
80000
90000N
ov-0
4
May
-05
Nov
-05
May
-06
Nov
-06
May
-07
Nov
-07
May
-08
Nov
-08
May
-09
Nov
-09
TTM
No.
of
tran
sact
ions
TTM
Val
ue t
rans
acte
d (A
ED M
n)
No. of transactions
Value of transactions (AED Mn)
Period 2-BR - Min
2-BR - Max
3-BR - Min
3-BR - Max
4-BR - Min
4-BR - Max
5-BR - Min
5-BR - Max
Apr-09 -42.1% -37.2% -37.9% -33.6% -35.7% -39.2% -35.4% -36.9%
Oct-09 -13.6% -7.4% -3.1% -0.2% -6.4% -6.3% -8.6% -8.4%
Mar-10 -4.4% -5.5% -2.6% -2.6% 0.5% 0.8% 0.0% -0.4%
Source: RERA, Markaz analysis; * from Jan-09 to Apr-09
*
*
Seasonally adjusted
land transactions
suggests that the downtrend continues
still
We expect moderate contraction during
2010 and stable trends during 2011
Overall rental trends suggests that rental
contraction is
continuing and moderating
Locational analysis
suggests an unstable non sequential rental
trends due to cannibalistic demands
Demand arising from cross emirate migration
adds to the instability
in rental trends as well
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 7
Apart from the cannibalistic effect discussed above, demand arising from cross emirate relocation adds to the instability as well. It
provides a positive impact in the current scenario due to the relocation
from other emirates and a negative drag in the longer term when the sector recovers in Dubai and/or when other emirates becomes
relatively more attractive causing relocation back to their original emirate. We expect the trends in rentals to continue in such
cannibalistic state infusing considerable instability in the rental trends
in the short term future.
In such a market, it is likely that investors get attracted by growth in
locations only to find themselves locked up with properties which lack growth potential. With the high extent of service charges and the
issues with collecting them, the market is in a more favorable
condition to progress in terms of property management than investment and development. Investors would end up losing yields
from possible rental contractions along with issues in collection of rentals and also due to the fees payable to the property management
firms. We advise investors looking for yield to await progress both in terms of fundamentals and the operational environment. However,
properties better positioned in terms of location, income stream and
operational efficiency would provide attractive returns both from high current yields and from yield compressions when the market matures.
Prices
Expectations in demand growth were the primary price drivers during
the boom periods while in the current scenario, trends in supply is the
primary price driver, albeit on the downside. Although forthcoming supply is hard to be predicted accurately, market estimates stands in
the range of 25-30k units per year in the coming two years.
Exhibit-7 : Approved construction permits
Source: Dubai Buildings, Markaz Analysis
Studying the historical trends in construction permits as depicted in
Exhibit-7 suggests that new permits issued has been on the decline for
apartments and investment villas, while permits issued for private villas is surprisingly on the rise. However, apartments and investment
villas accounts for the majority of organized supply and hence, the contraction in these segments indicate a halt in the longer term future
supply. To understand the near term implications, we need to look at the current state of the various projects.
0
5
10
15
20
25
30
35
40
45
50
Q1-0
8
Q2-0
8
Q3-0
8
Q4-0
8
Q1-0
9
Q2-0
9
Q3-0
9
Q4-0
9
Multi Storey
0
0.2
0.4
0.6
0.8
1
1.2
Q1-0
8
Q2-0
8
Q3-0
8
Q4-0
8
Q1-0
9
Q2-0
9
Q3-0
9
Q4-0
9
Investment Villa
0
1
2
3
4
5
6
Q1-0
8
Q2-0
8
Q3-0
8
Q4-0
8
Q1-0
9
Q2-0
9
Q3-0
9
Q4-0
9
Private Villa
Co
nstr
ucti
on
ap
pro
ve
d (
Mn
sft
)
Unstable market leads
to investors losing yields from possible
rental contractions
after getting attracted by high yields
Issues with high
service charges cuts yields and collecting
them adds to the investor woes
Properties better positioned in terms of
location, income stream and operational
efficiency would
provide attractive returns
Supply trends drive
price trends in a downturn
Construction permits
statistics suggests
waning trends in multi storey and investment
villas suggesting lower supply
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 8
Project data from meedprojects suggests that residential projects with total budgeted value of c. USD 60Bn are currently under execution
while projects worth c. USD 53 Bn has been either cancelled or put on
hold. It also suggests that projects worth USD 32 Bn are in the preconstruction stage as well. Exhibit-8 analyses the data provided by
RERA from its audit of registered residential projects which suggests that only 26% of the total projects audited have been critically
delayed or cancelled. It also suggests that majority of the projects
which are delayed are already into construction stage which would suggest that although delayed, these projects would get eventually
completed. These factors suggest that the short term future during 2010-11 as well as the near term from 2012-13 would face a steady
stream of supply which would restrict prices from recovering on the
whole.
Exhibit-8 : Project status indicates steady supply stream
Source: RERA, Markaz Analysis
Demand side would face considerable downside pressures as well
when the current cross emirate migration begins to revert in the near
term and hence we expect the price levels to remain sluggish for the foreseeable future. However, migration dynamics and cannibalistic
demand could cause interim fluctuations in price levels among locations which astute market players with locational focus can tap.
Appendix-2 has more evidence which reflects the volatile price trends
in the recent past for apartment in selected communities. Apart from such opportunities, upside potential could present itself as the market
matures from the current operational issues it is facing with property management. While regulatory changes could drive up prices as well,
they cannot be successfully foreseen and hence it would not be prudent to factor it into price expectations.
Office
Metrics 2010 2011 2012
Vacancies Rentals Prices
87
31
66
9
178
2649 95
4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Critically Delayed/on
Hold
Delayed On track
Pre Construction Early Construction Closer to complete
Values inside bar represents number of projects
Supply to emanate
from the current projects ongoing
Majority of the current
projects are ongoing even though delayed
Short term and near term supply would
restrict prices from
recovering on the whole
Downward pressure on demand could emanate
when the current cross emirate migration
reverses
Short term price
fluctuation arising from cannibalistic demand
and cross migrate migration provides with
opportunities for astute investors
Upside potential from
yield compression when market matures
in terms of property
management
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 9
Demand for offices arises from the creation of office based employment which in turn is driven by growth in the service sector
economy. As an economy based on service sector, close to 50% of the
jobs as of now are in office based sectors in Dubai. This provides with a strong demand fundamental base for office space demand.
However, given the current state of the economy as discussed above, demand for office space is in a lackluster state.
Exhibit-9 : Stronghold in office based jobs
Source: Jobsites, Markaz Analysis
Rentals contracted 24-60% from 2008 peak and prices contracted 35-70% from the peak levels reflecting the slump in demand conditions.
Market estimates of vacancy rates stand at 25-40% in secondary areas and 5-10% in CBD areas. The extent of rental contractions have
not been uniform across locations with stabilization in CBD locations as early as Q2-09 while secondary locations are facing moderate rental
contractions even as of now. As explained in our economic outlook
section, we expect the demand for office space to re-emerge only by 2012 when we expect the tourism and financial services sector to get
back in the growth trajectory.
Exhibit-10 : Majority of the supply in planning stage
Source: MEED, Markaz Analysis
237 16313 152
21
150550
253 16926 304
16
342612
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Dubai Abu
Dhabi
Bahrain Kuwait Oman Qatar KSA
Office based jobs Non-office based jobs
Numbers in the bars represents the no. of job listings
0
10000
20000
30000
40000
50000
60000
70000
Planning &
Design
Pre construction ExecutionEst
ima
ted
pro
ject
va
lue
(U
SD
Mn
)
2010 2011 2012 2013 and after
Demand for office
space arises from the creation of office based
employment
Service based economy of Dubai creates higher
proportion of office
based jobs
Current state of the economy lead to a
lower job creation and thus slacking demand
Rentals and prices contracted heavily with
soaring vacancy rates
Vacancy rates, rental
and price contractions low in CBD areas
resulting in a two tier market
We expect demand to
re-emerge by 2012
following the tourism and financial services
sector
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 10
Forthcoming supply estimates suggests that 64% of the planned office space developments are only in the design stage, which suggests that
the execution could get conveniently prolonged till the market sights
signs of demand recovery. Nevertheless, 48% of the projects that are currently under various stages of execution are scheduled to be
completed during 2010 which suggests that vacancies could face upward pressure and prices and rentals could face continued
downward pressures during 2010. Some of these executions could
face delays leading to a lower delivery during 2010, thus leading to a stable trends in prices, rentals and vacancies. However, the possibility
of a robust absorption upon the eventual release of supply is limited and thus, the prospects looks towards stability even with best of
scenarios.
Exhibit-11 : Current state of rents, prices and yields
Location Rent/sft Price/sft Yield
Bur Dubai 150 1225 12.2%
DIFC 370 1900 19.5%
Downtown Dubai 265 3000 8.8%
Jumeirah Lake Towers 100 900 11.1%
Sheikh Zayed Road 215 1300 16.5% Source: Asteco, Markaz Analysis
Logistics/Warehouse
Metrics 2010 2011 2012
Rentals Prices
The key demand driver for logistics and warehouse property is the
trends in external trade activity. As discussed earlier, although imports contracted 28% Y-o-Y during 2009 due to the slump in the economy,
exports surged by 23% and re-exports grew by 19% during 2009, indicating that the demand for logistics and warehouses remained
protected from heavy contraction during 2009. We expect the growth
in exports and re-exports to continue during 2010-12 backed by the global economic recovery and growth in international trade. However,
we expect imports to remain stable at best during 2010-11 as the economy struggles its way out of the current slowdown. This suggests
that the demand for logistics/warehouse property would remain intact.
Exhibit-12 : Exports remains robust despite fall in imports
Source: Dubai Statistics Centre, Markaz Analysis
0
100
200
300
400
500
0
50
100
150
200
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Imp
ort
s (
AE
D B
n)
Ex
po
rts &
Re
-ex
port
s (
AE
D B
n)
Foreign Trade Exports
Foreign Trade Re-Exports
Longer term supply
conveniently placed to
match the slack in demand
Forthcoming supply in 2010 could drive up
vacancies and drag prices and rentals
down
External trade activity
is the key demand driver
Demand for
logistics/warehouse to remain intact backed
by growth in exports and re-exports
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 11
Warehouse projects under construction accounts for 1% of all future supply and in order to facilitate investments in industrial property, the
Government of Dubai passed a decree which allows foreign firms to
own land plots for industrial and commercial in the form of a joint venture. We expect this development to provide investors with
attractive pockets of investment opportunities. The table below portrays the current asking rentals, prices and yields offered by this
segment currently. It shows that during Mar-10 alone, the asking
prices contracted 10.5% which is not a sign of a segment with a stable demand. However, in the current scenario, trends in prices
would be largely driven by risk perception which points to a negative short term trend. This could lead to a marginal yield expansion up to 2
percentage points during the year 2010. However, we expect rental
contraction to remain muted during 2010 given the demand and thus expect stable prices during 2011 backed by increase in rentals with a
possibility of increasing prices backed by yield contractions.
Exhibit-13 : Trends in rents, prices and yields
Metrics Feb-10 Mar-10
Average Rent (AED/sft) 32.6 32.3
Average Price (AED/sft) 302 270
Average Asking Yield 10.8% 11.9% Source: propertywebsites, Markaz analysis
Lower supply and legal
facilities extended to
provide attractive investment
opportunities
Prices to experience downward pressures
due to current state of risk perception towards
property assets
Stability in rentals to
provide attractive yield capture during 2010
and price appreciation gains later on
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 12
Appendix-1 : Freehold rental growth trends by area – evident non sequential trends
Apartments-rents
Location/
Month
Studio
- Min
Studio
- Max
1-BR -
Min
1-BR -
Max
2-BR -
Min
2-BR -
Max
3-BR -
Min
3-BR -
Max
Central Dubai
May-09* -18.8% -13.5% -13.2% -6.5% -15.0% -4.0% -12.7% -10.8%
Aug-09 -1.7% -13.3% 2.0% -5.7% 8.9% -11.9% -0.9% -6.0%
Dec-09 5.8% 5.7% -1.5% 4.4% 0.9% 2.5% 6.6% 2.4%
East Dubai May-09* -20.5% -8.7% -11.9% -15.8% -22.0% -5.7%
Aug-09 -16.7% -21.7% -8.6% -16.3% -11.0% -20.2% -12.8% -26.1%
Dec-09 -11.8% -11.8% -9.3% -10.2% -10.6% -5.3% -4.0% 7.1%
West Dubai
May-09* 5.6% -15.4% -23.3% -9.4% -2.6% 6.4% 3.3% -33.9%
Aug-09 -21.1% -18.2% 2.9% -2.4% -1.7% -7.3% -12.3% -2.7%
Dec-09 -6.9% -5.9% -1.9% -1.6% -2.4% 0.0% 8.0% -1.6% Source: Landmark Advisory, Markaz analysis (* From Mar-09 to May-09)
Villas-rents
Source: Landmark Advisory, Markaz analysis (* From Mar-09 to May-09)
Location/
Month
3-BR -
Min
3-BR -
Max
4-BR -
Min
4-BR -
Max
5-BR -
Min
5-BR -
Max
Centr
al
Dubai
May-09* -16.06% -12.50% -17.22% -13.06% -22.13% -5.94%
Aug-09 3.08% 7.94% 10.59% 0.07% 4.31% 0.28%
Dec-09 6.52% -4.37% -3.83% -2.53% -0.19% 6.76%
East
Dubai
May-09* -9.09% -20.00% -22.58% -28.00% -30.00% -16.67%
Aug-09 4.76% -18.18% 3.70% -17.50% 16.67% -24.53%
Dec-09 -4.55% 14.81% 0.00% 6.06% -14.29% 0.00%
South
Dubai
May-09* -18.75% 5.88% -10.00% -4.00% -4.00% -20.00%
Aug-09 15.38% 11.11% 11.11% 4.17% 4.17% 7.14%
Dec-09 -3.51% -5.26% -5.41% -2.13% 11.11% 22.73%
West
Dubai
May-09* -15.00% 0.00% -12.50% -16.67% -2.17% -1.72%
Aug-09 5.88% -9.09% 2.86% 5.00% -2.22% -12.28%
Dec-09 0.00% -5.00% 16.67% 4.76% 4.55% 4.00%
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 13
Appendix-2 : Freehold apartment price growth trends by location
Location Month
Studio Studio - Max
1-BR - Min
1-BR - Max
2-BR - Min
2-BR - Max
3-BR - Min
3-BR - Max - Min
Dubai
Marina
Aug-09 -17.6% 3.4% -11.8% 14.3% -11.8% 10.3% -17.6% -3.4%
Dec-09 7.1% -6.7% 13.3% -9.4% 0.0% -12.5% 0.0% 0.0%
Mar-10 4.0% 0.0% -17.6% -3.4% -20.0% 0.0% -7.1% -7.1%
Dubai Silicon
Oasis
Aug-09 7.1% -5.3% 7.7% -5.6% 5.3% -10.5% 0.0% -10.5%
Dec-09 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% -7.1% 0.0%
Mar-10 -20.0% -2.2% -14.3% -5.9% -7.1% -5.9%
Inter-
national
City
Aug-09 9.1% 3.9% 0.0% 6.7% 0.0% 6.7%
Dec-09 -25.0% 0.0% -10.0% 0.0% -10.0% -6.3% 0.0% 7.1%
Mar-10 -11.1% -18.8% -11.1% -25.0% 11.1% -6.7%
Jumeirah
Beach Residence
Aug-09 2.1% 11.5% -21.1% -11.5% 17.6% -15.4% 5.9% -15.4%
Dec-09 -8.3% -10.3% 46.7% 8.7% 10.0% 13.6% 16.7% 13.6%
Mar-10 -4.5% 0.0% -13.6% 0.0% -30.0% -4.0% -20.0% 0.0%
Jumeirah Lake
Towers
Aug-09 -6.7% -18.2% -24.7% -18.2% 0.0% -10.0% -12.5% -10.0%
Dec-09 0.0% 11.1% 18.2% 5.6% 7.1% 0.0% -7.1% 0.0%
Mar-10 -10.0% 0.0% 0.0% 5.3% -20.0% 0.0% 0.0% 0.0%
Palm
Jumeirah
Aug-09
13.3% 17.2% 6.7% 17.2% 0.0% -3.4%
Dec-09
5.9% 0.0% 6.3% 0.0% 13.3% 21.4%
Mar-10
0.0% -5.9% -5.9% -5.9% -17.6% -17.6%
Source: Landmark Advisory, Propertywebsites (Mar-10), Markaz analysis
REAL ESTATE RESEARCH
April 2010
Kuwait Financial Centre “Markaz” 14
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REAL ESTATE RESEARCH
April 2010
Strategic Research
What to expect in 2010 (Jan-10) GCC Banks - Done with Provisions? (Jan-10) What is left for 2009? (Sept-09) Kuwait Investment Sector (Jun-09) Missing The Rally (Jun-09) Shelter in a Storm (Mar-09) Diworsification: The GCC Oil Stranglehold (Jan-09) This Too Shall Pass ( Jan-09) Fishing in Troubled Waters(Dec-08) Down and Out: Saudi Stock Outlook (Oct-08) Mr. GCC Market-Manic Depressive (Sept-08) Global Investment Themes (June-08) To Yield or Not To Yield (May-08) The Golden Portfolio (Apr-08) Banking Sweet spots (Apr-08) The “Vicious Square” Monetary Policy options for Kuwait (Feb-08) China and India: Too Much Too Fast (Oct-07) A Potential USD 140b Industry: Review of Asset Management Industry in Kuwait (Sep-07) A Gulf Emerging Portfolio: And Why Not? (Jun-07) To Leap or To Lag: Choices before GCC Regulators (Apr-07) Derivatives Market in GCC (Mar-07) Managing GCC Volatility (Feb-07) GCC for Fundamentalists (Dec-06) GCC Leverage Risk (Nov-06)
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REAL ESTATE RESEARCH
April 2010
Bahrain Gulf Finance House (Oct-08) Esterad Investment Company
(Aug-08) Bahrain Islamic Bank (Aug-08) Ithmaar Bank (July-08) Tameer (July-08) Batelco (July-08)
Qatar Commercial Bank of Qatar (Mar-10) Qatar Telecom (Jun-09) Industries Qatar (Apr-09) Qatar National Bank (Feb-09) United Development Co. (Feb-09) Qatar Fuel Co. (Dec-08) Qatar Shipping Co (Dec-08) Barwa Real Estate Co. (Nov-08) Qatar Int’l Islamic bank (Nov-08) Qatar Insurance Co. (Nov-08) Qatar Gas Transport Co. (Oct-08) Doha Bank (Aug-08) QEWC (July-08) QISB (July-08) Masraf Al-Rayan (Jun-08)
UAE Dubai Financial Market (Sept-09) ADCB (Jun-09) DP World (Jun-09) NBAD (Feb-09) Sorouh Real Estate (Feb-09) Aldar Properties (Feb-09) Gulf Cement Company (Jan-09) Abu Dhabi National Hotels (Dec-08) Dubai Investments (Dec-08) Arabtec Holding (Dec-08) Air Arabia ( Nov-08) Union Properties (Nov-08) Dubai Islamic bank (Oct-08) Union National Bank (Aug-08) Emaar Properties (July-08) Dana Gas (July-08) FGB (July-08) Etisalat (Jun-08)
Oman Galfar Engineering & Cont. (Nov-08) Oman Telecommunications (Sept-08) Bank Muscat(Sept-08) Oman cement (Sept-08) Raysut Cement Company (Aug-08) National Bank of Oman (Aug-08) OIB (July-08)
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