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News Release

UAE

JLL MENA reveals Top 10 for 2010: Defining the ‘New Normal’ for UAE Real Estate

JLL MENA, the world's leading real estate investment and advisory firm, has today unveiled its ‘Top 10 for 2010’ projections of the trends expected to shape the UAE real estate market for 2010 and beyond.


JLL MENA, the world's leading real estate investment and advisory firm, has today unveiled its ‘Top 10 for 2010’ projections of the trends expected to shape the UAE real estate market for 2010 and beyond.

Blair Hagkull, Managing Director, JLL MENA said: “In 2010 the UAE real estate market is moving away from the off-plan sales model towards a longer term model based on secure cash flows. Real estate investment vehicles are being redefined as more interest is shown towards co-investment vehicles.  However the general downturn in market performance is not affecting all locations or assets type equally.

The level of returns is expected to be more stable in quality projects and locations as they are performing comparatively better than others. This flight to quality is significant as these are signs of maturity in a constantly evolving market.”
 
The key predications are:
  1. Selective Stability: The UAE market will see a general decline in performance during 2010. The market will experience greater differentiation as some locations will perform better than others. This is in spite of the on-going decline in values plus an oversupply and higher vacancy scenario. This selective stability will result in a polarizing effect on the market and will give rise to distinct winners and losers in the real estate sector;

  2. Generating Additional Demand: Generating additional tenant and occupier demand will provide a significant boost to market performance. This will be critical to the timing of recovery in the UAE real estate market. Many of the initiatives required in this area go beyond the real estate industry. The industry needs to implement structural changes to better position itself for the needs of end users and occupiers;

  3. Rebuilding Trust and Confidence: Lack of transparency and trust are major issues facing the UAE real estate industry. They have negatively impacted the UAE market and have eroded investor confidence. Effective regulation and greater transparency are some of the major industry challenges in 2010 and the years ahead;

  4. New Real Estate Investment Paradigm: A greater emphasis will be attached to income producing assets as the regional real estate industry takes a long term view on property. The trend of investors accepting lower returns is the ‘new normal’ which is increasingly becoming an industry reality. We are witnessing more investment decisions led by asset performance, credit worthiness and tenant quality. There is little investor appetite for incomplete projects that do not produce income;

  5. New Financing Model for Real Estate: Cash flow is critical as we expect debt markets to selectively ease in the coming year. Such a scenario results in an increased emphasis on equity and reinforces the need for co-investment vehicles. Scarce debt will make private equity and family wealth funds the preferred option due to their cash strong positions;

  6. Defining Real Value: There is an important need to better define real value in a market with minimal transactions. Valuations are hampered by fewer transactions to benchmark as investors seek to find the ‘new normal’ in real estate capital values. Significant new initiatives are expected in the valuation profession as the region evolves into a more mature real estate market;

  7. From Global to Local: Middle East real estate developers and investors are increasingly adopting inward looking strategies and are seeking more opportunities in local rather than international markets. Localisation of the real estate industry is an important trend as capital flows from regional entities shift towards domestic priorities;

  8. Real Homes for Real People: In the last five years, 60% of the housing stock comprising luxury and secondary homes was targeted for 16% of the market who were mostly investors and speculators. The market is expected to re-position in 2010 as it increasingly caters to the needs of end users in the middle segment of the UAE real estate sector. This is a significant development for the industry as its priorities are shifting towards the majority of end users from the earlier focus on investors in the high end segment;

  9. From Landlord to Tenant Market: The continuing demand-supply mismatch is bringing about a further shift in the balance of power from the landlords to the tenants. The UAE real estate market is becoming increasingly tenant friendly as it faces greater competition by increasing supply, lower demand, falling rents and higher vacancies. This is a beneficial situation for tenants as landlords are expected to offer greater incentives to retain existing tenants and attract new ones;

  10. From Asset Creation to Asset Management: 2009 marked the end of a transformational decade for the UAE real estate sector as the market shifts from a period of asset and value creation to that of asset management and value retention in 2010 and beyond. The shift in focus from creation of new assets to management and value enhancement of existing assets is a sign of maturity for the real estate market.

In summarizing the report, Craig Plumb, Head of Research at JLL MENA​ concluded: “Creating an atmosphere of trust is essential for markets to maintain a competitive edge in challenging economic times. The need to rebuild confidence and greater transparency is no longer optional but a necessity in the region’s fast evolving real estate markets. The rate of decline may be comparatively less in 2010 than in 2009 but the timing of recovery will depend on additional demand from both investors and tenants. As the markets mature, investors need to take a longer term view as the levels of returns are expected to become more stable and sustainable.”