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United Arab Emirates Real Estate Report Q1 2011
Business Monitor International, Nov 2010, Pages: 72
The United Arab Emirates Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Arab Emirates's Real Estate industry.
The UAE is unusual among small, open economies as the considerable woes of its commercial real estate sector have little to do with the global financial crisis and everything to do with a building boom prior to 2008, which assumed biblical proportions.
Years of massive over- and mis-investment produced a financial crisis in Dubai last year. What is far less well-known is the massive over-supply of office space and retail space in Abu Dhabi and Sharjah as well. Abu Dhabi is the only city in which industrial sub-sector vacancy rates are still running at about 10%.
A spectacular slump in rental rates in 2009 caused sharp movements in rental yields in all three cities. Although a number of high-profile commercial projects have been delayed, postponed or cancelled, various developments in Abu Dhabi and Dubai (although not, it seems, Sharjah) should contribute to new supply in the coming years. While we have become more bearish in our estimates, we still maintain that the fundamental driver of growth will be Abu Dhabi.
We interviewed in-country sources at the beginning of 2010 and again in July. An important adjustment that has taken place over the last 12 months has been the rise in yields in all three sub-sectors in Dubai. This is the consequence of a slump in capital values. Looking forward, we envisage that rental yields in all three cities will move towards normal pre-2008 levels. This implies a gradual fall in yields in Dubai, but a slight rise in Abu Dhabi. The crucial word here is ‘gradual’. We envisage that most of the protagonists in the UAE real estate market have the willingness and ability to take the long view even though it will take years for the currently vacant space to be absorbed.
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