Is it now the time to invest in the emirates? Joanna Bourke takes a whistlestop tour of the UAE and Bahrain to look at what’s on offer
Boom and bust, boom and bust. The inevitable mantra of the real estate industry the world over is impossible to escape. Even in an upswing, thoughts and fears of the next cycle are never far away.
And when the last crash was as severe as the one experienced by the United Arab Emirates in 2008-2009, it is hard to do a deal, sign a contract or invest a significant chunk of money without the spectre of the catastrophic past looming in the background.
For the UAE, and Dubai in particular, such fears are only compounded further by concrete ghosts. The vast, still empty tower blocks soaring above the bustling streets are physical reminders of the depths the market sunk to just five years ago.
The story across the region now is one of epic recovery. But while the statistics all point in the right direction, it doesn’t matter how impressive the growth forecasts are if that growth is not sustainable. A chasm remains between the opportunities boasted and fears among investors and developers – including those in the UK – of getting burnt.
Estates Gazette toured the region to separate the reality from the mirage, to ascertain the state of play in four different areas: Dubai, Abu Dhabi, Sharjah and Bahrain, and to lift the lid on each of their property stories – from the opportunities and growth areas to the inescapable challenges.
All to play for
Taking the lasting memory of the crash away for a minute, the overarching headline looking forward is that the opportunities are enticing. They are up for grabs across all regions and all sectors. And the returns are strong. Cluttons Middle East turned over £8.7m in the region last year alone – a figure the company expects to grow to £15m in 2015.
Steven Morgan, chief executive of the agent in the Middle East, says the group is now expanding its offering in the UAE. “We have diversified into the leisure market, so we are doing hotel and leisure valuations and consultancy now, which was something that we had steered away from before.” He adds: “We have also invested in an industrial logistics team.”
The company is not the only property adviser looking to capitalise on the growing market, with Christie’s International Real Estate announcing last month that it was opening an office in Dubai. It marked the launch by putting a $99m (£63m) Arabic palace on the market as part of its aggressive growth plans.
Recent figures reveal the economy and real estate markets in Dubai and other parts of the UAE have hit a high. In October this year the benchmark Dubai Financial Market General Index was three times higher than its 2009 low, placing it among the 10 best-performing stock markets in the world during that period, according to research from Bloomberg.
Meanwhile, in Abu Dhabi, a “super-prime” office market is emerging, according to Cluttons, which highlights the iconic Etihad Towers securing occupancy levels of more than 90%. The agent expects rents at the landmark will be the first to be driven by persistent demand and the circa AED2,000 (£348) per m2 rent is predicted to rise ahead of the conventional grade-A market.
But while there might be all to play for, for many, the UAE property market is still a risky game, and it is worth looking at four key regions in more detail.
Dubai in depth
On the face of it, the Dubai market is recovering fast, including the residential sector. Cluttons recorded a 3.8% rise in values in the first half of the year compared with the same period in 2013. Some 3,580 new villas are planned for 2015 and a further 6,018 by 2016.
On the commercial side in particular, trophy buildings and off-the-wall proposals on a heart-stopping scale have traditionally been associated with the emirate, but now there are hopes for a more serious business capital with a new offering of real estate that could appeal to British investors and those on the hunt for reliability over the ridiculous.
One topic that was hot on the agenda at Estates Gazette’s first Global Real Estate Debate, in partnership with Cluttons in Dubai last month, was that the emirate needs to focus on more than outrageous mega-structures if it wants to attract inward investment.
Hazel Wong, executive director at WSW Architects, said: “Iconic buildings need to be sustainable. We need to slow down and make sure this happens. There has to be more pedestrian space. We just have building after building and it can get a bit chaotic. There should be more control.”
Khaled Ahmed, senior vice-president for planning, strategy and development at Economic Zones World, added that one of the key areas Dubai needed to work on was switching from being a country with a transient population to one that expats considered home.
Good news, then, that infrastructure development is under way to address this very issue – to ensure Dubai is viewed as a place for long-term living rather than just a temporary home.
The first phase of the AED3.7bn Dubai Tram system opened this month – the emirate’s first community-
focused infrastructure project – to boost Dubai’s attractiveness to overseas workers and domestic residents. The 10.6km route that takes the Dubai Tram around Dubai Marina and along Al Suffouh Road is expected to go a long way in alleviating some of the area’s chronic traffic issues.
Faisal Durrani, Cluttons’ international research and business development manager, says the tram could fuel surrounding residential property prices, making this one area of investment worth looking at for anyone hoping for a safe return in the region.
“Tenants and buyers are already actively looking to be in close proximity to the Marina’s Metro stations, the Beach and Jumeirah Beach Residence,” he says. “We expect that the Dubai Tram stations dotted around the Marina will similarly drive demand up in their immediate vicinity.”
There are also opportunities for British firms looking to invest in offices as corporate occupiers return to the region. Stock dried up after the crash as developers paused schemes and tenants scaled back expansion plans. Limited supply means vacancy rates for prime office buildings have fallen from a high of 20% in 2011 to 18% last year and 16% in Q1 2014.
Paula Walshe, associate, corporate client services at Cluttons Dubai, says: “We have seen an increase in the number of corporate occupiers looking for offices, some coming into the region for the first time. I think take-up will continue to rise, but we are now coming across difficulties with lack of stock.
“Grade-A stock is limited, free-zone stock is limited, and that is going to be the issue next year. We will have occupier requirements and we are not going to be able to satisfy some of them with exactly what the occupier wants.”
The emirate is also focusing heavily on its tech industry and TECOM Investments – which runs Dubai’s internet and media cities – travelled to London this week in an attempt to lure UK creative tenants to the region. The group announced plans to invest AED4.5bn in developing offices, laboratories and other buildings to fuel SME and entrepreneurship growth across Dubai.
The obvious question here is why a company based in the UK – and London in particular, one of the leading tech cities in the world – would want to up sticks and move, or open another office in Dubai?
Malek Sultan Al Malek, chief executive of TECOM business parks, has no qualms being entirely honest about the benefits: “Operating out of TECOM’s business communities gives companies the benefit of 100% foreign ownership, exemption from corporate and income taxes, no custom duties, full currency convertibility, no restrictions on the repatriation of capital, and no trade barriers or quotas.”
There’s little arguing with that.
Anyone for Abu Dhabi?
Just a half-hour drive down the E11 highway is Dubai’s (now only marginally) less well-known neighbour. And if Dubai is all about international business and finance, Abu Dhabi is all about retail and leisure.
A morning trip to the viewing gallery of the Etihad Towers, the five-tower complex developed by Sheikh Suroor bin Mohammed Al Nahyan, is a world away from the man-made coastal feel in Dubai, as it looks out onto natural shores and crystal blue waters.
Myles Barraclough, chief commercial officer at AMS, the real estate asset management and advisory company for the Etihad Towers, points out what this means – that the emirate offers swathes of land crying out for a luxury audience, be it wealthy international shoppers or holidaymakers in search of high-end hotels and Michelin-star restaurants in the UAE capital.
A quick look at the retail arcade at the Etihad Towers reveals that high-end occupiers are on the same wavelength already, as luxury brands including Cartier and Versace are among the highbrow tenants at the scheme. Retail fever is rife in Abu Dhabi, with Aldar leading the way, opening the 2.5m sq ft Yas Island mall this month.
And this is where there are opportunities for UK property agents to start telling domestic retailers that now is the time to branch into Abu Dhabi. Earlier this year it was ranked fourth in a list of the world’s hottest retail markets after attracting 42 new brands in 12 months.
As for the impact of the 2008/09 crash, Abu Dhabi’s market was always more regulated, meaning it did not fall as far as Dubai, and this will no doubt ease the concerns of retailers wanting to set up shop in the region. Cluttons’ head of Abu Dhabi Will Neill sees no reason why British firms would not be attracted to sign their brands there.
He says: “Abu Dhabi is experiencing an influx of the world’s leading brands and the appetite for them is extremely high. The UAE as a whole is a great consumer market and Abu Dhabi is still at a place where supply is lower than demand.”
With new entrants such as US giants Macy’s and Bloomingdales announcing plans for Abu Dhabi debuts last month, it is likely the UK will soon follow suit.
The Farglory story
By his own admission, Jack Hu, managing director of the Middle East arm of Taiwanese developer Farglory, was dubbed “crazy” at first by his Asian peers for breaking ground in 2013 on Abu Dhabi’s Al Maryah Island. But, unfazed, his firm is now embarking on the $1.8bn Maryah Plaza.
The idea is to cash in on the region’s booming business and leisure sectors by plugging a high-end residential development directly into the action. The scheme comprises four towers with 500 luxury flats, galleries and restaurants – all set to be delivered by 2020 – adjacent to the Galleria at Sowwah Square, the capital’s new luxury retail and dining destination.
Hu says: “The development will sit in an area that is trying to be an island mimicking Canary Wharf. Abu Dhabi is not an emerging market, it is a pioneering one and I think it has even greater potential than Dubai.”
Hu adds his scheme will be “the One Hyde Park of Abu Dhabi”.
To watch a video interview with Jack Hu, visit www.estatesgazette.com/videos
Introducing Sharjah
The short drive across the Dubai border into the lesser-known emirate of Sharjah can be a big culture shock for many Western visitors – something worth keeping in mind when doing business in the region.
While Dubai tolerates Western “excesses”, such as alcohol and high fashion, Sharjah is a dry emirate. Much more traditional, more restrained but still full of real estate opportunities.
The economic crash affected the emirate far less severely than its neighbours, and it now wants new investment.
What could attract UK investors en masse to Sharjah for the first time is a project called Tilal City, a new 25m sq ft mixed-use community along Emirates Road, which was announced in October.
Details on the proposals by Tilal Properties, formed through a partnership of Eskan Real Estate Development and the emirate’s investment arm Sharjah Asset Management, are sketchy. As yet, there are no details on breakdown of uses or timeline for delivery.
What has been revealed is something that will open the eyes of UK investors that have wanted to buy in the emirate previously but have not found the opportunities.
Shane Breen, deputy manager at Cluttons’ Sharjah office, says: “Non-Arab nations and expats can buy provided they hold a valid residency visa for the UAE. Twenty per cent of the residential part will be available to expats on a 100-year leasehold basis with legislative backing, a first for the emirate.”
And being a Sharjah landlord would reap strong income if residential rental growth continues. Cluttons calculates that rents shot up by almost 16% last year as tenant demand surged against a backdrop of stagnant supply. Furthermore, rental uplifts of 3.4% in the fourth quarter of 2013 continued into this year, with a further 4.5% rise in the first quarter of 2014.
Tenant demand is not only being fuelled by overspill from Dubai, but also as a result of increased economic activity in the region.
Bahrain beckons
Just beyond the UAE, the first prominent poster you spot before you even get outside Bahrain airport is from Kingdom of Bahrain developer Bin Faqeeh, with the slogan “Committed to deliver as always” emblazoned over a luxury property development.
Clearly the promotion of property is a message the developer wants to hit businesspeople and high-net-worth individuals as soon as they arrive.
Considering the country’s recent domestic disturbance – numerous people were killed in two years of turmoil, which began with massive marches on 14 February 2011 as the country’s Shi’ite majority demanded a greater say in the political decisions of the Sunni-ruled country – expat Tom Carter, property manager at Cluttons in Bahrain, says the situation has calmed and that foreign investors, specifically British ones, should not be deterred from operating or buying there.
Targets for Bahrain include corporates, restaurants and retailers.
Abdulla Faisal Al Doseri, the deputy chief executive behind the Bahrain Bay mixed-use masterplan, which comprises 40 buildings totalling 1.5m sq ft, believes Brits should look to Bahrain. He says numerous international occupiers have shown interest in the $2.5bn project created from reclaimed land.
One committed group is Canadian hotel giant Four Seasons, which will open a 273-bedroom landmark hotel on the site in early 2015. The 68-storey Four Seasons Bahrain Bay, will have seven restaurants, including three from Austrian-born American celebrity chef Wolfgang Puck.
Al Doseri is pleased with the progress but wants to see a greater British presence. He says: “There are a lot of opportunities here. I think some UK companies could open offices in Bahrain or put their Middle Eastern headquarters here.”
And it is not just corporate banks and conglomerates he wants to woo: “There is a market for the UK brands to be here: retailers, hoteliers, developers of serviced apartments.” He wants the UK to make its move on Bahrain.
In it to win it
A first-hand, whistle-stop tour around the UAE and Bahrain suggests that, while concerns and fears may still be raw, the time to invest is now, or risk being left out in the cold.
The UAE offers investors a diverse, fast-growing economy – returns are rising fast across most asset classes in each emirate as well as Bahrain. And with US household names, world-famous hoteliers and Taiwanese giants signing up to get involved in new UAE projects, the UK will not want to be among the last to finally be convinced of the power of the UAE real estate market.
If it doesn’t make a move soon, it may miss out on the crucial moment this market transforms from emerging to thriving.
Overview of the UAE property market >>
Interview: Aldar chief executive Mohammed Khalifa al Mubarak >>
