Premium property can lift UAE and Saudi economies, executives say

An executive poll in UAE and Saudi markets reveals that most believe investment-grade real estate has a stimulating effect.

Demand for premium, investment-grade property in the UAE and Saudi Arabia remains strong and an increase in supply could help to boost the region’s economic outlook by fuelling greater deployment of capital into the sector, a survey found.

According to a poll of more than 2,000 executives conducted exclusively for The National by the research firm Borderless Access, 94 per cent of Saudi respondents and 92 per cent of those from the UAE agreed with the premise that a greater supply of investment-grade property in their countries would “stimulate the wider economy, as well as the real estate sector”.

In Saudi Arabia, some 44 per cent of respondents said they “strongly” agree with the premise, while 50 per cent agreed and only 6 per cent disagreed. In the UAE, the figures were 43 per cent, 49 per cent and 8 per cent, respectively.

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Get in touch: In 2017, as we did in 2016, The National will be running reports focused on sentiment in the business communities in the UAE and Saudi Arabia on a series of key issues affecting the regional economy. Survey results will be provided by the online marketing and research firm Borderless Access. Email us or WhatsApp [phone] to tell us what issues matter most to you.

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Borderless Access said that both markets offer an “availabil­ity of high-quality options” across the entire property spectrum, and that both have generated interest from global developers. It added that the correction in pricing that has taken place over the past five years has made the market more interesting to investors. Dushyant Gupta, the senior vice president at Borderless Access, said there had been interest in a number of alternative real estate investments in the hospital and education sectors, for example.

Craig Plumb, the head of research for JLL Mena, said that he “would have to agree with the consensus that more investment-grade real estate would stimulate the economy by attracting more investment from at home and overseas”.

David Godchaux, the managing director of Dubai-based Core Savills, said the premise that the development of more investment-grade property would stimulate the economy is correct, but added he felt that a “change of mindset” was required for more premium, investment-grade properties to be built in Dubai.

“The lack of supply is so significant that developers prefer to go and build to suit [a particular client]. It’s a much safer investment than just building and taking the leasing risk, which is a shame because in the grade A market in Dubai, the leasing risk is almost non-existent and they would achieve higher returns by building, leasing and exiting or by keeping it within their portfolio,” Mr Godchaux said.

“That would create an investment market, but even though the environment is very safe and stable, developers will most of the time not take the risk.

“Because of that, it is difficult for global institutional investors to go and pick the products that are not strata to buy.” He said that global property investors are generally focused on office buildings, particularly, with a single ownership structure, strong leasing covenants and ideally just one or a handful of occupiers. However, in the UAE, many office buildings have been built by developers who sell off strata space piecemeal to individual investors or to family offices. As a result, although demand for Grade A, single occupancy buildings from multinationals is very high, in certain areas with the wrong type of office space available, rents are continuing to fall and the levels of vacant space are increasing.

Mr Godchaux said the same dynamics affected the warehousing sector, with developers preferring to build to suit rather than building assets that could later be sold to institutional investors for a better return.

“You have family offices doing deals, but they are not looking at the same type of Grade A products. They don’t have the same financial power to acquire one building, and they have a higher appetite for risk and so are looking for higher levels of return.

“I think there is a general lack of understanding on what their [investor’s] strategy is – especially in a market that is generally oversupplied for grade B space.”

Property developer Asteco yesterday published its Abu Dhabi report for the first quarter, which found that prime rents declined by 10 per cent year-on-year as a result of limited take-up and virtually no new tenants upgrading.

It also said the office investment market remains restricted by the “limited number of units available for sale”.

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