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Dubai’s investment strategy reveals winners and losers

The latest Dubai Investment Outlook H1 2016 report from Core, UAE associate of Savills, reveals a stark contrast in fortunes for the Emirate’s real estate sectors, with some expected to remain at the forefront, while a struggle is predicted for others.

The in-depth half-yearly report analyses the outlook for the industry, the associated risks and potential returns of different types of real estate investments in Dubai for the next five years.

Winners: Established prime residential; Grade A prime location offices; Grade A warehousing; Mid-segment hotels and serviced apartments; and international curriculum schools.

Losers: Grade B secondary location offices; Affordable residential; and the four and five-star hotel market.

David Godchaux, CEO, Core, UAE associate of Savills, says: “Different investors have different risk appetites. We have not compared the returns or risks of different investment sectors, but have evaluated and compared risk rewards and tried to analyse what may be the opportunities – or potential segments – to look for over the next five years.”

The report reveals the relative resilience of prices in most of the established ultra-prime areas. Prices in Jumeirah increased by an average of AED 7,000 from Q1 2015 to Q1 2016, while Emirates Hills was down AED 4,000 and Palm Jumeirah, down AED 6,000. This compared to a drop in prices of AED 25,000 in Jumeirah Islands, down AED 20,000 in Jumeirah Village and down AED 16,000 in Sports City.

Mr Godchaux says: “The realisation that the market is ‘bottoming’ seems to have stimulated interest from investors and end-users, who have been waiting for several years for ‘deals’, prompting renewed enquiries for better, value for money products, especially in the prime residential segment. Coupled with the limited available new supply in the few established ultra-prime residential areas, our outlook continues to be steady in the mid-term until 2020.”

Meanwhile, socio-economic and geopolitical deterrents, along with a consolidating job market across the Middle East, are currently causing a decline on tenant demand in Dubai’s office market.

Mr Godchaux says: “While demand for office space is expected to continue to be steady in DIFC through 2016-17, the office sales market is witnessing a drop in prices across all locations with secondary districts such as Business Bay, Tecom C and JLT seeing a higher year on year decline at 9%, 13% and 17% respectively. The fact that Downtown (4% decline yoy) and DIFC (3% decline yoy) are outperforming the secondary locations validates that strong investor and corporate occupier demand for quality Grade-A commercial products.”

In terms of available warehouses in Dubai, locational advantages, improving business rankings and quality public infrastructure have created a strong demand for quality logistics space, however, there is a significant lack of Grade-A supply made available for occupiers to lease, with private investment in real estate somewhat not able to match the world class infrastructure.

“This has driven significant price increases, coupled with very low vacancy levels over the past few years, even for relatively poor quality warehouses by international standards, just because of the imbalance between overall supply and demand,” says Mr Godchaux.

“This translates into tremendous opportunities in the logistics sector for investors, preferably in build-to-suit or sell and lease back arrangements with occupiers.”

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