The recent announcement that 19 leading property professionals from around the world have been appointed to create the first global standard for measuring property may sound like a very dry subject of little interest to real estate investors or developers in Dubai or the broader Middle East. In reality, this is an important initiative with far reaching implications for the local market.
If the IPMSC (International Property Measurement Standards Coalition) is successful in creating a unified measurement standard, investors and tenants in the Middle East and North Africa (Mena) real estate market will benefit from the knowledge that the alternative buildings they are looking to purchase or occupy are being measured on the same basis for the first time.
This would be a major improvement on the current practice where there are no common standards and real estate is measured differently between countries and even between different developers within the same country. Among the common differences experienced are whether to include balconies within the saleable area of residential units or whether common areas such as corridors and washrooms should be included within the lettable area of an office building.
This creates confusion and is a frequent source of dispute between developers, investors and occupiers. The difficulty of ‘comparing apples with apples’ makes it difficult for both tenants and purchasers to make informed decisions.
This delays investment/occupancy decisions and adds to the opacity of markets in the Middle East, which in turn reduces the attraction of these markets to investors and occupiers used to more transparent market practices in other markets.
Research by Jones Lang LaSalle shows there is a clear correlation between transparency and investment in the real estate market. The adoption of a more structured approach to measuring buildings should therefore boost confidence and attract more investment into the regional real estate market.
There is currently no agreement on either the method of calculating areas or the basis on which rental values or sale prices should be charged in the Middle East. In practice, this has led some developers to seek to maximise the measured area (through inclusion of balconies, parking spaces and external building features such as window boxes and ledges which the tenant cannot access).
In contrast investors and occupiers have sought to minimise the area of their unit to only include the net usable or carpetable area.
Research in Europe by Jones Lang LaSalle reveals the difference in building area can vary as much as 25 per cent between the different codes of measurement currently in use. The current average sale price of residential units in Dubai is in the order of Dh1,000 per square foot.
On this basis, a unit measured at 1,600 square foot would cost Dh1.6 million. Using a more ‘generous’ measurement standard for the same unit would result in a 25 per cent greater area of 2,000 square feet. At the same average price, per square feet would increase the price by Dh400,000 to Dh2 million, which is quite a difference.
The same clearly applies in respect of office rents, where different measurement standards will have a major impact on a tenant’s total occupancy costs.
An additional complication in some markets in the region is the use of both square feet and square metres to express building areas on plans and in advertising material. Recognising this problem, the Dubai Government issued a recommendation that all buildings in the emirate should be measured in square metres more than two years ago.
In practice, this advice has not been widely accepted and many developers continue to use square feet as their preferred unit of measurement.
As real estate markets become increasingly global in nature, more and more investors and occupiers are looking to make cross-border comparisons of their investment returns or real estate occupancy costs. The lack of something as basic as agreement on how buildings should be measured is an unnecessary obstacle to facilitating greater flows of both capital and occupiers between real estate markets around the world.
This problem remains particularly acute in less mature markets such as those in the Middle East, which traditionally score relatively poorly in terms of their openness and transparency.
We don’t believe there is a requirement to establish separate national codes in the Middle East, but we do encourage authorities and local developers to implement any new international measurement standards that emerge from this important global initiative.
— The writer is CEO, Jones Lang LaSalle, Middle East & North Africa.