While in some parts of the world, real estate sentiment remained fragile in the third quarter of the year, due to the continued uncertain global economic outlook, in the UAE, strong demand for both office and retail space translated into the best results in the region since 2008.
The gradual recovery in real estate sentiment in the UAE is continuing, as occupier and investment indicators improved significantly during third quarter of 2012. Expectations are even better, with capital values expected to rise strongly off the back of a buoyant retail sector.
Despite a further rise in available space, where a relative oversupply of office space is already evident, rental levels are now expected to remain unchanged. Indeed, available space rose further to 57 per cent in Q3, but the rental expectations net balance suggests that rents are bottoming out.
The buoyant retail sector saw rental expectations taking an upward turn. Furthermore, development starts are now edging up after showing flat growth for the past nine months. On the investment side, purchaser enquiries rose once more across all sectors; expectations for future transaction activity also picked up significantly
Anecdotal evidence suggests that the country is benefiting from its safe haven status in the region, and a subsequent influx of capital is being directed into the real estate sector. With demand high and finance available (the availability of funds net balance remained in positive territory once again), it is not surprising to see capital value expectations rally.
Moreover, the headline net balance rose to its highest reading in four years. A potential reason for the optimism about future values could be the dwindling supply of assets in distress. Expected supply of foreclosed property largely stabilised in Q3, after rising for the past three years.
Worldwide, occupier markets are broadly mixed, with a fairly even split between countries reporting falling and rising demand for space. The most positive trends found are in Russia, the UAE, the US and Canada, as well as Hong Kong and China.
Meanwhile, France, Italy, Greece and Spain saw some of the biggest falls in occupier demand, alongside further increases in available space. This is significantly weighing down on rental expectations in these countries. Notably, renewed commitments from the US Federal Government and European Central Bank to provide more liquidity could be helping to drive investment markets around the world, as investors diversify portfolios to include a broader range of assets.
The improving economic picture in the UAE is likely to be lifting confidence in the domestic real estate market. Indeed, strong growth of key sectors such as tourism, commerce and retail will impact directly on the commercial sphere.
The results of the survey are reflected by this, with strong gains in both occupier and investment demand, particularly for retail units. This turnaround is now shifting expectations for rents and capital values, which are no longer projected to fall. The country also stands to benefit from an influx of regional capital, as the UAE retains its safe haven reputation among investors.
— The writer is the chief economist at RICS (Royal Institute of Chartered Surveyors)
