Abu Dhabi’s commercial landlords lay on red carpet treatment

The latest RICS Global Commercial Property Survey suggests there was further gradual recovery in real estate sentiment in the UAE during Q4 2012 in both the occupier and investment markets. The results of the survey, which was conducted among 711 industry professionals worldwide, show that there was an improvement in all three key sectors, particularly in the retail and industrial sectors.

In the occupier market, tenant demand increased at its fastest pace since mid-2008. At sector level, the activity picture was fairly balanced in Q4 last year, with all sectors recording firm increases in enquires and transactions.

Although there is a strong flow of space coming to the market, rents are still expected to increase, if modestly, also for the first since mid-2008, specifically in retail.

Investment market

The investment market is also seeing an improvement, with continued strong gains in enquiries and transactions at the all-sector level.

Interestingly, however, this is not translating into stronger expectations for capital values, which are projected to remain broadly stable in the near term. This may be in part because of the acceleration in new development starts in recent quarters, with the growing new supply pipeline possibly dampening market expectations of a sustained recovery in capital values.

Over the near term, respondents to the RICS quarterly survey are only expecting capital values to rise in the retail sector, though moderately. One possible explanation as to why is because the supply of distressed retail properties coming on to the market is actually falling quite convincingly, whereas the supply of distressed office and industrial properties is still either flat or rising.

The Abu Dhabi commercial sector has benefited from the completion of some high quality office premises in particularly good locations. Due to the increase in supply and a choice by landlords to offer structured incentives to attract large government organizations as well as private sector business, there has been a positive growth in lease transactions.

Dubai has also seen renewed energy and interest from tenants, both in newly released opportunities as well as highly sought after landmark buildings and locations.

The sale of office premises as individual units is yet to see significant changes although investor interest in buildings is greater now than six months ago. Business activity generally seems to be increasing which will no doubt show positive influence on the real estate market over the coming months.

In the rest of the world, sentiment in real estate markets generally remained reasonably positive, with the exception of Europe, where prevailing economic uncertainty is exercising pressure on all key sectors. In Asia, where the results for both occupier and investment markets paint a fairly robust picture, for both rent and capital values, the survey points to further healthy increases in Thailand, Hong Kong and China.

Of course, the global economy continues to face significant risks but the numbers suggest that property continues to be viewed in a generally positive light away from Europe where the flow for real estate still remains particularly challenging.

— The writer is a chief economist at Royal Institution of Chartered Surveyors (RICS).