8 Trends That Will Shape the UAE Real Estate Industry This Year

Ehsan Bayat

In 2015, the real estate market in the United Arab Emirates (UAE) yielded different results in the major cities of Dubai and Abu Dhabi, but Alan Robertson, chief executive officer of JLL MENA, has expressed his optimism for the industry moving forward. He and his colleagues recently published a study revealing a number of indicators supporting an upturn in the coming months.

The 2016 Top Trends for UAE Real Estate is the ninth edition of the annual report, which developers and stakeholders use to obtain valuable information, from reviews of the previous year to statistically based forecasts for the future. Craig Plumb directed research for the report, and he also maintains a positive outlook for the region.

Mr. Plumb noted that although an underperforming oil industry has affected real estate growth and profits in the UAE, the market is beginning to mature and offers many opportunities for those able to understand and accept the new trends. In his view, the UAE real estate market is positioned to sustain a slow, but still steady rate of growth through 2016. Here’s a look at some of the key points addressed in his company’s report.

Less liquidity in the marketThe UAE government has announced it will implement a variety of strategies to build sustainable revenue from sources other than the oil market. In addition to potential new taxes, a cut in subsidies, and reduced spending, one key measure is to reduce the amount of liquidity invested in the financial system. As a result, real estate developers may have to forego conventional bank loans and similar financing avenues and instead rely on joint ventures and public private partnerships (PPPs).

Alternative funding modelsAs a result of low liquidity, real estate firms are expected to turn to business approaches employed by developers in more stabilized markets. Two such financing models are sale and leaseback (SLB) and build-to-suit (BTS).

The main appeal of SLB is that it removes constraints on assets, allowing owners of buildings to reinvest in their core business. SLB has served as a viable solution for corporate and industrial properties, but interest in this type of financing has also increased in the education and healthcare sectors.

BTS developments involve collaboration between tenants and developers. The tenant determines the scope and specifications of the building, and the developer in return secures a sale or lease agreement at the outset of the project. Similar to the SLB model, BTS developments have gained more attention across the entire real estate market.

Shifts in international investments2016 Top Trends for UAE Real Estate predicts that the amount of capital outflows to international real estate markets will decrease. In 2015, Middle East investors placed an estimated $11 billion USD in overseas ventures. However, in 2016, research projections anticipate a shift toward a profit-focused strategy centered on market exits. If this materializes, selling activity will increase.

Delaying projects to avoid oversupplyReal estate project completion rates in the UAE have averaged between 30 and 45 percent since 2010, and these numbers will likely decrease in 2016. The overall economy has provided an incentive to delay projects, a trend occurring in neighboring Saudi Arabia as well. Industry analysts predict that more builders will place projects on hold in an effort to reach market equilibrium and avoid oversupply.

Emphasis on qualityDelays may prevent certain projects from completion this year, but the demand for properties and buildings of high quality is expected to remain consistent. This trend should take shape in response to a business sector seeking new office spaces that offer functional and efficient floor plans, elevators, ample parking, and easy access to public transportation.

Renovations to increase equityWhile new building projects are put on hold, many owners will focus instead on renovating existing buildings to fit their needs. These so-called “fit-outs” are anticipated to gain traction in 2016. The trend will likely be strongest in the retail and hospitality industries, but any business may take advantage of the opportunity to increase property value without having to relocate. In general, these modifications will fulfill practical concerns, as companies move away from more aesthetically driven projects.

Evolution of the hospitality industryThe hospitality industry may experience the most noticeable changes in 2016, driven by shifting customer demographics, new technologies like online bookings, and greater variety in the types of resorts being built. In Dubai, the industry may shift away from the core luxury segment to encompass a broader range of properties. Overall, demand is expected to fall.

Safety a priorityThe final main point from 2016 Top Trends for UAE Real Estate is that building safety will receive more attention at all levels of the industry, including property development, sale, and maintenance. Increased public and corporate awareness will cause builders to focus more on fire safety in particular. Better enforcement of existing building safety laws, and the creation of new regulations, are likely to be issues of hot debate within the UAE as the whole.