The winners versus losers
Jones Lang LaSalle Top Trends for UAE Real Estate 2011
“Service charges and quality of management will be key issues driving the success of individual and residential projects in 2011,” she added.
“Some people think the number one risk for real estate is supply but it is management. Quality will be rewarded and poorly managed buildings will suffer more.
Over the past decade, we have moved to a more mature tiered market, this will become more prevalent in 2011. Dubai has some of the youngest office space that has been completed in the last 10 years but young space requires a higher level of management and maintenance. This will determine the winners from the losers.”
Plumb said regarding the industrial, hotel, residential and office space, Abu Dhabi could surprise people because it is more closely aligned to the Government’s intention to get back to basics; things which have been driving the economy for the last 30 years including the strategic location of the UAE, the huge infrastructure of the airports and the market has been largely controlled by Government related entities.
“The Dubai market will stabilise and Abu Dhabi will pay more attention to asset management, more attention to the repositioning of older hotels and more emphasis on the management of those assets,” he said.
“We will see an increased demand for office space and more leasing activity in both Dubai and Abu Dhabi.”
Plumb said the last few months had seen some of the largest corporate deals in the UAE including the French oil company, Technip moving to a new office in Abu Dhabi and Standard Chartered Bank, which plans to build a 513.8m AED headquarters in Down Town Dubai.
The bank will lease eight of the 13 office levels in the building for a period of 15 years and is expected to start relocating its staff during the fourth quarter of 2012.
Under the lease, Standard Chartered will have full and exclusive naming rights for the building and will occupy in excess of 125,000 square feet.
“Standard Chartered Bank has signed a very significant deal in the Dubai corporate sector. Driven by price, rents have fallen to a more competitive level, people are trading up from older buildings into new modern buildings and there is availability of good quality space,” added Plumb.
“It is interesting to see that in Dubai, where overall vacancy is 40%, Standard Charter will build its own building rather than move into one that’s already there.”
David Dudley, regional director and head of Abu Dhabi office, Jones Lang LaSalle MENA, added the Strata Law is going to have various impacts on the market and the implementation of Owner Associations (OA) will drive trends going forward.
He said investors will be looking to keep costs down and there will be those who will migrate towards some developments and others who want to buy to live.
“You can buy two different buildings in say Business Bay and in the Marina but over a 10 year lifecycle those buildings may be performed up to 50% differently. Today, the buildings in Dubai Marina continue to demand a higher value than other buildings which are well priced but in another location,” said Hagkull.
“A new building today could have 150 different owners but you have a situation where half of them won’t pay their Strata bills. There is very much a focus on who the winners and losers are.”
Mehdi Nosratlu, senior manager, strata planning and business development, Al Arsh Owners Association Management Services was at the conference.
He agrees with Hagkull and said the development phase has now become an operational phase.
“Before, there was not that much emphasis on how a developer was going to run a building because people were investing without considering the operational costs because they had a medium term prospect for the investment,’ he said.
“Now that there is a long term plan, they have to consider the maintenance of the building, that’s why management has more of an effect on it.”
Al Arsh restructured its company in 2010 in response to industry demand after the recession. It used to focus on property management and selling and renting properties but now has three main divisions; Facilities Management, Owner Association Management Services and Energy Management which is part of the FM side.
It manages a total of 25 different properties including industry, residential, commercial and villas.
“We believe the quality of an asset depends on how you are going to manage it,” said Nosratlu.
“You can have two similar buildings but in the long run they perform differently and this depends on what kinds of management it has,” he added.
“We saw a trend that FM now is not the duty of the developer and is being transferred to the owners so in order to be active we have come up with our own OA Management Services.
We offer compliance management, people management and FM. You have to have three areas of expertise to be an effective OA manager. You have to know the correct legislation and the technical details to maintain a building.”
Nosratlu said Al Arsh was currently working with RERA putting bids together to offer its OA Management Services including speaking to master developer, DMCC in Jumeirah Lake Towers, Dubai.
Interim OAs are currently contacting RERA to get the names of registered OA management companies.
“To operate here you have to be regionally aware and familiar with Government regulations and officials.
‘To be an effective OA management company you have to have several basic business practices; people skills, management expertise ie being able to speak Arabic, you have to offer additional services for the building such as energy management, health and safety and compliance of the laws and regulations that are coming up,” he added.
He said looking at an asset in the long term, you have to see how you can optimise the invested built asset by looking at its energy management, ensure buildings are being kept in a proper condition so that they have a longer lifecycle and understand how the service charge is calculated.
What it contains and how it is being budgeted, make sure that owners understand the service charges and how the OA collects it.
“If we get to a point where there is no transparency in this industry then residents are not going to pay their service charges,” Nosratlu added.
Top Trends for UAE Real Estate in 2011
• Property / asset management is #1 risk for real estate
• Lower supply projections than anticipated to help smooth out cycle
• Rental market directions – Dubai and Abu Dhabi
• Selective stability in residential market
• Increased office leasing activity
• From super regional malls to community centres
• From return on ego to return on equity
• Light industrial / logistics offers low risk and stable yields
• Transaction levels to remain subdued in 2011
• From competition to coordination in UAE
• Infrastructure is key driver for real estate recovery