UAE market remains a tale of two cities, says JLL
Bright outlook forecast for Dubai but Abu Dhabi hampered by oversupply
Although there are grounds for "cautious optimism" in Dubai's property market for 2012, Abu Dhabi still faces challenges due to a lack of demand and an increasing supply as a further wave of projects is completed.
Property consultancy Jones Lang LaSalle said that although Dubai's property market lagged behind overall economic growth, there are now signs that confidence is returning among both investors and developers.
The firm said that Dubai seems to have learned lessons from the last crisis about the need to adopt a long-term approach and not to develop too much property too quickly.
"Providing this increase in confidence does not result in negative over exuberance, it is likely that most sectors will continue to experience some growth in prices and rentals in 2013," the firm said.
The hotels market has been the strongest-performing, with occupancy and room rates at their highest levels since 2008. The housing market remains something of a mixed bag, with prices increasing in popular areas like Dubai Marina and Palm Jumeirah, but many other areas remaining flat. Meanwhile, the retail market - particularly the larger centres - have benefitted from an increase in tourism.
The office market, meanwhile, remains burdened by an oversupply of space, but JLL predicts potential for a "limited recovery" of rental values in aras like Downtown, TECOM free zones and fronting Sheikh Zayed Road.
In Abu Dhabi, a decision by the Executive Council to prioritise spending on capital project will benefit the market in the longer term and the city has become more cost competitive.
However, vacancy rates are increasing due to increased supply and rents have continued a downward trend throughout 2012.
JLL said greater job growth will be needed to stimulate demand through further investment.
A number of new office towers has depressed demand further and vacancy rates stand at 30%. In the residential market, a number of new high-profile schemes have alleviated a shortage of supply of premium properties, but there is a mismatch between demand and supply both in terms of quality and pricing.
"The prospects for the market in 2013 will be dependent upon the impact of two recent regulatory announcements - to register all existing leases in the Tawthaaq system (and thereby restrict sharing) and to encourage Government employees to live in Abu Dhabi to qualify for housing allowances," the firm said.
Alan Robertson, CEO of Jones Lang LaSalle MENA, said: "Until we see more take-up of available space, rents will continue to suffer.
"However, as with Dubai, there are examples of where good quality space that is meeting expectations, has attracted quality occupiers and where rents have stabilised.”