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Real estate expert warns against speculative building in the UAE

EXCLUSIVE: Cavendish Maxwell expert says demand creation and development positioning are more important considerations

Cavendish Maxwell's expert has warned against speculative building [representational image].
Cavendish Maxwell's expert has warned against speculative building [representational image].

Speculative building is not an appropriate practice at present for developers in the UAE, with demand creation being more necessary for commercial success, a real estate expert from Cavendish Maxwell told Construction Week.

“Where we’re sitting in terms of the cycle right now, there are definitely some critical success factors in Abu Dhabi, but also across the UAE more generally,” said Manika Dhama, head of strategic consulting and research at Cavendish Maxwell.

“The big [factor] is that now is not the time for speculative building – that is very clear. It’s about demand creation, as opposed to the mentality of ‘there is so much demand for [Product X or Y], and hence I must respond’.”

Speculative construction refers to the process of building a project without formal commitments from end-users. In such a case, developers are typically confident that suitable buyers will be found or, more simply, that the development that they are implementing will be suitable for the contemporary market.

“We’ve advised on a few destinations and it’s more about how a destination is positioned,” Dhama added. “How a [development] is different to what else is being offered is a critical consideration.

“There could be an initial excitement, for example, if there is a brand that has opened or entered the market. Demand could be driven just based on that, but the question then becomes how you sustain that demand over time.

“This is not the market for short-term investment,” she added. “We are now seeing businesses approach more sustainable models of profitability [in light of this dynamic].”

Dhama’s comments came three months after a Cavendish Maxwell report noted a decline in Abu Dhabi house prices in 2018, despite growth in the emirate’s retail and hospitality sectors.

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Construction Week - Issue 747
Aug 03, 2019