Yields for real estate in Dubai compressed

“Seller’s market with tightening yields” Real Estate Investor Sentiment Survey Says

Jones Lang LaSalle today published its “2013 Middle East and North Africa (MENA) Real Estate Investor Sentiment Survey.” The survey found that yields for real estate in Dubai have compressed and investors are now open of acquiring assets at yields closer to emerging Europe and higher than established markets such as Moscow. 

The survey indicated strong demand amongst regional investors for Dubai real estate, leading to the creation of a seller’s market, which is one of the reasons for the yield compression. While some interest for land has returned in this year’s survey, most investors continue to prefer income producing assets to development.

Gaurav Shivpuri, Head of MENA Capital Markets at Jones Lang LaSalle, said: “With the city’s well developed infrastructure, booming tourism industry, buoyant aviation activity and safe haven status, Dubai has emerged has the investment destination of choice amongst its regional peers. We have also witnessed an increase in appetite for larger transactions as compared to last year, which indicates to the return of confidence in the sector and market.”

Other factors that have resulted in stronger investor interest and tightening yields in Dubai include the better regulated environment, improving economic fundamentals and the availability of more investment grade products. The release of a number of major new projects and speculation around Dubai’s bid for Expo 2020 have also contributed to the prevailing sense of positive sentiment concerning the city’s real estate market.

Outside of Dubai, investors are less optimistic, with yields remaining stable in Abu Dhabi and increasing for some sectors of the market in Saudi Arabia, compared to our 2012 survey.”

Other key findings:

• MENA investors continue to invest at the Global stage having deployed almost USD 4.9 billion across global assets in the first half of 2013. While Central London remains the preferred destination for most Middle Eastern investors, they have shown themselves increasingly willing to look at opportunities in other markets, making major sales in Europe, Australia and Japan over the last 6 months.
• The residential segment remains investors’ favourite sector, reflecting the predominance of private groups and family investors and lack of institutional players.
• Investors continue to seek income producing assets, even though development remains an option for many, given the importance of the development arm within many Middle Eastern investors.
• Dubai, followed by London were the two most preferred markets for regional investors.
• There has been a trend towards larger ticket transactions, a reflection of investors growing confidence in the market.
• Location remains the most important factor when considering a real estate investment. Unlike other investments, real estate is very much affected by the conditions of the surrounding areas and other local factors.
• The growing importance of factors such as exit strategies and transparency show an increasing maturity in the region’s investors.
• Sustainability is starting to gain more importance amongst the investors’ community, with more investors willing to pay an extra premium to acquire green buildings.

Craig Plumb, Head of MENA Research for Jones Lang LaSalle, concluded: “With better economic indicators regionally and globally, the overall outlook for the MENA real estate market looks better than last year. This positive sentiment is boosted by continued infrastructure spending and government backing which is further supported by the stability of high oil prices. The region remains primarily a sellers’ market, with more potential buyers than sellers in most cities. MENA investors remain net buyers of real estate although we continue to see a large number of investors seeking to rebalance their portfolios, by disposing of non-core assets and acquiring those more in line with their long term investment strategies.”