JLL, the world’s leading real estate investment and advisory firm, has today released its ‘2016 Top Trends for UAE Real Estate’. For the ninth consecutive year, this highly anticipated report assesses and forecasts the major trends that JLL anticipates are likely to impact and shape the UAE real estate sector over the next 12 months.
Commenting on the 2016 trends, Mr. Alan Robertson, CEO, JLL MENA, said:”2016 is expected to see more challenging conditions in the UAE real estate market as we begin to feel the impact of the continuing fall in oil prices and ongoing geopolitical tensions leading to reduced liquidity, and pressure on government budgets. Whilst this overall scenario will naturally impact the UAE and wider GCC region, the UAE real estate market is now better equipped to deal with such challenges than it has ever been.
With subsidy cuts, reduced spending and the potential introduction of a Goods and Services Tax (GST), the government is already realigning its strategy to further reduce its reliance on oil revenues. 2016 is likely to be a more challenging year for the UAE real estate market than 2015, but it must be recognized that the overall economy is still expected to grow at around 2.7%, so there remains opportunities as well as challenges”.
JLL outlines eight key trends that will affect the UAE real estate market this year:
Tightening liquidity: With oil prices remaining low, the government has less scope to inject liquidity into the financial system, resulting in a general tightening of liquidity that will impact investment into real estate development in 2016. Conventional project financing such as bank lending or IPOs will become more difficult, and developers will have to look for alternative funding mechanisms such as joint ventures, refinancing, public private partnerships (PPPs) and co-investment vehicles.
Increase in ‘Build-to-Suit’ (BTS) and ‘Sale & Leaseback (SLB)‘: One of the alternative means of funding new development in the face of tightening liquidity will be ‘build-to-suit’. BTS involves developers building schemes according to the specifications provided by corporate tenants, who then commit to either lease or purchase the premises upon completion. This concept is prevalent in more developed markets, and would signal further evidence of the maturation of the UAE real estate market. Sale and Leaseback (SLB) is a means by which occupiers of existing buildings can free up capital for reinvestment in their core business. BTS and SLB solutions have been most prevalent in the office and industrial sectors of the UAE market to date but there is increasing interest in these concepts in the education and healthcare sectors.
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The low oil prices are showing an impact on the real estate market globally as it has direct and indirect effects on the economy. Although a low price for oil is always welcomed by consumers it has negative effects as many countries depend on oil as a major source of revenue.