You are on page 1of 36

April 2010 cityscapeintelligence.

com

EMERGING REAL ESTATE MARKET INTELLIGENCE

FOCUS ON ABU DHABI


Abu Dhabi: Masterplanning the Capital
His Excellency Falah Al Ahbabi, General Manager, Abu Dhabi Urban Planning Council (UPC) discusses the role of the UPC in Abu Dhabis future development

Abu Dhabi Market and Project Analysis

Proleads takes an in-depth look at the size of the construction market and status of projects in Abu Dhabi

Tracking Investor Sentiment in the Middle East

The latest findings from Jones Lang LaSalles Investor Sentiment Survey

The Logistics Sector: A review of the market in Abu Dhabi


DTZ takes a look at the burgeoning Logistics market in the UAE with a particular focus on Abu Dhabi

Cushman & Wakefield Global Investment Atlas 2010

Mike Atwell, Head of Middle East Operations, Cushman & Wakefield, discusses the latest investment report

FOCUS ON ABU DHABI April 2010

Edition 7 - April 2010

FOCUS ON ABU DHABI


EMERGING REAL ESTATE MARKET INTELLIGENCE
Welcome to the seventh in a series of special reports produced exclusively by Cityscape Intelligence, which provide an in-depth look at the current state of business to business real estate in the emerging markets. Focus On Abu Dhabi breaks down key trends and statistics on Foreign Direct Investment (FDI) from the Financial Times and provides a comprehensive analysis of the value and status of projects currently being undertaken in Abu Dhabi, provided by Proleads. The report also examines changes in the regulatory environment in Abu Dhabi as well as the outlook for the logistics market and how this will enable trade in the Emirate to prosper. Key, accurate, intelligence is more important than ever during these times of global financial uncertainty and our report aims to provide you with insight, intelligence and food for thought. We trust that you find it informative and enlightening and we look forward to hearing your comments

Contents:

03 08 22 25 28 30 32 33 34

Abu Dhabi: Tracking Foreign Direct Investment Abu Dhabi Market and Project Analysis

The latest FDI statistics into Abu Dhabi from fDi Intelligence, brought to you by the Financial Times Proleads takes an in-depth look at the size of the construction market and status of projects in Abu Dhabi

Tracking Investor Sentiment in the Middle East

The latest findings from Jones Lang LaSalles Investor Sentiment Survey

The Logistics Sector: A review of the market in Abu Dhabi Abu Dhabi: A Legal Update

DTZ takes a look at the burgeoning Logistics market in the UAE with a particular focus on Abu Dhabi Denton Wilde Sapte provide an update on the new laws and regulations to be implemented in Abu Dhabi

Improving Confidence in the Market

Wael Tawil, CEO, Baniyas Investment and Development Company discusses ongoing development in Abu Dhabi

Abu Dhabi: Masterplanning the Capital Abu Dhabi: State of the Market 2010

His Excellency Falah Al Ahbabi, General Manager, Abu Dhabi Urban Planning Council (UPC) discusses the role of the UPC in Abu Dhabis future development Investment Boutique examine the latest analysis of the Abu Dhabi real estate market

Cushman & Wakefield Global Investment Atlas 2010

Mike Atwell, Head of Middle East Operations, Cushman & Wakefield, discusses the latest investment report

FOCUS ON ABU DHABI April 2010

Abu Dhabi:Tracking Foreign Direct Investment

The latest FDI statistics into Abu Dhabi from fDi intelligence by the Financial Times Ltd

e average project size was 152 jobs per project. Year 2003 2004 2005 2006 2008 2009 Total No of Jobs Created* 1,124 1,677 3,024 5,923 11,239 9,799 Percentage Growth 49.2% 80.3% 95.9% 5.5% -12.8%
3,024 5,923

10,650

11,239 9,799

2007 10,650 79.8% Tracking overseas investment projects into Abu Dhabi recorded by fDi Markets between January 2003 and January 2010.

Report Highlights

2010 Between January 2003 and January 2010, fDi Markets recorded a total1,677291 investment projects from 261 companies 127 n/a of 1,124 Total The average number of jobs created per project was 152 43,563 Average 5,445 The leading sector was Business Services, which accounted for 32% of projects
2003 2004 127

The leading business activity was Business Services, which accounted for 40% of projects Source: FDI Intelligence from Financial Times Ltd *Jobs data based on companiesand estimated valuesof all investment projects with Deutsche Post (Germany), Thales Group (France) and The top ten both actual accounted for 9% Millennium & Copthorne Hotels (UK) among the top 10 companies The top three source cities for outward investment were London, NYC (NY) and Paris, providing 16%, 6% and 3% of investment projects respectively

2005

2006

2007

2008

2009

2010

Project Trends Analysis


Between 2003 and 2010, fDi Markets recorded a total of 291 investment projects. Year 2003 2004 2005 2006 2007 2008 2009 2010 Total Average No of Projects 15 12 25 24 45 83 82 5 291 36 -20.0% 108.3% -4.0% 87.5% 84.4% -1.2% n/a
4 3 5 3 2003 3 3 6 2004 8 9 3 5 2005 Qtr 1 4 8 9 3 2006 Qtr 2 17 26 17 19 20

Percentage Growth
8

8 11 9 2007 Qtr 3

29 37

9 2008 Qtr 4 2009

3 2010

Source: FDI Intelligence from Financial Times Ltd

FOCUS ON ABU DHABI April 2010

Jobs Analysis
e average project size was 152 jobs per project. Year 2003 2004 2005 2006 2007 2008 2009 2010 Total Average Total No of Jobs Created* 1,124 1,677 3,024 5,923 10,650 11,239 9,799 127 43,563 5,445 Percentage Growth 49.2% 80.3% 95.9% 79.8% 5.5% -12.8% n/a
1,124 127 2003 2004 2005 2006 2007 2008 2009 2010 1,677 3,024 5,923 10,650 11,239 9,799

*Jobs data based on both actual and estimated values

Source: FDI Intelligence from Financial Times Ltd

Industry Analysis: No of Projects by Sector


Year 2003 2005 2006 No of Projects 15 12 25 24

Between 2003 and accounted for the highest number of Business Services 2010, fDi Markets recorded a total of 291 projects, with a total of 92, representing 32% of the investment projects. Among the investment this sector also recorded the highest growth at 143% per annum on average. 19 top sectors,projects. 20 Percentage Growth
8

Sector 2004

2003 -20.0%
108.3% -4.0%

2004

2005

2006

2007

2008

2009
17

26

2010

Total

17

Business Services 2007 45


2008 83 Financial Services 2009 Estate Real 2010 82 5 Hotels & Tourism Total 291 Software & IT services Average 36 Coal, Oil and Natural Gas Textiles Industrial Machinery, Equipment & Tools Transportation Building & Construction Materials Other Sectors Overall Total

3 87.5%
-1.2% n/a

84.4%

1 2

1 3 1

1 1 1 1 2 3 12

4 2 1 2 1 1 3 1 4 6 25

2 3 4 4 53
5 3

1 2 1

2003

12 7 5 3 32 6 1 2004 3 2 2 1 10 45

8 9 3 5 2005 Qtr 1

31 8 7 9 5 2

4 8 9 3 2006 Qtr 2

36 38 6 11 6 9 5 2007 3
Qtr 3

3
29

1
9 2008 Qtr 4

92 25 37 24 24 14 2009 12 11 10 9 7 63 291

3 2010

Average Annual Growth 143.0% n/a n/a n/a n/a n/a n/a n/a n/a n/a 51.0% 42.5%

Source: FDI Intelligence from Financial Times Ltd

1 6 15

3 3 24

3 1 1 16 83

2 1 2 18 82

1 5

FOCUS ON ABU DHABI April 2010

Industry Analysis: No of Projects by Activity

Business Services accounted for the highest number of projects, with a total of 116, representing 40% of the investment projects. Among the top business activities, this activity also recorded the highest growth at 110% per annum on average.

Business Activities

2003

2004

2005

2006

2007

2008

2009

2010

Total

Business Services Sales, Marketing & Support Construction Manufacturing Retail Education & Training Logistics, Distribution & Transportation Maintenance & Servicing Electricity Headquarters Design, Development & Testing Research & Development Extraction ICT & Internet Infrastructure Overall Total

1 4 4 1

3 1 2 3

4 6 1 3 6

5 5 4 4 3 1

20 7 7 6 3

40 12 12 8 2 3 1 2 1 1 1

40 16 6 3 4 3

3 1

116 52 30 30 22 7 7 7 6 6 4 2 1 1 291

Average Annual Growth 109.7% 92.2% n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 42.5%

1 2 1 1

3 1 2 1 1 1

3 2 1 2 1 1 82

1 15 12 25 24 45 83 5

Company Analysis: Projects by Year

A total of 261 companies were recorded as investing overseas. Deutsche Post from Germany is the top company with a total of 3 investment projects announced between January 2003 and January 2010.The top ten companies accounted for 9% of the investment projects.

Company Deutsche Post Thales Group Millennium & Copthorne Hotels CapitaLand Time Warner Rezidor Hotel Group Marubeni General Electric (GE) Hyatt International Larsen & Toubro Other Companies Overall Total

Source Country 2003 Germany France UK Singapore USA Belgium Japan USA USA India

2004 2

2005 1

2006

2007

2008

2009

2010

Total 3 3 3 3 3 3 2 2 2 2 265 291

2 2 1 2 1 1 2 2 1 2

1 1

2 2 13 15 10 12 23 25 22 24 41 45 74 83 77 82 5 5

FOCUS ON ABU DHABI April 2010

Company Analysis: Jobs Created by Year

Between January 2003 and January 2010, CapitaLand from Singapore created the highest number of jobs, with a total of 3316*.The top ten companies accounted for 47% of all jobs from the investment projects.
3,316 3,000 CapitaLand 3,000 2,611 Hollywood Adventures Group National Ranges Company (Mayadeen) Temasek Holdings Empire Holdings Besix Orascom Group 23,222 1,915 1,846 1,176 1,176 1,176 1,125 Bando Engineering & Construction Goodman Group GP Strategies Other Companies

Source Market Analysis: City

London is the leading source city for outward investment with 41 companies providing 46 investment projects between January 2003 and January 2010. The top ten source cities accounted for 37% of outward investment projects and 33% of companies investing overseas.
16% London NYC (NY) Paris Mumbai Singapore Chicago (IL) Washington DC Tokyo Brussels Neuilly-sur-Seine Other Cities

6% 3%

63%

2% 2% 2% 2% 2% 1% 1%

Destination Market Analysis: Country

Between January 2003 and January 2010, the country attracting the greatest number of projects was UAE , with 291 inward investment projects. This represents 100% of inward investment projects. This country also recorded the highest growth at 43% per annum.

Destination Country

2003

2004

2005

2006

2007

2008

2009

2010

Total

UAE * Other Countries Overall Total

15 0 15

12 0 12

25 0 25

24 0 24

45 0 45

83 0 83

82 0 82

5 0 5

291 n/a 291

Average Annual Growth 42.5% 42.5%

FOCUS ON ABU DHABI April 2010

Abu Dhabi Market and Project Analysis:

Proleads takes an in-depth look at the size of the construction market and status of projects

EXECUTIVE SUMMARY Based in Dubai, United Arab Emirates, Proleads global has compiled this report on behalf of Cityscape Intelligence to provide an overview of the real estate market within Abu Dhabi. For this report the market is divided into five asset classes: Commercial, Retail, Hospitality, Residential and Industrial. Buildings used for multiple purposes are classified as mixed use. To accurately analyse project value and project number across all asset classes, mixed use projects have been split and counted as one project per separate asset class in that development. For the purposes of this report, the Proleads database considers projects with a budget value greater than US$10m (although in some cases smaller valued projects are also included). The budget value denotes the owners cost for constructing the facility, which excludes the cost of land, financing and other elements such as final fit-out and related costs. The time period that is taken into consideration for analysis purposes as represented in this report is indicated on each individual pie chart, graph and bubble chart where appropriate.

The Glossary contains further information on terms used in the report. The current total residential asset class in Abu Dhabi consists of 140 projects contributing US$77.6bn. 89% of these projects are not cancelled, completed or on-hold thereby yielding 96% of the budget value active. The largest proportion of projects is still in execution both in terms of budget value and project number. Within this asset class, 30% of the budget value is in the pre-execution stages while 17.6% of the projects contribute almost 60% of the residential asset class. The current total commercial asset class in Abu Dhabi consists of 104 projects contributing US$58.8bn, 88% of these projects are not cancelled, completed or on-hold thereby yielding 97% of the project budget active. The largest proportion of projects are in execution, both in terms of budget and number, with very few placed onhold or even cancelled since Q4 2008. Within this asset class, 29% of the budget value is in the pre-execution stages while more than two thirds of it lies in 21.4% of the projects. The current total hospitality asset class

in Abu Dhabi consists of 103 projects contributing US$43.4bn. 88% of these projects are not cancelled, completed or onhold thereby yielding 98% of the budget value active. Within this asset class, 30.8% of the budget value is in pre-execution stages. The current total retail asset class in Abu Dhabi consists of 88 projects contributing US$40.9bn. 91% of these projects are not cancelled, completed or on-hold thereby yielding 98% of the budget active. The largest proportion of projects is in execution both in terms of budget value and number. Within this asset class, 3.3% of the budget value is in on hold. The industrial asset class is found to consist of 27 projects contributing US$14.2bn. 93% of these projects are not cancelled, completed or on-hold thereby yielding 98% of the budget value active. Within this asset class, 51% of the budget value is in the preexecution stages. Across all asset classes cash flow has seen growth during 2009 but is set to stabilise during 2010.

FOCUS ON ABU DHABI April 2010

OVERVIEW
Based in Dubai, United Arab Emirates, Proleads Global has established itself as a leading market research company. With a focus on the construction markets in major sectors, Proleads researchers cover 19 countries in the MENA region. Please refer to the appendix labelled Exploring Proleads for further information. Report objective An investigation was launched to ascertain the current and forecasted climate of the civil construction industries in the Abu Dhabi Report scope Specifically, the report covers the Abu Dhabi real estate market which is segmented into the following asset classes: Residential Commercial Hospitality Retail Industrial

REPORT INSIGHTS
The findings and conclusions derived from the report are encapsulated in this section. The aim of the report is to quantify the market as accurately as possible. It is recommended to read the appendix labelled Market and Project Analysis: An Investigation into the Abu Dhabi real estate market to better understand the findings and the methodology behind them. The insights are ascertained through Data Mining using the Proleads Market Intelligence tool. Inference from the various sources of information has been consolidated in this section of the report. Conclusions are marked using keys ( ) and typically follow analysis.

Market size

MARKET SIZE

The size of the market is described in terms of the budget value and number of projects by asset class as follows:
Asset Class Residential Commercial Hospitality Retail Industrial US$m 77,671 58,835 43,422 40,994 14,257 235,178 Project Value Active % 96 97 98 98 98 97 Mixed Use % 82 94 93 98 0 85 Count 140 104 103 88 27 462 Number of Projects Active % Mixed Use % 89 59 88 88 91 93 89 80 81 94 0 72

Buildings used for multiple purposes termed as mixed use which comprise of 2 or more of the asset classes above have been divided into the corresponding asset classes. However, the effect of this is that the number of projects per asset classes is duplicated. In cases where mixed-use buildings are included, the project count will be defined as such. Research topics The information explored in the report covers the following topics:

Table 1: Market Summary

Table 1 takes into account current projects across all statuses, except completion, with the percentage of mixed use buildings appearing in separate columns. Taking Residential as an example, there is a total 140 projects with US$77,671m budget value, with 96% of that budget PROJECT VALUE PROJECT NUMBER currently active and 82% of it allocated to mixed use projects that incorporate retail as an asset 6% class. 6%
17% 34% 19% There are currently 462 total active projects in Abu Dhabi, (excluding those completed) with Residential 129 extra counted from the mixed use category. Active % refers to all projects that are not Commercial MARKET SIZE cancelled, on-hold or completed. Hospitality Retail The Residential asset class contributes the most to the market, both in terms of budget Industrial value and the number of projects. Project Value Number of Projects 30%

18% Asset Class Economic overview per asset class and 22% % US$m Active % Mixed Use % Count Active Mixed Use % project status (historic and projected) All asset classes are found to be of proportionately equal value, meaning that there is not 23% Residential 77,671 96 82 140 89 59 25% o Market size one that in Commercial has an overriding contribution 94 terms of budget. 58,835 97 104 88 80 o Current status of total projects Hospitality 43,422 98 93 103 88 81 o Analysis of projects status in relation It is Retail found that in all asset classes except industrial, mixed use buildings constitute a 40,994 98 98 88 91 94 to number and available budget significant portion of the market in terms of project value and number. Industrial 14,257 98 0 27 93 0 o Analysis of project value 235,178 97 85 462 89 72 o Analysis of project starts Graphically, the market is as following: o Analysis of completed projects o Analysis of projects placed on-hold o Analysis of projects cancelled o Execution spread o Cash flow over time PROJECT VALUE PROJECT NUMBER o Analysis of spend, financial sustainability 6% 6% and project number and budget value 17% 34% 30% 19% o Sustainability analysis
Residential

Company listings o Major contractors in Abu Dhabi o Major consultants in Abu Dhabi o Major developers in Abu Dhabi The reader can refer to the appendix labelled Market and Project Analysis: An Investigation into the Abu Dhabi real estate market for explanations and elaborations on the terms used in this document.

Commercial Hospitality Retail 18% 25% Industrial 22% 23%

Figure 1: Market Composition by Project value and Project number

FOCUS ON ABU DHABI April 2010

STATUS
Current status of total projects
The current status of projects is shown below in terms of the project value and number.

Status Execution Pre-execution On-hold Cancelled

Budget '000 000 USD 153,918 73,971 6,798 491 235,178

Project Number 307 104 42


STATUS 9

462

Table 2: Market Summary by Project Status Status

Project Budget Number '000 000 USD Execution 153,918 307 The largest proportion of project budget and number across all asset classes is currently in execution.

VALUE

PROJECT NUMBER On-hold 6,798 42 Only 11% of projects are inactive which contributes 3% to the total market budget value.
Cancelled 491 9 235,178 462

Pre-execution

73,971

104

Graphically, the market is represented as following:

9%

2%

PROJECT VALUE Execution


3% 0.21%

23%

PROJECT NUMBER
9% 2%

Pre-execution On-hold Cancelled


Execution Pre-execution On-hold Cancelled

31%

23%

65%
65%

66%
66%

Figure 2: Project Status Composition by Project value and number

Analysis of projects status, in relation to number and available budget


The relationship between project status, number and budget is depicted in Figure 3, in order to help assess current project dynamics and assist with project forecasting. The total current project value and number is taken into account and split across status, for example, if the project value and number are totalled from each status column they will equal 100%.
70% 60% 50% 40% 30% Budget 20% 10% 0%
n n d Ex ec u ex ec u nh Ca nc ell ed tio tio ol

Project Number

Figure 3: Project Status vs Magnitude

FOCUS ON ABU DHABI April 2010

Pr e-

10

Taking the pre-execution status as an example, there is approximately 31% of project budget value tied into approximately 23% of projects, where as the on-hold status has less budget allocated to more projects. Given that mixed use buildings are split out by asset class, Figure 3 indicates that a lesser number of projects are being planned for the future compared to the proportion of the budget that these projects bring to the market (this is shown in the pre-execution bars).

Analysis of project value


When considering the total market project value, if a large proportion of the budget is allocated to a small number of projects this places the market at risk as a few cancellations could potentially foresee a market collapse. An isochrome model was used to quantify this effect and provide a more accurate analysis of the market. The methodologies of this model are highlighted below; Project budget values were analysed to find the mean and standard deviation. A lower and an upper control limit were set against the budgets to provide more accurate results; these were set using the determinants below. Exceptionally large projects were identified and classified as such when the budget was found to be more than three standard deviations from the mean. The remaining projects were segmented using the inter-quartile ranges, i.e. the remaining budget spread was divided into four equal parts. The projects were then classified into project value segments based on which budget range that particular project complies with.

Asset Class Commercial '000 000 USD Project count Hospitality '000 000 USD Project count Industrial '000 000 USD Project count Residential '000 000 USD Project count Retail '000 000 USD Project count 40,994 88 77,671 140 14,257 27 43,422 103 58,835 104

Project Value US$m Less than 190.29 190.29 to 375.64 375.64 to 2030.77 Less than 146.74 146.74 to 289.87 289.87 to 1512.44 Less than 169.26 169.26 to 327.51 327.51 to 1009.27 Greater than 1691.03 Less than 187 187 to 368.3 368.3 to 2045.49 Less than 153.02 153.02 to 302.44

Budget % 17.75 11.41 70.84 18.55 17.89 63.55 6.96 5.53 45.42 42.08 17.61 20.75 61.64 46.10 53.90

Number of Projects % 67.35 11.22 21.43 65.98 17.53 16.49 37.04 14.81 37.04 11.11 59.40 21.05 19.55 79.10 20.90

Table 3: Project Size Isochrome

By taking the commercial asset class as an example, 71% of project value budget is allocated to only 22 projects; if any of these projects are cancelled a large amount of project budget value will be lost. Currently the majority of project budget value is attributed to a relatively small number of projects across all asset classes except retail, meaning that these sectors are potentially at risk. The retail sector contributes second least to the market in terms of project value.

FOCUS ON ABU DHABI April 2010

11

Analysis of project starts


The number of projects that actually start execution over time is represented below. Please note that the project start date is not the same as when the project is announced.
18,000 16,000 14,000

Budget Value US$m

12,000 10,000 8,000 6,000 4,000 2,000 0

Retail Residential Industrial Hospitality Commercial

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 2008 Q1 Q2

2008 Q3

2008 2009 Q4 Q1

2009 Q2

2009 Q3

2009 2010 Q4 Q1

Figure 4: Projects Starts in terms of Budget Value

Abu Dhabi has seen new projects started steadily over time since 2007 The graph above is a current snapshot, when new projects are announced, or when those on hold are re-started will have an impact on the results.

Analysis of completed projects


The budget of projects completed from Q1 2007 to Q1 2010 (end February) is represented below.
3500 3000 2500 Budget Value US$m 2000 1500 1000 500 0

Retail Residential Industrial Hospitality Commercial

2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

Figure 5: Projects completed in terms of Project budget value

Projects across all five sectors have been completed during the timeline shown. As the global financial crisis emerged, there was a surge of projects completed, specifically in the Industrial sector.

FOCUS ON ABU DHABI April 2010

12

Analysis of projects placed on-hold


The rate of projects being placed on hold over time has increased in line with the global economic crisis as represented below:
3500 3000 2500 Budget Value US$m Retail 2000 1500 1000 500 0 2007 Q2 2007 Q3 2007 Q4 2008 Q1 2008 Q2 2008 Q3 2008 Q4 2009 Q1 2009 Q2 2009 Q3 2010 Q1 2009 Q4 Residential Industrial Hospitality Commercial

Figure 6: Projects placed on hold in terms of Project budget value

The residential sector was the first asset class to be hit by projects going on hold at the start of the economic slowdown. Since then smaller valued projects have been placed on hold.

Analysis of projects cancelled


The number of projects being cancelled from Q1 2007 to Q2 2009 is represented below and indicates the impact of the global economic crisis.

250

Budget Value US$m

200

150

Residential Industrial

100

Hospitality Commercial

50

0 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 2010 Q3 2010 Q4 2010 Q1

Figure 7: Projects Cancelled in terms of Project budget value

The global economic crisis does not seem to have had a significant effect on the way in which projects are cancelled in Abu Dhabi.

FOCUS ON ABU DHABI April 2010

13

Scheduled completion of projects currently in execution


Figure 8 represents the value of projects by asset class which are currently in execution.

16000 14000

Budget Value US$m

12000 10000 8000 6000 4000 2000 0 Retail Residential Industrial Hospitality Commercial

Q3

Q3

Q3

Q1

Q3

12

10

09

13

11

10

20

20

20

20

20

20

Figure 8: Scheduled execution spread

Projects across all asset classes are scheduled for completion across the given period, with the majority due in 2011 and 2012.

Cash flow over time


The size of the total market in terms of active estimated cash flow between Q1 2007 and Q4 2010 across all asset classes is represented below;

12000 10000

Cash ow US$m

8000 6000 4000 2000 0


1 3 Q1 Q3 Q1 Q3 Q1 07 Q 07 Q 08 20 09 08 09 10 20 20 20 20 20 20 20 10 Q3

20

20

20

13

11

12

Q3

Q1

Q1

Q1

Retail Residential Industrial Hospitality Commercial

Figure 9: Cash flow

Abu Dhabi saw a steady rise in cash flow across all asset classes.

FOCUS ON ABU DHABI April 2010

14

Analysis of spend, financial sustainability and project number and budget value
The following graph depicts the relationship between projects announced, started, in execution and completed:

45000 40000 35000 Budget Value US$m 30000 25000 20000 15000 10000 5000 0 Budget Announced Budget Started Budget Completed Scheduled Completion

3 Q

20 08

20 08

20 09

20 07

20 09

20 07

20 10

20 10

Figure 10: Budget Announced, Started & Completed across all asset classes

During 2009 specifically, the ratio of project announcements and starts is close to one-to-one. A significant increase in project completions is forecasted from 2011 and beyond.

Sustainability Analysis
The analysis in Figure 11 compares the sustainability and nature of asset classes by comparing the project budget value, cash flow, the portion of the budget not yet spent, the status and the number of projects. The bubble graph indicates the cash flow predicted during 2010, which is mapped onto the number of projects per sector, while the sizes of the bubbles indicate the size of those sectors.

16,000 14,000 Commercial Hospitality Industrial Residential Retail

Cash flow 2010 US$m

12,000 10,000 8,000 6,000 4,000 2,000 0 0 50 100 150 200

Project Count
Figure 11: Sustainability Analysis

FOCUS ON ABU DHABI April 2010

15

20 11

20 12

20 11

20 13

20 12

The residential asset class has a large number of projects with healthy project budget values which tend to be spent quickly. The commercial building sector has a similar number of projects compared to the hospitality and retail asset classes and is supported by a good project budget. Cash flows are moderate for these projects when compared to the other sectors . The retail and hospitality asset classes behave very similarly to each other in terms of financial stability. The asset class market mapping in Figure 11 can aid investment decisions across different asset classes dependent on investment strategies. For further explanations of the bubble methodology please refer to the appendix at the end of this report.

MAJOR COMPANY LISTINGS


A listing of the major contractors, consultants and developers within Abu Dhabi is provided here based on the estimated amount of cash flow between January 2010 and December 2010.

Developer Aldar Properties PJSC Sorouh Real EstateCompany Emirates International Investment Company (EIIC) Reem Investments Capitala Abu Dhabi Department of Municipalities & Agriculture (DMA) Adnoc Linde Industrial Gases Company Ltd (Elixier) Tourism Development and Investment Company (TDIC) Tameer Holding

Phone +971 2 6964444 +971 2 4440006 +971 2 6577000 +971 2 4438900 +971 2 4121111 +971 2 678 8888 +971 2 6037700 +971 2 4061400 +971 6 5995099

Website www.aldar.com www.sorouh.com www.eiic.ae www.reeminvestments.com www.capitala.ae www.adm.gov.ae www.elixier.ae www.tdic.ae www.tameer.net

Consultant Halcrow Group Ltd - Abu Dhabi Maunsell Consultancy Services Ltd - Abu Dhabi Northpoint Sasaki Associates Incorporated Perkins & Will Cansult Maunsell GHD Global Pty Ltd - Abu Dhabi Studio Dror WS Atkins & Partners Overseas - Abu Dhabi RMJM - Abu Dhabi

Phone +971 2 6790804 +971 2 6713851 +27 11 7068400 +1 617 9263300 +1 312 7550770 +971 2 4146000 +971 2 6968700 +1 212 9442510 +971 2 6271500 +971 2 4492677

Website www.halcrow.com www.maunsell.com www.northpoint.co.za www.sasaki.com www.perkinswill.com www.cansultmaunsell.com www.ghd.com.au www.studiodror.com www.atkins-me.com www.rmjm.com

Contractor Linde - Abu Dhabi Al Futtaim Carillion LLC Target Engineering Construction Company (L.L.C.) Arabian Construction Company (ACC) - Abu Dhabi Beijing Construction Engineering Group STX Group Lahoud Engineering Co. Ltd. - Dubai Saudi Oger - Abu Dhabi SPK-Sentosa Corporation Bhd

Phone +971 2 6677204 +971 4 3331200 +971 2 6714700 +971 2 6771225 +86 10 63927200 +82 55 5402000 +971 4 2284131 +971 2 6815252 +60 3 21481344

Website www.linde.com www.afcarillion.ae www.targetconstruct.com www.accsal.com www.bcegc.com www.stx.co.kr www.lahoud.com www.saudioger.com www.spkb.net

FOCUS ON ABU DHABI April 2010

16

APPENDICES Market and Project Analysis: An Investigation into the Abu Dhabi real estate market
This guide highlights the methodology that was followed to produce the findings of the report, and also provides a guide to interpreting the results. The reports explores the market as a whole taking into consideration all five asset classes; Commercial, Retail, Hospitality, Residential and Industrial. T he market is represented by the value and number of projects per asset class (Table 1, Figure 1). To understand it as a whole, the status of the projects has to be taken into consideration. If a large proportion of projects are in the announced status they may not reach execution. Projects being executed may change in scope, be put on hold or cancelled, which will impact the size of the market in terms of value and number (Table 2, Figure 2). By comparing the percentage of the total project value with the percentage of projects in that status, the relative project budget value and number of projects due to come into or leave the market can be concluded (Figure 3). If there are a small number of projects that make up a significant proportion of the total project value across one or a number of asset classes, the whole market and/or asset class is at risk because one cancellation will have a dramatic impact on that asset classes total value. An isochrome model is used to test for this situation (Table 3). It is important to understand that the majority of the project value is realized in the middle stages of the construction cycle with a small proportion being released into the market during the early and concluding stages. This impacts cash flow significantly (Figure 9). Project value will be taken out of the market when it is placed on hold, completes or is cancelled. The total project value is comprised of projects in execution, planning, bidding or being studied and new projects, this will indicate project budget value coming into the market (Figure 4). The rest of the project statuses; cancelled (Figure 7), on hold (Figure 6) and completed (Figure 5) will remove project value from the market. To understand when project value will leave the market, an analysis of completion dates has been made to help with asset class value forecasting (Figure 8). The sustainability of the market is represented by bubble graphs (Figure 11); these map project value to the number of projects along with the remaining budget in a sector. The following considerations must be taken into account: The vertical axis tracks cash flow predicted during 2010 only. The majority of the project value is spent is during the middle part the construction timeline. If the current project value is low it may be due to a large number of new projects coming online. Similarly when considering projects completing, bubbles will move downward over time as less project value is in that asset class. In the bubble graphs, new and completed projects are taken into consideration for all asset classes. The project number (or count) is applicable to current announced projects. The size of the bubble relates to the size of the remaining project value. A large bubble indicates a more sustainable cash flow over an extended period of time. The project count relates to the amount of work across all asset classes in the Abu Dhabi real estate market. ALL FINDINGS ARE RELATIVE TO THE ASSET CLASSES BEING CONSIDERED. If another asset class (or sector) is added or subtracted, the dynamic would change as the bubble is relative to the other bubbles on the graph.

Following are some illustrations on how the bubble graph is can be interpreted.

Cash Flow

Sectors

Project Count A big bubble in the top right hand corner indicates a large project budget spend across a significant number of projects which is set to continue against a large budget.

Cash Flow

Sectors

Project Count A small bubble in the top right hand corner indicates that a large project budget spend on a significant number of projects, but this may not continue as the budget will not be able to sustain the budget spend.

Cash Flow

Sectors

Project Count A big bubble in the bottom right hand corner indicates that relatively little project budget is spent on a significant number of projects which may continue.

Cash Flow

Sectors

Project Count A small bubble in the bottom right hand corner indicates that relatively little project budget is spent on a significant number of projects which may not continue.

FOCUS ON ABU DHABI April 2010

18

Cash Flow

Project Count A big bubble in the top left hand corner indicates a relatively large project budget spend on few projects which may continue for a long time because the budget is large.

Cash Flow

Sectors

Sectors

Project Count A big bubble in the middle of the graph indicates that more money and/ or less money may be spent in other sectors, while there may also be more and/or fewer project numbers in those sectors. The cash flow and amount of work in this sector will however last in future against a large budget when compared to the other sectors (or asset classes).

Cash Flow

Sectors Cash Flow Sectors

Project Count A small bubble in the top left hand corner indicates a large project budget spend on few projects which may not continue. Project Count A small bubble in the middle of the graph indicates that more money and/or less money may be spent in other sectors, while there may also be more and/or less work in those sectors. The cash flow and number of work in this sector will however not last in future against a small budget when compared to the other sectors (or asset classes).

Cash Flow

Sectors

Cash Flow (2009)

Sectors

Project Count A big bubble in the bottom left hand corner indicates a relatively small project budget spent on few projects which may continue.

Project Count The bubble graph is most useful when comparing sectors. As an example above, when comparing the orange and blue bubbles, each representing a separate sector, it is found that: Less money is spent in the orange sector than in the blue sector There are more projects in the blue sector than the orange sector The blue sector indicates an immediate opportunity: a large amount of project budget is available but for a limited period. The orange sector presents longer term opportunities: less project budget is available over a small number of projects but the sector will be stable for a long period of time because the project budget is sustainable when compared to the blue sector. The rate at which projects are announced as opposed to when these projects actually start construction is mapped against the rate of projects completing. Scheduled completions in future are also shown. These graphs are useful to understand how quickly money that enters the market will leave it again. Also, one may infer about a lag in time between announcement and completion of projects (Figure 11).

Cash Flow

Sectors

Project Count A small bubble in the bottom left hand corner indicates a small project budget spend on few projects which may not continue.

FOCUS ON ABU DHABI April 2010

19

Glossary
Term Active project AED b Budget Cash Flow Civil Industry Financial Sustainability Inactive Project Industry m Denition Any project that is not completed, cancelled or on hold. United Arab Emirate Dirham Acronymn for "billions" The amount of money that will be spent on a project from inception to completion of the project. Typically, the Proleads database considers project with a budget greater than USD 10m although in some cases smaller valued projects are also included. The budget as used in this report denotes only to the owners cost for constructing the facility as described in the Scope of Work. This budget excludes cost of land, The estimated amount of money spent on any particular project or sector over a specied period of time The Civil industry refers to all projects and facilities that is non-process related. In other words there is no product/material inputs and outputs from these facilities when operational. The degree to which a sector can sustain a certain level of cash ow. This greatly depend on the size of the remaining budget (or budget not spent). Any project that is either completed, cancelled or on hold. A logical grouping of similar types of projects within a market. Acronymn for "millions" A market is dened in terms of four Ps: Product Price Placement Promotion Placement is explicitly considered in the survey, while Product and Price is also explored to an extent expanding the scope to include the other Ps is identied as an opportunity for further research. The index of the construction to the market size divided by the total market size. In some cases a large development will be announced while the project is executed in smaller sub-projects. This larger project is called a "masterplan" project. The reader is referred to the section in this document devoted to masterplans for an explanation of how the status of master plans are calculated (some subprojects may be in execution while others are still being planned). The budget of a masterplan is denoted as the budget for the masterplan as a whole, irrespective of how many sub-projects have been The proportion of mix use buildings to the total value or proportion in question A project that is announced in a certain time period A collective name for project in one of the Planning, Study, Design or Bidding project statuses. An endevour to create an entity. A project has a specic start and a specic end date. For the project to be considered by Proleads it must have been publicly announced as well as require a licence to be constructed The number of projects in a particular market segment. In many cases a developer announces a new development, called a master plan, which consist of many sub-projects. At the time of announcement these sub-projects are not known yet. As they become available Proleads adds these projects along with their respective budgets while reducing the master plan budget to allow for all the sub-projects not yet announced. Proleads accomodates this by estimating the number of median number of sub-projects per masterplan and creating a virtual project for each that is less than that median number of projects. The relationship of the budget and number of projects within a particulat sector. When few projects have a large cumulative budget, the segment is said to have great magnitude. The time between the start and end dates of the project, as related to actual construction. An indication of the relative nancial contribution of the project to the market. Please refer to "cash ow". The particular state a project is in at a particular point in time. This status refers to the tender process whereby the main construction or EPC [Engineering, Procurement & Construction] contractor is appointed The project has been cancelled by the owner Construction work has been completed by the main constrcution or EPC contractor and handed back to the owner. Further minor works may still be required by the owner before the facility is operational. At this stage a formal design contractor or architect has been appointed to carry out detail design work. The main construction or EPC contractor has been appointed to execute the construction work on this The owner has stopped all work related to this activity for whatever reason. No funds are committed This status typically means the owner has allowed capital in his long term budget for this facility. At this stage, no external parties has been appointed yet. Typically external parties has been appointed to carry out feasibility or preliminary design work. This phase could also include Environmental Impact Assessments [EIA] A forecast of future cash ows based on econometric models and market interpretation. Typically projects related to oce buildings, shopping centres and general places of business. This includes all forms of housing such as villas & apartments All facilities purpose build for trading [buying & selling] of goods such as shopping malls, showrooms, etc. All forms of facilities related to the tourism sector such as hotels, motels, serviced appartments. Typical Commercial projects are oces A slice of the market, typically a sector or industry. A calendar year starting from January 1 to December 31. United States Dollar

Market

Market share

Masterplan

Mix Split New project Pre-execution Project

Project Count

Project Magnitude Project Schedule Project Size Project Spend Project Status Project Status: Bidding Project Status: Cancelled Project Status: Completed Project Status: Design Project Status: Execution Project Status: On-hold Project Status: Planning Project Status: Study Projection Sector: Commercial Sector: Residential Sector: Retail Sector: Hospitality Sector: Building - Commercial Segment Time: Years USD

FOCUS ON ABU DHABI April 2010

20

Exploring Proleads

www.proleadsglobal.com P.O. Box 126199 Dubai, United Arab Emirates Reg. No. 16760 Tel: +971 433 1801
Based in Dubai, United Arab Emirates, Proleads global has established itself as a leading market research company. With a focus on the construction markets in major sectors, Proleads Global researchers work across nineteen countries in the Middle East and North Africa.

proSCOPE

ProSCOPE is a consulting division which focuses, broadly, on Supply Chain Optimisation, Planning & Engineering at a tactical and strategic planning level.

proSpec

ProSpec is a free online product specification guide that provides architects and consultants details of thousands of products supplied to the construction industry. Subscribers can upload their products with specification guides, training videos, green info, etc. These give the user a very important 360 degree view of the entire industry. Proleads Global, Cityscape Intelligence 2010
Disclaimer Neither Proleads Global nor Cityscape Intelligence offers any specific guarantee regarding the accuracy or completeness of the information presented, but the professional staff members at Proleads Global and Cityscape Intelligence make every reasonable effort to present the most reliable information available to them and to meet or exceed any applicable industry standards. The material displayed in this report site is provided without any guarantees, conditions or warranties as to its accuracy. Neither Proleads Global nor Cityscape Intelligence are registered investment or financial advisors. Nothing in this disclaimer excludes or limits liability which cannot be excluded or limited by law. We will not be liable, in contract, tort (including, without limitation, negligence), pre-contract or other representations (other than fraudulent on negligent misrepresentations) or otherwise out of or in connection with these Terms of Use for any: (i) direct, indirect or consequential loss or damage incurred by you in connection with this report or in connection with the results of this report; or (ii) economic losses (including without limitation loss of revenues, data, profits, contracts, business or anticipated savings); or (iii) loss of goodwill or reputation; or (iv) special or indirect losses; or (iv) any other loss or damage of any kind, however arising and whether caused by tort (including negligence), breach of contract or otherwise, even if foreseeable suffered or incurred by you arising out of or in connection with these Terms of Use.

proLeads

ProLeads offer online access to data relating to over 8,000 active projects valued at more than USD 6 Trillion. Subscribers can access detailed information on each project, which includes the scope of work, ownership, budget, schedule, companies involved, contact details (telephone & e-mail) and the latest updates of the project. Included is a corporate monitor that provides the user with a company profile for each project. Profiles consist of the basic contact details, senior management structure, projects analysis and more. In addition to this information, a number of analytical tools are available to assist clients.

proCost

ProCost is an online model used to calculate and control Escalation and Contingency in projects. It uses a proprietary developed matrix to calculate and monitor changes in costs for the construction industry. Subscribers get access to historical construction cost indices and a 5-year forecast, enabling them to estimate the impact of cost escalation.

FOCUS ON ABU DHABI April 2010

21

Tracking Investor Sentiment in the Middle East

Craig Plumb, Head of MENA Research and Andrew Charlesworth, Head of MENA Capital Markets, discuss the results of the latest Jones Lang LaSalle Real Estate Investor Sentiment Survey, Middle East & North Africa

Key Points
Sentiment shows greater stability. Sentiment towards the majority of MENA markets has remained broadly similar over the past six months. This stability is considered a healthy sign, reflecting the ongoing maturing of these markets. Two clear drivers of investor sentiment are emerging: Local demand is key with investors favouring those markets with large local populations and a strong domestic demand base. Investors are relatively optimistic about the markets of Saudi Arabia and Egypt on the basis of their large local populations. Energy-rich markets have the necessary capital to support large scale infrastructure and will benefit from potentially higher oil and gas prices as the global economy recovers. The markets of Saudi Arabia, Abu Dhabi and Qatar have continued to be viewed favourably by investors on this basis.

Saudi Arabia emerges as the clear local winner. Being the only MENA market to score highly on both of these drivers, investors expect Saudi Arabia to experience the strongest real estate performance over the next 12 months. Greater Focus on North Africa. Egypt and Morocco are viewed as attractive real estate markets by investors due to their strong local populations, the relative lack of new supply over recent years and the availability of income producing assets. More buyers than sellers in most markets. To date this has not resulted insignificant sales volumes as there remains a lack of institutional stock being offered at the level of pricing being sought by investors. Yield expectations have increased by an average of 90 bps over the past 6 months. This has contributed to the lack of sales activity as it has increased the price gap between investors and vendors.

What were the key points to emerge from the survey? The first point to emphasise is that there is far more stability and the results of the survey were not dissimilar to the last survey conducted in October 2009. On the one hand you could say that this is a positive sign because investor sentiment is not getting any worse. However, on the other hand we are still not seeing any real increase in expectations of transactions volumes or pricing growth. The second key theme relates to investors and what factors are influencing their investment decisions. A couple of points have emerged quite clearly. The first is that investors are now looking at centres of high population where there is an indigenous demand or a large population that will drive demand going forward. This type of demand is considered important because it means less reliance on the global economic environment in terms of creating jobs etc. The second key attribute appears to

FOCUS ON ABU DHABI April 2010

22

be an emphasis on countries that have a strong underlying economic base such as the presence of hydrocarbons. If you take those two points and correlate those to the countries that are more interesting from an investment perspective, we see that Saudi Arabia remains the most interesting investment market in the MENA region. It has both a large and growing population as well as an energy based economy. There are signs that Egypt is also now starting to move up the ranks quite rapidly. Again a large local population base, a relatively neglected real estate sector, congested inner city and the fact that the country has broadly escaped the effects of credit crises has resulted in increased investor interest in this market. Whilst 30% of respondents to the investor survey felt that Saudi Arabia would be the strongest performing market over the next 12 months, Egypt has gone up from 6% to 13%. The markets which fall into the category of energy- rich economies and thus are perceived to have a positive investment outlook due to their financial strength are Saudi Arabia, Qatar and Abu Dhabi. How does Abu Dhabi rank compared to last year? Twenty six percent of investors said it would be the number one market compared to 25% last year, so there has been virtually

no change. Saudi and Abu Dhabi were first equal last year, but Saudi has pulled ahead slightly. The interesting point about Abu Dhabi is that there is a tremendous amount of supply coming through and if you look at the statistics, the market is heading for significant potential oversupply. On the other hand, it has a huge infrastructure development programme which should go some way to absorbing that excess supply. For example, it is estimated that the nuclear power programme could employ 14,000 people over the next few years, and it is these sorts of industries which are going to drive demand. Abu Dhabi also has financial strength. We asked respondents to rank the most competitive cities and Abu Dhabi scored highly on four key factors financial strength, availability of liquidity or capital for investment and on providing support to the real estate sector. Dubai however, was the clear winner in the remaining categories in terms of infrastructure, quality of life and progress over the last ten years. To what extent do you think investor sentiment towards Dubai has been affected by the Dubai World debt restructuring? The reality is that Dubai World was an issue that was sending negative signals to the rest of the world. It was a negative problem that has been dealt with successfully and although this will not kick- start the economy in its own right, it will help prevent things from getting any worse.

One point that did come out of the survey was that investors are less concerned about transparency than they were six months ago. Regulation, legislation and risk are the most important factors that people are really focusing on now in terms of how they are making their investment decisions. Risk was also ahead of rate of return so institutional investors are focusing their attention on limiting downside risk rather than chasing high returns on the upside. Are many transactions taking place? An interesting point to come out of the survey was that there are still active institutional buyers in the market across the region. In fact the survey indicated more buyers than sellers. However, there are still relatively few transactions taking place and there are probably a number of reasons for this. First of all in the UAE for instance, the Government has provided substantial financial support to the local economy and the banks have worked to re-schedule loans. The result is that widespread forced sales or re-capitalizations have been limited which has prevented the market being flooded with cut price assets. Many of the buyers who are looking to buy are really after distressed prices but due to the limited foreclosures there have been limited investment options. In general there remains a mismatch in pricing expectations between buyers and sellers and a lack of motivation from either side to close the gap. Consequently whilst there

FOCUS ON ABU DHABI April 2010

23

has been a lot of talk about distressed funds and vulture funds we have not seen these materialise in the way expected. As a result of this, what do you think will galvanize the market? The general sentiment seems to be that the global economy is beginning to improve and so it would be expected that those markets which are more aligned to the global macro environment are likely to benefit from this improvement. Dubai would be an obvious case with an economy focussed on finance, tourism and trade. As these sectors improve one would expect Dubai to benefit particularly as the country is now more competitive as a result of the price reductions. Other markets such as Saudi Arabia and Abu Dhabi should benefit from higher oil prices which we expect to occur again as the global economy gathers momentum. Increased oil prices should mean increased budgets and opportunities to press ahead with widescale infrastructure programmes. If we go back to the survey and review what the respondents think general sentiment suggests the region will see recovery occurring over the next 12 months but for Dubai the expectation was that recovery will more likely be seen in around 24 months. Do you think Middle East investors will look regionally to invest or do you think they will look for international opportunities? We asked respondents which regions in the world would show the best returns over the next year, and Asia Pacific was by far the big winner. 46% of the respondents this time compared to 36% last time stated Asia Pacific would be the market they would expect to see the strongest performance globally in the near term. The Middle East went down slightly, it was 26% and is now 23%. What were investor expectations in terms of yields? We asked respondents about their yield expectations today versus where they were six months ago. What they have suggested is that their yield expectations have increased from 10.4% in October 2009 to 11.3% today. That is blended yields across different real estate markets and sectors. This illustrates the point that despite people being more stable in their thinking, there has been a slight drop in value expectations compared to six months ago. So on the one

hand we see values having dropped slightly since our last survey in October 2009, but on the other the sentiment was that values in most MENA locations will improve over the next 12 months. Specifically, average yield expectations across the MENA region have increased by around 90bps over the past 6 months. This reflects ongoing concerns over softening market conditions and potential oversupply in many markets. Yield expectations have increased everywhere with the exception of Qatar where they remained the same (10.7%). Yield expectations have expanded in all sectors of the market over the past 6 months with the exception of hotels where they have dropped marginally. Investors have demonstrated a greater differentiation between markets and sectors. Most notably, the logistics sector saw the largest increase in yield expectations growing from an average of 10.3% in October 2009 to 12% in this survey. This increasing yield expectation suggests that investor confidence in the logistics sector across the region may be waning. Similarly, the retail sector has also seen a 140bps increase in yield expectations reflecting the reduced spending and increased supply experienced in many markets across the region. Which asset classes are generating the most investment interest and are there any emerging asset classes? In a number of markets the most popular traditional investment sectors of residential, offices and retail have been the ones most impacted and which suffer from over supply issues. Investors are clearly wary of these sectors so unless there are compelling investment reasons they will tend to be avoided. Investor focus has shifted to previously untapped sectors such as low cost housing, again particularly in high population destinations such as Saudi Arabia and Egypt. Other real estate asset classes of interest include logistics, particularly where there is a lease in place to an international occupier. Other non-traditional investment sectors are also attracting interest and these include healthcare, education and staff accommodation in general anything that can show stable revenue, good underlying demand and limited new supply. There is very much a back to basics investment mentality.

As alluded to earlier cash is king and income and revenue stability are key investment decision making drivers. Investors are focussed on longer term secure income rather than development opportunities or land transactions. Do you think there will be development opportunities in Saudi and Egypt? Yes, Saudi and Egypt will continue to see development and another reason people are getting excited about Saudi is because of the new mortgage law. Historically you couldnt get a mortgage to buy a house so if the new mortgage law is passed it should open up a whole new market dynamic as developers will be looking to take advantage of the inherent demand for houses aimed at the local domestic market. Similar demand for affordable housing exists in Egypt and there is plenty of development occurring on the outskirts of Cairo. In conclusion, whilst transactions volumes within the institutional investor market remain subdued across the region investor appetite remains quite firm and broadly investors remain optimistic for prospects over the next 12-24 months. However, investors are much more cautious in both the types of investment they seek and where as well as are much more price sensitive. In the absence of motivated sellers we expect volumes to remain subdued and activity to remain focused on those markets with the higher local populations and / or that have a strong economic base that can support the real estate market.

Craig Plumb Head of MENA Research Jones Lang LaSalle and Andrew Charlesworth Head of MENA Capital Markets Jones Lang LaSalle Talk to Catherine Walker, Editor, Cityscape Intelligence

FOCUS ON ABU DHABI April 2010

24

The Logistics Sector: A review of the market in Abu Dhabi

Andrew Edwards, Associate Director and Joe Garwood, Associate Director, DTZ, discuss the findings of their latest report on logistics and warehousing in Abu Dhabi

What were the main conclusions of the report? The main objective of this report from our point of view was to provide an overview of the logistics and warehouse market in Abu Dhabi because as far as we are aware, no one has done a report focusing on this asset class. One of the aims was to set the scene and provide an overview of the main locations, key performance indicators such as rents, lease terms and also provide some commentary on where we see the supply and demand coming from in the future. One of the key messages coming out of the report is that Abu Dhabi is essentially a very immature market from a logistics point of view. It lags behind Dubai, which is seen at the regional hub for distribution and warehousing. Going forward there are some interesting opportunities in Abu Dhabi. What are the major drivers for growth? To set the scene briefly, Dubai is ahead of the game in terms of infrastructure, it has the main airport of the region and the main

port with Jebel Ali. What that basically means is that a lot more trade and shipments are transported through Dubai than anywhere else in the Gulf. If you imagine that most things in the Middle East are imported, they tend to come into Dubai and then are distributed regionally. Therefore it is fair to say that Dubai is a trans-shipment hub, whereas what you find in Abu Dhabi is that it is only servicing the local market in Abu Dhabi. As a result the infrastructure and any logistics or warehouses tend to be focused on just supplying Abu Dhabi. This explains why it is not as well developed as Dubai. There is a big push from Government bodies such as Mubadala to diversify the economy, bringing in new industries such as aerospace and nuclear energy. So what you are going to find over the next 10 or 15 years is a lot of new industries which will bring in new employment which in turn will also bring new demand for logistics. The key point there is that Abu Dhabi can afford to make these ambitious plans as opposed to some of the other countries in the GCC which dont have that supply of oil.

Do you think demand in Abu Dhabi will be affected by the supply in Dubai? They are two different markets, so it depends on what the warehouse developer or operator is trying to achieve. If the warehouse operator or developer is trying to be a regional hub and supply all the countries in the GCC, then at the moment, they will go to Dubai because of the infrastructure in place and the larger supply or cheaper warehouses. So it makes sense for anyone who does not need to be in Abu Dhabi to go to Dubai. However, it may be the case that you need to be in Abu Dhabi, and a lot of people do because that is where the growth is in terms of the main employment sectors of the economy. This is especially true for oil and gas contracts, which is one of the main drivers for logistics. Would you say that Bahrain and Saudi Arabia are again completely separate markets? Saudi is definitely separate because any growth in logistics or trans-shipment there is pretty much servicing the Saudi

FOCUS ON ABU DHABI April 2010

25

Arabian market. There is a larger population, around 26 million, so if youre building new warehouses or infrastructure in Saudi Arabia, youre not trying to become a hub for the rest of the region, youre trying service your local market. Bahrain is a bit different because it is trying to compete to a certain extent with Dubai and Abu Dhabi. To what extent has the logistics sector been affected by the global financial downturn? I dont think anyone can debate that the main players in the logistics market have all struggled in the last year or year and a half. Youve seen that in terms of demand for warehousing, particularly in Dubai. I think one thing that is worth saying going forward is that because of the infrastructure that is in place in Dubai, it is likely to recover more quicker than other countries in the region. As there is more supply coming on stream, there is more downward pressure on rents there. One of the problems occupiers face in Abu Dhabi is that the quality of whats available is generally poor and wont meet their needs, so they often have to build what they need. Therefore the answer is twofold - one that it has been affected, and two, we see the UAE as a whole in a good position to recover sooner. To what extent is the logistics sector driven by regional demand? Going back to what I said earlier, Dubai and the UAE as a whole is seen as a hub. It shouldnt be forgotten that many shipments to Saudi go overland through Abu Dhabi and Saudi is the largest market in the region.

Imports come in to the UAE via ship or via air and then are distributed by ship or by land to the rest of the region. So there is no denying the fact that the demand for logistics in the UAE is driven by regional demand. To be clear, when we talk about regional, were talking about the GCC. North Africa has different supply chains as they are closer to Europe and they have got the Mediterranean coast to be able to distribute imports and exports. In conclusion, it is worth pointing out that the current situation in Abu Dhabi is that there is very little good quality logistics space, so we see opportunities in the right locations and developed in the right way will be successful. The market is very immature but it is changing quickly. The other point to bear in mind is that currently there are a number of big retailers or suppliers who have to build their own warehouse space and this is not the best way of doing things. We have seen it in other parts of the world where, as the market matures you find that third party logistics operators provide the quality warehousing for retailers and entities which need storage and distribution space in order to distribute stock. Furthermore, we believe the market will eventually evolve into a more institutional investment friendly marketplace. This is essentially where you will have pension funds or strategic investors looking for secure income producing investments which have good quality tenants on long leases of 15 25 years which will produce a steady income back to that investor. That market doesnt exist here at the moment, as it has always been a very much owner-occupier market.

How does the logistics sector fit in with the Governments Plan 2030 There are a number of things we see driving this demand going forward. One is the diversification policies of the Government. The other is the potential change in the partnership laws where some industries will not need a local partner to come and set up in the UAE outside of the established Free Zones. Basically what the government are trying to do is attract employers to Abu Dhabi and make it easy for them to set up business in the region and in the Emirate without the red tape that comes with having to deal with a local partner. The other thing that is going to encourage the growth of the Abu Dhabi logistics market is the evolving nature of the Free Zone law. At the moment Dubai has the majority of the UAEs Free Zones, but if it is easier for companies to come and set up in Abu Dhabi then that is going to drive employment and demand for warehousing.

Andrew Edwards Associate Director, DTZ and Joe Garwood Associate Director, DTZ Talk to Catherine Walker, Editor, Cityscape Intelligence

FOCUS ON ABU DHABI April 2010

26

Abu Dhabi: A Legal Update


Paul Davies, Partner and Emma Frost, Associate, Denton Wilde Sapte, provide an update on new laws and regulations to be implemented in Abu Dhabi

What is the status of the laws which were passed to the Executive Council last year? EF: The escrow law, strata law, mortgage, a version of the Real Estate Regulatory Agency and some regulations on developers presale are as far as we understand it still with the Executive Council. We still havent got a time frame for when they will passed. We understand they are imminent but they have been imminent for quite some time now. PD: It is hard to say whether there are political issues behind any delay. More usually it is just that there is so much going on that the key decision makers have to prioritise their time. In Abu Dhabi, the property market still has a lot of on-going activity from the major developers and it has not been affected quite as much as Dubai. In Dubai you see that there are a lot more regulations being passed and thats because there is a perceived desperate

need for these, whereas in Abu Dhabi it is more a case of business as usual. In addition, there is less property in the hands of end users in Abu Dhabi. A lot that has been sold so far has been sold in bulk often to local family purchasers or to institutions who are not quite so worried about the detail of the law and regulations behind their purchase. EF: The other consideration with the new laws is whether they need implementing regulations. For example if the Abu Dhabi strata law takes a similar form to the Dubai strata law, it will need subsequent implementing regulations to be passed. So even if the principal law comes out soon, it could still be some time before the full range of legislation is in place. PD: This is very important in that personally Im not convinced that investor confidence

will be now satisfied just by the passing of new headline laws. People are sophisticated enough to want to know the detail of the regulations to be made under them, because this detail has a very important bearing on how individual positions are affected. Also investors need to know that there is a strong likelihood of, and a strong indication of how, those laws and regulations will be interpreted by both the courts and the authorities. So however quickly you get an appropriate suite of laws in place, there still could be time before people are comfortable in the way in which they are working in practice. EF: When RERA was introduced in Dubai, it was probably a year before they started to be as active and vocal in the market as they are today, to voice their views and to indicate how they wanted people to behave. It will probably be the same with the Abu Dhabi regulatory authority.

FOCUS ON ABU DHABI April 2010

28

PD: If you look at ARRA in Ajman, that also took quite a while to get going, so the precedents that you have in the UAE are there but it does take a while from the very creation of an entity to it being an effective and well known force - there has to be a bit of time gap there. Do you think that means investors will feel there is no guarantee their interests will be safeguarded? PD: There are certain risks attached to all emerging markets and I dont think it is very different in the UAE, but much will depend on interpretation of whatever legislation is introduced. I think people like to see a bit of history and how the regime is actually working in practice before they feel safeguarded. So I dont think it is so much a question of transparency, it is a question of being comfortable with the way law is being interpreted and enforced. What further regulation needs to take place? EF: At the moment we are waiting for more regulations on the foreign ownership procedure in Abu Dhabi because at the moment it is still practically impossible for foreigners to be registered on the official real estate register. They are still being registered on the developers registers so these are regulations which are still awaited. Other than that, we probably need to wait to see the content of the five laws we have just been discussing we wont know what gaps there may be until we see precisely what these say. PD: We would expect those laws to take the form of enabling legislation and, as earlier mentioned, I think that now a lot of investors are sufficiently sophisticated to feel the need to see detailed regulations and will not just be comfortable with having the headline law in place. One of the other areas weve singled out as being important across the UAE for individual owners is the need for greater certainty in terms of what happens with regard to real estate on death and inheritance matters. There are a lot of differing opinions at the moment on that and if that the position could be clarified I think that this would certainly be to the benefit of the real estate industry. The thorny issue of the rights to residence in the UAE in conjunction with property ownership is another issue which has a perennial affect on investor confidence.

EF: Another key general point weve noticed throughout the UAE and which will apply to Abu Dhabi is ability to control service charges. This will tie in to the strata rules in Abu Dhabi and it is a big issue for end users. Throughout the whole of UAE they will want transparency on what they are being charged for. PD: Its not just what youre being charged for but it is also the constituent parts of those items and how these are made up, particularly in cases where some of the services which have been charged back to unit holders by the management company are actually provided by a another company within the developers group. In terms of market confidence there is one other big issue which, although isnt really related to real estate rules or regulations, has more to do with the general economy. We have got to be in a position where there are more banks providing finance to end users and those lenders in turn have to have confidence that defaults will be dealt with in a consistent and reliable way - lenders need to know that there can be a quick resolution to the enforcement of security over real estate and end users need to feel comfortable that there will be a just and fair solution to it all. In addition, we need more liquidity in the economy and funds available for lending to end users before investor confidence can be fully restored. At the moment, the loans to value ratios that banks are prepared to adopt are still quite low which therefore requires sizable deposits from purchasers and a lot of the sales that do take place are to cash buyers. But it may only be that the banks themselves will feel more comfortable in terms of lending at lower cost and higher loan to value ratios if they can see that there are more laws and regulations in place which are providing a degree of certainty in terms of what will happen if there is a default. Why is there a lack of liquidity in the Abu Dhabi market? PD: Although there has been a return of substantial liquidity in many other global real estate markets, this hasnt been so much in evidence here. Of course the position has not been helped when two of the biggest providers of end user finance, Tamweel and Amlak, have in effect been out of the market for a year and a half, in terms of providing any finance for new purchasers.

Do you think there is a drive to encourage end users in Abu Dhabi or do you think it is very different market to Dubai? PD: I dont think it is a massively different market. There are fewer developers and these are more generally institutionalised. This helps in a way because banks tend to get more comfortable quickly with lending to major developers than might be the case with small-time sub developers. But it does remain that so far in Abu Dhabi, sales havent really been to end users as much as is the case in Dubai. Are foreign investors encouraged in Abu Dhabi? PD: There are certain areas open to foreign investment and foreign ownership. I think many developers are just happy to see these schemes get underway successfully and sold to creditworthy purchasers rather than being too worried about the identity of those purchasers. Are there moves to create a more structured mortgage market in Abu Dhabi? PD: If sufficient liquidity does enter the market then eventually we might have to have a more stringent form of regulation of brokers and providers of finance. We dont really have that need at present, but that would be very much phase 2 of the evolution of the market. Once youve actually got substantial liquidity in the market, then you will see a lot of different financial products being developed by a number of different vendors. This isnt really the case at the moment.

Paul Davies Partner Denton Wilde Sapte and Emma Frost Associate Denton Wilde Sapte Talk to Catherine Walker, Editor, Cityscape Intelligence

FOCUS ON ABU DHABI April 2010

29

Improving Confidence in the Market


Wael Tawil, CEO, Baniyas Investment and Development Company discusses ongoing development in Abu Dhabi and improving confidence in the market

What projects do you currently have under development? Currently, we are steadily progressing with the construction of our prestigious Bawabat Al Sharq Project. Bawabat Al Sharq is an AED 3 billion mixed-use development located in Baniyas city. While offering an assortment of luxury services such as exclusive retail outlets, world-class entertainment, quality health services, and a renowned educational institution, this project is meticulously designed to meet the requirements of different customers. The project, being built in three phases, also encompasses a destination mall within the community, featuring high profile retail outlets and a hypermarket. One of the key highlights of Bawabat Al Sharq is its unique FIFA standard football stadium with a seating capacity of 20,000 spectators. The residential offerings in the project consist of three, four and five bedroom villas in both

detached and semi-detached layouts plus various sized apartments with one, two and three bedrooms. Construction on Phase 1 of the project is 60% complete; with the residential segment due for handover in Q4 2010. The construction on Phase 2 is scheduled to commence soon. Phase 2 and 3 villas and apartments, including the School, Medical Centre, Health Club, Community Facilities and the New Baniyas Stadium, will be completed in Q4 2012. We also recently announced the completion of our new state-of-the-art Baniyas Sports Club Stadium in Al Shamkha, Abu Dhabi, which was completed in a record breaking six months time. Has your strategy or focus changed in light of the global financial downturn? We believe that adjusting business plans to changing market scenarios is the key to achieving sustainable business results.

We at Baniyas have remained focused on the construction and delivery of our projects. Our aim is to continue with our construction schedule while maintaining our project timetable. We have ensured to maintain seamless communication with our customers and are updating them regularly on the progress of the project. We will remain focused on our vision, which is centred on becoming a regional developer of world-class and distinctive community projects that are contemporary, yet preserve the rich tradition and heritage of Abu Dhabi. Is affordable housing an area in which you would be interested? Affordable housing is our area of expertise; in fact all of the residences that we launch and develop are within our clients reach. In addition to offering our products at a very competitive price, we provide owners financing to all our clients, as well as flexible payment plans and options that cater to their needs and lifestyles.

FOCUS ON ABU DHABI April 2010

30

Do you have any plans for development of any other sporting arenas? We at BID aspire to create an integrated development that fosters various aspects of life, ranging from education, healthy lifestyle and sports. Needless to say, our iconic Bawabat Al Sharq project is designed to offer all the above. We have put a special emphasis on preserving the inherited customs and traditions of the footballloving city of Baniyas with plans to build up the FIFA-standard football stadium with a seating capacity for over 20,000 spectators in Bawabat Al Sharq. We aim to position Baniyas as the football hub of UAE in the coming years. To what extent has the Abu Dhabi property market been affected? The global economic downturn has had adverse effects on the property sector across the world and Abu Dhabi was not an exception to it. However, Abu Dhabis extensive resources and strong fundamentals have augured well for the economy. The local projects within the city have been planned to create a good investment environment. In addition to this, the potential for a growth in population, job creation and steady demand, collectively, make Abu Dhabi a good destination for medium to long-term investments. In line with Abu Dhabis 2030 vision, many private developers and government entities have restored confidence in the market and are investing in the Emirate to create an ultra-modern city conforming to global living standards.

To what extent has liquidity tightened? Due to the economic crisis, trust was replaced by fear and the spreading anxiety of the safety of ones money led to apprehension among banks, depositors, and customers worldwide who adopted a wait and see approach. But this phase was shortlived. Our governments have been extremely proactive in this regard and have taken timely steps by injecting liquidity into the market and urging banks and mortgage lenders to come up with flexible payment plans and mortgage products to give the required boost to the sector. Abu Dhabi infact has taken a decisive action to lower the cost of home loans in the emirate in a bid to boost the sector. What regulations would you like to see introduced to the market? Increased transparency, building lost confidence in the market, injecting further liquidity and providing stimulus to the economy on the whole are some of the remedial factors that can contribute towards stabilizing the market further. Our governments are already taking the required steps by introducing new legislations that will protect the interests of both the developers and the investors. Do you think transparency needs to be improved? Yes, there is no second thought about that. Progressive transparency and regulations are instrumental for the success of the sector. A diminishing speculative market and an evolving transparent market are the need of

the hour and this is not an option now but a necessity. Increased transparency will boost confidence levels among the investors and the buyers and will be critical to the timing of recovery in UAE. In which locations are you planning to invest in real estate in the MENA region? We are presented with several opportunities for real estate development in a number of Arab countries which we are currently reviewing. These projects need to be assessed from a commercial standpoint as well as deciding on the best operating model to employ to realise these opportunities. At the current time, we have nothing to announce to the general public though I expect by end of this year we may be active in one of these proposed projects. Do you think distressed assets are available? Yes, I think distressed assets are available. Assets are usually considered distressed when their value is severely depressed for a reason that is not related to that of the general market conditions. But distressed assets in the UAE property sector are a result of the market and global economic conditions and will become a thing of the past soon.

Wael Tawil CEO, Baniyas Investment and Development Company Talks to Catherine Walker, Editor, Cityscape Intelligence

FOCUS ON ABU DHABI April 2010

31

Abu Dhabi: Masterplanning the Capital


His Excellency Falah Al Ahbabi, General Manager, Abu Dhabi Urban Planning Council (UPC) discusses the development of Abu Dhabi as a world class capital city.
How will the Government be proactively involved in the real estate market and what role will it take? Abu Dhabi Urban Planning Council (UPC), which is the agency responsible for the urban development of Abu Dhabi, is the entity behind the visionary Capital 2030 masterplan for the UAEs capital. Capital 2030 was launched by our team at the Abu Dhabi Urban Planning Council in 2007. We designed this visionary plan primarily to help Abu Dhabi respond to current development needs and lead future decisions by establishing a planning culture and introducing strong guiding principles for new developments. This sustainable urban development process has not only assisted Abu Dhabis real estate industry to create a suitable balance, but has also laid down the groundwork for the Emirates urban development for the next decades. Abu Dhabis Vision 2030 charts the path to measured growth and takes advantage of the economic opportunities at hand without sacrificing the best of the city, while also adding new elements to make it a great world metropolis. UPC is working closely with the real estate and development community in Abu Dhabi, and in order to facilitate the planning and implementation phases of upcoming projects will shortly be providing its stakeholders with a scenario of 2013 population and land use distribution based on extensive consultations and reviews of development plans. We at UPC have ensured that the framework for this plan is not geographically limited to existing administrative boundaries but instead it encompasses the whole urban region of the Emirate of Abu Dhabi out to the natural boundaries. The UPC controls what the market delivers in a manner that is consistent with the principles of integrated long term land use and infrastructure planning. The UPC also ensures that the level of consented supply is in line with the potential market demand in 2030 and will produce a real estate demand and supply model to assess future levels of demand and supply across four sectors (Office, Residential, Retail and Hotels). This model will be used to review all announced projects through a detailed project by project approach which also considers the materialization rate and phasing of major master planned projects. What does Vision 2030 mean and what are its main points? Vision 2030 reflects the dynamism and substance of the unique Next Generation Planning mindset. The creation of a Vision 2030 brand brings together all the elements of this innovative approach, allowing the UPC to communicate the full scope of the plan particularly to our growing Emirati communities. The word Vision is incorporated into the brand and reflects the visionary guidance of the government. The new brand is also endorsed by the Brand of Abu Dhabi and complements its value-added initiatives. The choice of colours for the brand illustrates the confluence of Abu Dhabis marine and desert environments, emphasising sustainable and controlled development policies within the plan that will preserve the Emirates physical and cultural identity. Staying true to Abu Dhabis culture and heritage, the Arabic typeface used in the Vision 2030 brand reinforces Plan Capital 2030s vision to create an authentic Arab city. The contemporary design of the lettering illustrates its forward-thinking focus. What is Capital 2030 and how does this differ? The City of Abu Dhabi is at a crossroads. It was first settled in the mid 18th century as a hunting and pearl fishing base. Its significance increased with the mid 20th century discovery of oil and the formation of the UAE in 1971. Since then, the city has experienced steady but manageable growth. Recently with the world focus of attention on the UAE as a safe, hospitable investment region, the potential for rapid growth has risen dramatically. While new growth is essential to support the broader ambitions of the Government of Abu Dhabi, it is important that this growth is managed in a coordinated and sustained way. We at UPC have also ensured that the framework for this Plan is not geographically limited to existing administrative boundaries but instead it encompasses the whole urban region of the Emirate of Abu Dhabi out to the natural boundaries, which can reasonably be expected from growth at the scale envisioned. Under the comprehensive Emirates 2030 Vision are two key strategy documents, Capital 2030 and Economic Vision 2030. While these strategies are diverse in their individual objectives (urban development and economic progression), they jointly direct the sustainable long term growth and investment on an economic, social and infrastructure level. How does Abu Dhabi intend to identify itself as a Capital City? One of the key urban development objectives for the Capital 2030 framework plan is to preserve Abu Dhabis national identity, culture and heritage as well its stature as the Capital of the UAE. Capital 2030 has created an ambitious vision for Abu Dhabis new Capital District, which is aimed at increasing Abu Dhabis global reputation. The Capital District will become the seat of power and government for the whole of the UAE. It will accommodate federal ministries and foreign embassies along with education and information based industries, which will reinforce the cultural diversity of the UAE. The Capital District will set a new benchmark for the design of a sustainable capital city and will be planned and designed around the 4 pillars of sustainability: the natural environment, economic development, cultural heritage and social cohesion. This will ensure that Abu Dhabi remains a sustainable and viable capital for future generations. New transport options such as an underground metro, trains, surface trams, expanded bus networks and shaded walkways will provide transportation choices to improve the mobility of residents and business communities. The Capital District will also become an educational hub becoming the home of international think tanks and leading universities and schools. The Capital District will also provide employment opportunities surrounded by sustainably-designed residential neighbourhoods, mosques, schools, parks and shops to ensure a high quality of life for all, but in particular for local Emiratis taking their place at the heart of the nation. How does Abu Dhabi intend to attract industry? Development of effective infrastructure (transport, utilities, residential, commercial, leisure) is the key to attract and retain industry. All leading cities of the world provide good examples of this. We at UPC recognize the need for a strong industrial sector in Abu Dhabi supported by world class infrastructure. Integrated, sustainable development built on the appropriate framework of sustainable infrastructure will ensure the city will remain attractive for potential industrial investors while also encouraging the growth of a diversified economy. His Excellency Falah Al Ahbabi, General Manager, Abu Dhabi Urban Planning Council (UPC) Talks to Catherine Walker, Editor, Cityscape Intelligence

FOCUS ON ABU DHABI April 2010

32

Abu Dhabi: State of the Market 2010


Safeena Rangooni Lakdawala, Senior Manager Research, Investment Boutique discusses the latest analysis of the Abu Dhabi real estate market
What are the key findings of the report? According to the Abu Dhabi State of the Market Report 2010, in the case of the residential property sector, our research and analysis shows that although there is a definitive supply shortage in Abu Dhabi relative to potential demand, prices and occupancy levels will continue to fall until there is an alignment of value for money, an increase in lifestyle offerings, competitively priced smaller units and greater protection for investors. In the case of the office property sector, we believe that even though the majority of new supply coming on stream between now and 2011 will be in the Grade A office segment, occupancies will remain relatively high, as a result of corporate clients shifting from Grade B and Grade C spaces, with the increased availability of Dubai office space and Grade B and C space in Abu Dhabi keeping Grade A space priced competitively. In the case of the retail property sector, the combination of a less confident consumer market and the emergence of several retail offerings in single catchment areas is expected to increase the competitive landscape of Abu Dhabi retail considerably. Over the short term, despite the significant undersupply we expect a softening of rental rates as consumers are more discerning and newer outlets with a wider range of entertainment offerings and better infrastructure begin to come on line. In the case of the hospitality property sector, a shift in emphasis from business to cultural and leisure, investment in the underlying infrastructure required to support a world class tourist destination and a shift in target markets is forecast to result in longer stays and higher spends over the long term. In the short term, the combination of depressed global business and leisure markets as well as the steady pace of new supply coming onto the market is likely to keep occupancy levels modest and to soften RevPARs. To what extent is there a shortfall of supply in each asset class? According to the Abu Dhabi State of the Market Report 2010, residential shortfall in Abu Dhabi is currently estimated at 41,000 units and is likely to decline to 30,000 units by 2012. The office sector currently has a shortfall of 3.7 million sq ft, with an oversupply of 3.1 million sq ft expected in 2012. The retail sector is currently undersupplied by close to 800,000 sq m of space, with an oversupply of 250,000 sq m expected by 2012. Assuming a 100% occupancy requirement, Abu Dhabi currently has an oversupply of 4,000 hotel rooms, with this number likely to rise to 12,000 hotel rooms by 2012. What are the main drivers of growth and demand? Population growth, economic growth, the number of new companies entering the market, oil prices, world GDP growth, income growth, job security and growth in the number of tourists are some of the drivers that have been used in the demand estimates for the Abu Dhabi State of the Market Report 2010. Which asset classes do you see as having the greatest growth potential? Currently the residential sector in Abu Dhabi is highly undersupplied and even with new upcoming supply, there are doubts whether the demand will be satisfied over the next three years. However, a lack of affordable units and the substitution effect from Dubai is impacting the demand and supply equation. As such, affordable housing for middle income groups is the asset class with the maximum potential. To what extent do you think infrastructure development will propel growth forward? Infrastructure development has a key role to play in the growth of the real estate sector. The direct impact is that the influx of liquidity and job creation as a result of governmental spend on infrastructure will surely benefit the real estate sector, creating demand for office and residential space. Also, in the Abu Dhabi State of the Market Report 2010, we have discussed aspects such as the reasons for declining rents with poor infrastructure being one of the major causes. For example, rents at the Tourist Club Area have been declining due to construction works on Salam Street and the lack of parking. Also, Al Raha Gardens rents witnessed the highest decline with occupancies falling as a result of factors such as lack of community facilities and improper road access. To what extent has the real estate market in Abu Dhabi been affected by the global financial downturn? Despite the global financial crisis Abu Dhabis GDP grew substantially in 2008, with the Department of Economic Development (DED) forecasting a 3 percent growth rate in 2009 and 4 percent growth in 2010. The year 2009 has been a challenging yet ground breaking year for Abu Dhabis impact within the UAE, regionally and internationally. Abu Dhabi hosted a number of major international sporting events and launched real estate and industrial development initiatives that were well received by the international community, such as Masdar. The Emirate also delivered significant real estate and tourism projects in Al Raha and Yas Island and improved its overall road network. The Capital has significantly diversified investments on a global stage, including Aabars acquisition of AIGs Falcon Private Bank and investments in Daimler, Virgin Galactic and Santander Bank; Mubadala signed a MOU with The Boeing Company to jointly develop an aerospace parts manufacturing and research facility in the Emirate; Abu Dhabi has also invested in the information technology sector with the Advanced Technology Investment Company (ATIC) of Abu Dhabi acquiring an equity stake in AMD, a major semiconductor manufacturing company. As such, though the Capitals economy has been affected by the global financial downturn, the negative impact has been relatively less compared to other cities in the region and internationally. What do you think needs to be done to improve transparency? Producing a report like the Abu Dhabi State of the Market 2010 has been extremely challenging, given the lack of transparency and the difficulty with which data is obtained in the UAE. However, the very production of this report and its successful launch is a step in the right direction, helping to bring substantial transparency to the market. The fact that the report has received extensive acclaim from government sources, developers, banks, institutional funds, individual investors as well as real estate agents, regionally and internationally, shows that there is a need for accurate, professional research in the market which will ensure a level of transparency that brings back the sophisticated investor into the market. While the Government has a major role to play in bringing transparency into the system, all industry participants can play a role to bring about this change. In 2009, Investment Boutique spearheaded an initiative to create a central repository of transactional information for the local industrys various stakeholders including: estate agents, developers, lenders, mortgage brokers and government related entities. The resulting database is updated on a monthly basis by a variety of industry stakeholders, the data is quality controlled for data integrity and duplicate data against an industry-specific rule set and then uploaded into a secure, time-series database and combined with transaction data from other scrubbed transactional information. This UAE Transaction Database is our effort to introduce the much needed transparency into the system and we would urge all industry participants to start contributing data to this database in return for timely reports which will create a transparent market in Abu Dhabi and the UAE.

FOCUS ON ABU DHABI April 2010

33

Cushman & Wakefield Global Investment Atlas 2010


Mike Atwell, Head of Middle East Operations, Cushman & Wakefield, discusses the latest report with Cityscape Intelligence
What are the key findings of the report? According to Cushman & Wakefields 2010 Global Investment Atlas, which monitors investment flows in commercial property in 56 countries, global investment volumes are forecast to rise 30% this year, hitting $478bn (362bn), led by a reviving US market. The new report, suggests that this figure is likely to be even higher if the economic recovery remains on track. In 2009, global investment volumes fell 23% to $365bn (270bn), their lowest since 2003. However as markets started to recover and global liquidity improved, investment volumes ended the year on a much stronger note rising 104% between the first and second halves of the year. The upturn was led by Asia Pacific and most notably China, with a 39% increase in investment on 2008. China is now the largest real estate investment market in the world, with the next most dynamic recovery market, the UK, up to second and the USA down to third place. (If apartment sales are included in this figure, the USA would take second place.) Yields stabilised in most areas later last year as higher investor demand and limited supply impacted. The global average fell 20 basis points in the second half of 2009 to 7.8% and a further fall of 25-50bp is forecast for 2010. To what extent have MENA markets been affected by international economic fluctuations? The MENA-based investors have historically invested in both the international and local real estate markets. However as a direct result of the global financial crisis many of these MENA investors have suffered severely and now their priority is to focus investment in their home markets. Across the GCC we are seeing locally based investors wanting to invest in their own markets and to provide local facilities. Saudi Arabia is a good example which has a current need for development and investment in the social infrastructure sectors of education, health, and housing to meet both increased population demands and expectations. How has the UAE fared? Despite often still negative headlines, 2009 actually ended with better sentiment among occupiers and investors in a number of our markets and while limited to prime, income producing stock, we can expect more activity and a hardening in yields this year as cash rich funds and private individuals seek out opportunities. The UAE has undergone a substantial correction over the last 18 months but you have to look at the two very different markets of Dubai and Abu Dhabi. Dubais earlier development boom led to a substantial oversupply in the office and residential sectors and we have seen a significant correction with rental reductions of up to 60%. Dubais occupational market is showing signs of recovery and stabilisation but this is only in certain key locations where demand has remained strong. Abu Dhabi is a very different story. The development boom has been far more controlled with less stock coming to the market. That said we have seen rental reductions for office space of approximately 25% and landlords being far more receptive to tenants demands. There is also a substantial amount of stock that is soon to come to the market. It is changing from a historically landlords market to a tenant market, although it does depend on the quality and the location of the project. To what extent has demand for Grade A office space in Abu Dhabi been affected by falling prices in Dubai? I think the experience of the Dubai market has had a knock-on effect on Abu Dhabi. However Abu Dhabi is its own market and will be influenced by local market conditions. There is more confidence in the city but with the development pipeline of office and residential projects we still expect a softening of rental prices. What are the main drivers of demand in Abu Dhabi? There has been a real shortage of Grade A office space in the city with the majority of companies occupying older, residential buildings converted to office use. There will be a shift from these older buildings to the new generation properties such as Etihad Towers, Central Market and projects on Sowwah and Reem Islands. This demand will come from all sectors such as government, oil & gas, construction, banking & finance, consulting, tourism etc. What do you think needs to be done to improve market transparency? The open availability of data is the key to transparency and we see this improving. To what extent will demand in Abu Dhabi be affected by oversupply in Dubai? As mentioned above I see the markets as distinct and separate. I see two key issues here. Firstly in the residential sector a large number of people living in Dubai are now working in Abu Dhabi. You only have to see the morning rush hour traffic heading to Abu Dhabi! Residential rental levels in Dubai are significantly below Abu Dhabi and, it could be argued that the lifestyle in Dubai is more relaxed and open, therefore many people make the choice to live in Dubai yet work in Abu Dhabi. Secondly, within the office sector, Dubais oversupply has had less of an effect as companies who want to work and operate in Abu Dhabi have to be formally based in the city. The local market then controls the pricing. It is back to the basics of supply and demand. Do you think the issues concerning Dubai World have affected investor confidence in the Emirates? Yes, without a doubt, but you have to look at any investment opportunity on its own merits. We are seeing investors looking for opportunities all across the Middle East region, including Dubai. There is more caution placed on Dubai but investor demand is there.

Mike Atwell MRICS Head of Middle East Operations Cushman & Wakefield (Middle East) FZE Licence 1656 Formed pursuant to law 2 of 1996 with limited liability Mobile: +971 509227827 Email: mike.atwell@eur.cushwake.com

FOCUS ON ABU DHABI April 2010

34

cityscapeintelligence.com

This report was produced and compiled by Cityscape Intelligence. If you need any further information or have any comments please contact our editorial team on editorial@cityscapeintelligence.com. cityscapeintelligence.com is the essential online information service for investors, developers and real estate professionals focused on the emerging markets. For further details on how to subscribe to cityscapeintelligence.com contact Anna Canning on +971 4407 2712 or email sales@cityscapeintelligence.com For further news, market data, editorial analysis, project information and more please go to cityscapeintelligence.com If you are interested in bespoke reports please contact editorial@cityscapeintelligence.com or call Moira Robertson on +971 4407 2611

Proleads provide investors with the tools to quantify their risk profile by providing key insights into the current and future state of the construction industry. Proleads offers investors: Opportunity Tracker with analytical tools to determine exposure to the industry. Insight Reports highlighting current investment portfolios and future growth. Developer and Contractor Cost Indices, showing fluctuations in historical construction costs with forecasts to optimise the resource supply chain. Proleads is the enabler of choice when it comes to strategic demand planning for the construction industry in the Middle East. Visit www.projectsandleads.com or send an e-mail to info@proleadsglobal.com and find out how you can profit from our knowledge.

You might also like