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According to the Dubai Land Department (DLD), 55,928 investors from 150 nationalities made real estate investments in Dubai’s property sector last year.
Sultan Butti Bin Merjen, Director General of DLD, said, “The sheer diversity of investors in Dubai’s real estate market is an overwhelming endorsement of the products that we have to offer.”
In terms of investor interest, Dubai is continuing to see traction from GCC and Asian investors in the property sector.
Asset classes such as hospitality, residential, education and logistics are likely to remain the key drivers. “Selectively, we have also seen interest from institutional investors in office space, as witnessed in the sale of the Standard Chartered Bank (SCB) Building in Emaar Square. Interest depends on the type of asset from across the investor spectrum, including private and institutional clients, and the returns vary depending on the quality of the asset and the strength of cash flows. The cap rates range from 7.5 to 8 per cent on residential, 7 to 8.5 per cent for offices and 8 to 9 per cent on other asset classes,” said Gaurav Shivpuri, Head of Investment Transactions JLL MENA.
Among the widening investor base in Dubai real estate, alternative asset classes such as staff accommodation and student housing are gaining ground. There is increasing demand from local corporates for accommodation options and currently there is limited supply in the market. They are either selecting single corporate lease within existing facilities or built-to-suit (BTS) campuses in popular areas.
“For construction, the window is about 12 to 18 months till operations commence and companies prefer pod structures that are flexible and meet their specific size and other specifications,” said Murray Strang, head of investment and agency at Cluttons UAE.
The challenge lies in finding the right setup and some of these facilities can be found at Al Quoz, Dubai Investment Park (DIP), JAFZA, etc. From an investment potential, pre-constructed staff accommodation that is in an accessible location and can be tailored to a company’s specific needs, appeal most to corporates. However, more and more companies are choosing to build their own structures.
For instance, Emirates Airline forayed into construction with their staff accommodation project of five residential towers at Silicon Oasis on Al Ain Road.
Branded residences and hotel apartments are also finding many takers in the hospitality segment. Entering the branded residence segment through a rental pool agreement is increasingly becoming a popular investment vehicle. It allows owners and managers to share the profits from the rent as per an agreement. According to the Colliers Hotel Branded Residences Report, key investment attributes of branded residences include strength of hotel brand ensuring high occupancy and stability in returns, capital value appreciation in a rising residential market, income growth in average room rate in a rising hotel market, limited hassles as it is anaged by a hotel operator and the ability to use the residence for personal use on a set number of days each year (usually 0-14 days).
“In addition to Downtown Dubai, the Palm Jumeirah is witnessing a number of branded residence developments, typically attached to the many luxury hotel properties on the island. The Kempinski, Anantara and Fairmont hotels all offer branded residences and it is envisaged that many of the other planned hotels will also contain a branded residence element”, states the report.
According to Tiana Spence, Associate Director, Strategic Advisory, CBRE Middle East, the private education sector in Dubai continues to witness a period of increased development as rapid population growth, government reforms and private sector participation continue to drive industry demand. Student enrolment continues to grow within Dubai as expatriate numbers increase and Emirati families begin to gravitate towards the private education market. The KHDA counted 172 private schools in 2015, providing education to 265,299 students.
“While Dubai’s education sector continues to mature, both domestic and international investment appetite is projected to increase, primarily due to the industry offering safe returns on investment and it being relatively immune to economic fluctuations. Well-known international operators are expected to continue to move into the region, driving competition within the industry. This will ultimately contribute to greater education standards and a reduction in costs as demand meets supply,” said Spence.
“The Dubai government has also introduced various initiatives to bolster the country’s education infrastructure. The region has strong development potential, with a number of vacant land plots available and a large proportion of existing schools beginning to enter into business stabalisation phases, creating sale and leaseback opportunities. Going forward, we expect greater movement as domestic and international investors increase their interest within this asset class,’ she added.
Another new segment of the investment market is student accommodation that is popular in countries like UK and US and is being brought into the Dubai landscape.
With the largest number of international branch campuses being in the UAE, there is an increasing interest among universities as well as investors to enter this segment.
Select Property, which operates projects under the student brand Vita in locations such as York in the UK, has had UAE buyers for their UK properties. It is now planning to bring the student brand to Dubai.
Source: Manika Dhama, Special to PW