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Occupier sentiment in commercial property turned negative in the third quarter, the first time it has done so since 2012, according to the Rics Global Commercial Property Monitor. The quarterly survey, which assesses the sentiment of property professionals, reports that the UAE Occupier Sentiment Index for the commercial property tenancy market deteriorated to a value of -11.
“The sentiment-based survey is certainly indicating a slowdown in the market, albeit to put this in context, the overall negative occupier and investor sentiment is being skewed by more negative sentiment in the secondary space, including retail, office and industrial, compared with prime real estate,” says Rob Jackson, Director of Rics Middle East and North Africa.
Amid falling oil prices, demand for commercial property, especially industrial space, has come under pressure, although the office sector didn’t record much movement over the previous quarter. The market was further impacted by the pipeline of development activity as supply continued to grow in the third quarter.
However, headline occupier demand grew very modestly, thanks to continued strong growth in the retail sector. The UAE’s efforts to diversify its economy have helped deal with the situation much better than many of its GCC counterparts.
The country’s tourism and industrial sectors are increasingly playing an important role in keeping the economy growing despite a 50 per cent fall in the price of Dubai crude over the course of the past year. The country’s GDP could also rise by around 3-3.5 per cent over the year.
“With UAE GDP growth still at relative healthy rates compared with other regional and global economies, largely due to the UAE’s economic diversification policies and strong tourist sector, it remains an attractive market for international businesses who are looking to establish a regional base from where they can target the wider Middle East and African markets,” says Jackson. He points out that prime retail and office space remain slightly positive in terms of investor sentiment despite a forecast marginal decline in occupier sentiment.
Commercial rentals could also come down further as near-term expectations are now in negative territory for the first time since the first quarter of 2012. Also, the Rics survey points out that rent expectations in the 12-month horizon turned negative with contributors forecasting rents to fall by 1.9 per cent over the year.
All these have had a bearing on the investment sentiment as well. Rics’ UAE Investment Sentiment Index moved further into negative territory in the third quarter, with a reading of -15. However, the survey notes that investor demand improved modestly in each sector despite a drop in interest from foreign buyers. But demand was outpaced by the supply of properties for sale.
“With the fragile global markets and continued low oil prices, many businesses are in a wait-and-see mode resulting in a lower influx of international occupiers, and when coupled with continuing new supply, the survey is suggesting we may be nearing an oversupply situation, particularly in the secondary property areas,” explains Jackson. However, he adds that prime office and retail spaces remain robust with positive sentiment and continued predictions of increases in capital values despite rents moving slightly into negative territory.
Around 25 per cent of respondents in the Rics survey think that credit conditions had improved during the quarter, but capital values are expected to fall slightly over the coming year.
Meanwhile, global cities surveyed by Rics have shown mixed sentiment, with some remaining robust and others showing a dip in confidence.
“Globally, the slowing of the Chinese economy and its progressive drift from investment to more consumption and thus less demand from the traditional Asian exporters, has led to declines in investor and occupier sentiment in many of the Asian markets,” says Jackson.
Among the best-performing cities, Dublin and Lisbon have recorded the sharpest quarterly improvement in overall occupier market conditions. “Conversely, the survey suggests strong sentiment in European cities such as Dublin, Lisbon, Munich and Frankfurt, although this is more a rebound from the poor performance of these markets in recent years,” says Jackson.
The survey suggests both Geneva and Toronto displayed the highest proportion (55 per cent) of respondents who feel market conditions have reached their peak in the current cycle. On a more cautious note, Singapore (58 per cent), Jakarta (55 per cent), Dubai (36 per cent) and Perth (33 per cent) exhibit the highest percentage of contributors who feel the market is only just starting its decline.
Source: S. A. Kader, Special to Property Weekly