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After posting positive net balances in the 11 preceding quarters, the Royal Institution of Chartered Surveyors’ (Rics) Commercial Property Investment Sentiment Index hit zero in the first quarter of this year, signalling a stabilisation in sentiment across the office, retail and industrial property sectors compared to the previous quarter.
According to Knight Frank’s Dubai Real Estate Investment Report 2015, prime property net yields for the emirate were flat in the first three months of this year at 7.1 per cent, indicative of pent-up investor demand for well-let real estate in the emirate. The figures remained stable despite upward pressure from residential yields for whole buildings, which inched up for the third consecutive quarter driven by small falls in capital values and broadly stable rents.
Across the commercial property sector, yields have been flat over the past year, after having trended down in the four years preceding it.
Knight Frank cited several factors that contributed to the downward trend, including oversupply of office space with vacancy rates climbing above 55 per cent, albeit grade A space accounted for a smaller proportion of overall availability.
“The subsequent recovery in confidence across international markets led larger corporates to return to Dubai and provided existing tenants the impetus to consolidate and expand,” the report said. “That, in turn, has assisted in reducing the emirate’s prime vacancy rate and applied upward pressure on grade A office rents.”
Meanwhile, the flow of capital into real estate has continued against a backdrop of low interest rates globally.
“While we have witnessed a significant amount of equity move from the Middle East into more mature real estate environments, demand for institutional quality assets across Dubai and other key GCC centres continues to rise, partly as yields remain relatively high in context of other global cities,” the report said. It also noted the impact of the strengthening US dollar on the local market.
“The dollar remains strong against the euro, British pound and Russian rouble. Since the dirham is pegged to [it], real estate in Dubai is more expensive for buyers holding other currencies. On the flip side, the [dollar’s] strength has increased most GCC-based investors’ buying power abroad.”
Source: Property Weekly