JLL: Real estate markets of the Middle East will outperform all other regions

JLL: Real estate markets of the Middle East will outperform all other regions Tuesday 14 October 2008
The real estate markets of the Middle East will outperform all other regions, according to findings from the Investor Sentiment Survey, an in-depth study of real estate professionals market views conducted by Jones Lang LaSalle in association with Cityscape Dubai, the world’s largest real estate conference and exhibition. The report also reveals that almost half of all respondents believe UAE will offer the best performing real estate market in the Middle East over the next 1 – 2 years, with the Kingdom of Saudi Arabia to be the next best performer.
Pooling the views of a sample of over 350 local developers, sovereign wealth funds and high net worth investors, the survey is the first of its kind conducted in the region. Jones Lang LaSalle is the world’s leading real estate advisory firm and was recently recognised by Euromoney Magazine - Liquid Real Estate awards as UAE Property Advisory Firm of the Year at a prestigious ceremony in London. “This report is not only the first of its kind undertaken in our region, it will provide a critical benchmark as we look to evaluate this vital sector in the coming months and years,” said Blair Hagkull, Managing Director, Jones Lang LaSalle, MENA. “Sentiment is a critical component when considering the health of any market. It is an important barometer, a key assessment criteria for any investor and the ideal gauge for considering future prosperity. We are thrilled to be releasing this report, conducted in association with Cityscape at Cityscape Dubai 2008. It is planned that this new benchmark for the health of the regional real estate market will be repeated.” The 2008 Investor Sentiment Survey was undertaken in the aftermath of the collapse of US Investment Bank, Lehman Brothers and is thus the most up-to-date and relevant source on investor sentiment in the MENA region. Key findings of the report include: Middle Eastern real estate markets are expected to significantly outperform all other regions Over 50% of the respondents believe the real estate markets in the Middle East will see the strongest performance of any region worldwide over the next 1-2 years. Asia Pacific, driven by India and China also has a strong outlook with more than 20% of respondents believing it will be the best performing region. Investors are least positive towards Western European real estate markets, with only 3% expecting this to be the strongest performing region. Most Middle Eastern investors do not believe the US and European markets will witness a major improvement in performance in the short term. The Middle East is expected to be one of the regions least affected by current global economic conditions. Affects most obviously felt in North America but this could also provide most opportunities for value purchases over the next 12 -24 months. There is a clear inverse relationship between strongest performing real estate markets and those economies expected to be most impacted by current global economic environment. Investors suggest emerging markets in MENA, Asia-Pacific and Eastern Europe will be least affected by economic crisis. Conversely North America is felt to be most seriously impacted by global economic environment (57%). Middle Eastern investors are well positioned to take advantage of difficult conditions elsewhere. Now is a good time for Middle Eastern investors to export capital through purchase of overseas assets Almost half the respondents (45%) suggested Middle Eastern investors stand to benefit the most through their ability to export capital. While confidence towards the Middle East is higher than elsewhere, the region is not totally sheltered from the chill winds of the global economic environment. Less than 20% of investors felt that the current economic situation was having a significant impact on real estate markets across the Middle East. Over 40% of investors suggest the current global economic environment is having little or no impact on their approach towards real estate investment in the Middle East. Mixed views on future conditions in global capital markets, with no clear consensus on whether economic conditions are close to ‘bottoming out’ Over 60% of investors are optimistic that global capital markets will either remain the same or improve over the next 1 – 2 years. Investors remain bullish towards the UAE, which is expected to show the best performance over the short to medium term. Saudi Arabia offers strong potential as this large and rapidly growing market continues to open up and offer new opportunities. Qatar is expected to offer strong performance, building upon its reputation as the next emerging GCC real estate market Almost 50% believe UAE will offer the best performing real estate market over the next 1 – 2 years. Further analysis shows that investors are particularly confident about the future performance of the Abu Dhabi market. Almost a quarter believe that Saudi Arabia will offer strongest performing real estate markets, driven by large and rapidly urbanising population and new legislation which is opening up of real estate market. Qatar emerges as the best performing GCC market (exc. KSA/UAE), with less investors expecting Bahrain, Kuwait or Oman real estate markets to perform the most strongly. Commenting on the survey’s findings, Ian Ohan, Head, Investment Transactions, MENA at Jones Lang LaSalle said: "The Gulf Region offers strong relative international value with active buyers in the region generally looking to transact at 8 - 8.5% yields for prime commercial operating assets and slightly higher for hospitality product. This is consistent with recent market evidence, however will likely bow to upward pressure as the cost of debt rises. "Maturing markets is the key theme here. Asset pricing in the region is increasingly being underpinned by cash flow valuation reflecting a shift from development-led to capital-based real estate markets. We are anticipating greater transaction activity as sellers' value expectations begin to more closely resemble income valuations as debt markets tighten and speculative exit opportunities decline." "Investors are looking for strong capital growth in Abu Dhabi, the Kingdom of Saudi Arabia and Qatar, reflecting their robust economic potential and more nascent stages in the real estate cycle. The issue of market transparency is high on the agenda of investors. This is being aggressively addressed through sustained government initiatives including the enacting of international best-practice legislation and the enforcement of strong corporate governance initiatives." Source: Jones Lang LaSalle