A gap between luxurious and average rentals deepens, while investors prefer low-risk projects. A new report by Knight Frank consultancy revealed the situation in investments and rental segments for commercial real estate in the UAE.
Investors’ demand for prime UAE real estate remains strong, despite the tuff times at the wider UAE’s real estate market. Moreover, premium offices, logistics sector premises (warehouses and stocks), as well as healthcare units are in highest demand, according to a recent report by Knight Frank, the reputable international consultancy.
“We expect a fairly resilient market for well-let, institutional quality, single-ownership assets, which will continue to attract investor interest,” says the report.
A number of reasons made possible a tenant-led market, where owners would rather give discount on rents than leave their property vacant. The growing difference in prices between centrally located quality units and average mid-income property units in less popular and less prestigious areas is another result of this situation.
Knight Frank’s report also said that over the last year, rental yields had widen the most for prime and secondary properties in the Dubai’s market office sector. Centrally located best assets are still commanding a premium to the wider market and keep enjoying great interest from investors.
“The divergence between prime yields and secondary continues to widen, reflecting the fact that investors are willing to pay a premium for assets seen as lower risk, in core locations and with credit-worthy tenants,” said Joseph Morris, partner at Knight Frank.
Investment in other sectors of the real estate market, such as logistics and industry, also still catches an eye of the far-sighted investors, despite the minimal transaction activity recorded in this sector last year.
“The recent decision by the Central Bank of the UAE to loosen the 20 per cent lending cap to real estate previously imposed on banks may also bring further liquidity to the sector.”
Besides, there’s still a rather big amount of unallocated real estate capital in the region because of a deficiency of the Grade A units available, it added.
“Positively, over the last 12-18 months we have witnessed the bid-ask spread narrowing as sellers adjust expectations given current market conditions and as a result are becoming more realistic to the pricing levels that can be achieved,” Knight Frank added.
“We envisage this trend to continue during 2019.”
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