Colliers International releases its MENA overview 2009 report

The second edition of the most comprehensive regional overview of its kind provides comparative key performance indicators across 7 markets in the Middle East and North Africa (MENA). In addition, Colliers International commissioned three surveys, covering Cityscape exhibitors, financial institutions, and commercial property occupancy in order to assess the pulse of the Dubai real estate market.

According to the Cityscape 2009 Survey, which recorded the responses of 28 developers exhibiting at the Middle East's largest real estate event, 71% of respondents believed that the Dubai market has yet to bottom out. Only 18% of respondents confessed to suspending sales until the market had recovered sufficiently. Sales enquiries were lower this year than in 2008 and focused on residential rather than commercial developments. However, on a positive note, the majority of sales enquiries were for developments in Dubai and Abu Dhabi.

The Banking Survey, which aims to develop an understanding of institutional property finance criteria and restraints, included responses from 13 institutions, 10 local and 3 international. Lenders reported a hardening of loan criteria for both residential and commercial property loans, driven by a heightened aversion to risk and on-going downward corrections in property values. Loan-to-Value ratios have been lowered to 50-85% from last year's peak rate of around 95%, while 80% of institutions are reluctant to lend against properties in developments that are not yet completed or at least close to completion.

Despite the current low investor confidence, 77% of the lenders surveyed maintain a overall positive outlook for 2010, driven by an expected increase in governmental support to ease liquidity restriction in the banking sector. This should result in lower interest rates and also higher Loan-to-Value ratios. Also, 57% of the respondents indicated that lending criteria and internal restrictions are expected to ease during the next 6 to 12 months.

The Dubai Office Occupancy Survey monitors the performance of this real estate sector in light of the economic crisis by comparing the occupancy level of specific buildings between Q1 2009 and Q3 2009. The survey indicates a market beset with falling demand and oversupply evidenced through increasing vacancy levels and falling take up rates. The gap between demand and supply is expected to amplify due to a significant increase in forthcoming supply, which is expected to double the current market supply of 3.0m m² leasable area to around 6.0m m² by 2011.

Commenting on the MENA Overview 2009 JP Grobbelaar, Director: Research and Advisory, said:

"Despite differences in socio-economic, demographic and regulatory factors between the markets, the overview highlights a common theme: the deterioration of regional markets over the last 12 months in the face of the global economic crisis. Prices have fallen, in some cases precipitously, as liquidity tightened, economic activity slowed and negative sentiment grew."

Grobbelaar added: "We would expect that the recovery of each regional market will correlate to the level of exposure the market has to any global economic recovery, and most importantly, the extent to which the demand-supply dynamic is unbalanced."

"We maintain that a return to fundamentals will continue through-out the down swing in this property cycle. Increasingly, investors and end-user shift their attention onto properties where quality of product, location strength, supporting leisure and commercial amenities and effective facility management meet end-user requirements," concluded Grobbelaar.

Key report findings:

• Well-planned developments will enjoy stronger demand than poorly designed developments, which enjoyed price appreciation due to market undersupply and speculation rather than quality of product.
• 71% of developers surveyed at Cityscape Dubai 2009 believe that the Dubai Market has yet to bottom out.
• 77% of the lenders surveyed keep an overall positive outlook for 2010.
• Dubai Office Market capacity set to increase by 100% between 2009 and 2010.