Real Estate Investor Sentiment Survey Middle East & North Africa Eighth Edition, October 2013 Tightening yields market maturity or sentiment driven? Middle Eastern investors remain active purchasers of real estate on the international stage. A seller s market within MENA, with more buyers than sellers in most sectors, resulting in a tightening of yields. Returning confidence and improved sentiment, particularly towards Dubai. Income producing assets remain in most demand but signs of increased interest in land in selected locations. First signs of a sustainability premium for green buildings capable of demonstrating reduction in operating costs. Appetite growing for large deals with asset managers investing through collective investment vehicles.
Contributors Gaurav Shivpuri Head of Capital Markets, MENA Craig Plumb Head of Research, MENA Fadi Moussalli Regional Director - International Capital Group, MENA Abdulkader Monla Associate - Capital Markets, MENA Cynthia Nasseh Senior Research Analyst, MENA Lea Venezuela Analyst - Capital Markets, MENA Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialised real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of USD 3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed USD 63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has USD 46.3 billion of real estate assets under management. Ethisphere Institute World s Most Ethical Companies 2008 2013 Across the Middle East, North and Sub-Saharan Africa, Jones Lang LaSalle is a leading player in the real estate market and hospitality services market. The firm has worked in 40 Middle Eastern and African countries and has advised clients on more than USD 1 trillion worth of real estate, hospitality and infrastructure developments. Jones Lang LaSalle employs over 250 internationally qualified real estate and hospitality professionals of 30 nationalities with regional offices in Dubai, Abu Dhabi, Riyadh, Jeddah, Cairo, Casablanca, Istanbul and Johannesburg.
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 3 Welcome to our Eighth Real Estate Investor Sentiment Survey It is my pleasure to present the findings of Jones Lang LaSalle s Eighth Real Estate Investor Sentiment Survey for the Middle East and North Africa. This year s survey went out to just over 300 regional investors, which included a combination of private families, institutions, developers, asset managers and sovereign wealth funds. I would like to thank those who participated in the survey and would encourage others to participate in future editions. It is our objective that the results of this survey, which is available on our MENA webiste (www.jll-mena.com), will allow investors from around the region to benefit from the views and opinions of their peers and create a more transparent market for investment decision-making. Given the growing interest among Middle Eastern players to invest internationally, we have added an international section to the survey, which allowed investors to share their overseas strategies. I look forward to hearing any feedback or comments that you may have about this survey. Best regards, A key message from this year s survey is the growing interest in real estate amongst different investment lifestyles. The tightening of yields and the increased allocation of capital to the asset class indicates the return of confidence to the sector. This is further reflected in the positive sentiment towards the next 12 months expressed by most respondents. The above, coupled with banks showing more interest in lending to the sector, suggests the possibility of more transactional activity in the real estate sector in the coming few months. Gaurav Shivpuri Head of Capital Markets, MENA
4 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Key Findings This year s investors choices reflect the return of confidence and improved sentiment towards the real estate market. Real estate remains the preferred option in view of the current interest rate cycle, the lack of opportunities in other asset classes and the improving fundamentals. Middle Eastern investors remain net buyers of real estate while the market is a sellers one. Nevertheless, we continue to see a large number of investors who are seeking to rebalance their portfolios, by disposing of non-core assets and acquiring those more in line with their long term investment strategies. Dubai continues to be the preferred market in the region, supported by strong economic fundamentals, booming tourism and aviation industries, better regulations and availability of more investment grade products. On the international front, Europe, led by London, and North America are the preferred international markets. Investors have started also to look at some of the developing Asian countries (eg Hong Kong, Singapore, etc). The residential segment remains investors favourite sector, reflecting the predominance of private groups and family investors and lack of institutional players in the Middle East. While most investors continue to seek income producing assets, development will remain an option due to the nature of Middle Eastern investors who, for the most, are also developers. The trend has started to move towards larger ticket transactions, a reflection of the growing confidence in the market. The better sentiment and returning confidence have also resulted in a tightening of yields, especially in the better performing markets such as Dubai. Location remains the most important factor when considering a real estate investment. Unlike other investments, real estate is very much affected by the conditions of the surrounding areas and other local factors. The growing importance of factors such as exit strategies and transparency show an increasing maturity among the region s investors. Sustainability is starting to gain more importance amongst the investors community, with more investors willing to pay a premium for green buildings.
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 5 Middle Eastern investors remain active on the global real estate stage Commercial real estate investment activity continues to surge ahead across the globe, with transactional volumes (on an annualised basis) at their highest level since Q3 2008. Global real estate transactions reached USD 225 billion over the first half of 2013, 12% higher than the first six months of last year. Jones Lang LaSalle is forecasting transactional volumes of USD 450 500 billion for the full year, even if the rising cost of debt in the US may cause the market to pause slightly in the third quarter. While office activity was robust, the retail, industrial and especially the hotel sector recorded strong year on year growth. London remains the most actively traded city; whilst more secondary cities are seeing increased overseas investment flows, particularly US cities. Middle Eastern investors remained strong buyers of real estate in international markets. In the first half of 2013, investors from the region accelerated their purchasing activity, deploying almost USD 4.9 billion, an increase of 6.5% y-o-y. While London and the UK remain the favourite markets, there has been a diversification of interest towards other markets, including France and the US. The UK retained its dominant position with a 53% share (USD 2.5 billion) of all investment volumes in H1 2013, an increase of 32% compared to the same period last year. France followed it with a 20% share of investment volumes as a result of a single transaction of USD 924 million. Middle Eastern investors have also showed a preference for hotel assets in H1-2013, which accounted for a 65.6% share of all transactional volumes in H1 2013, more than double the share in the same period last year (27.6%). Constellation Hotel Group (from Qatar) completed two large hotel deals, the Groupe du Louvre portfolio in France for USD 924 million and the InterContinental in London for USD 463 million. Other large hotel deals include the Abu Dhabi Investment Authority (ADIA) buying the UK Marriott portfolio for USD 962 million as well as 31 Accor-branded hotels across Australia for USD740 million, Qatari Diar acquiring the W Barcelona for USD 261 million and the Al Mirqab fund from Qatar purchasing the Four Seasons in Italy for USD 183 million. Those major hotel investments demonstrate the ability of Middle Eastern investors to transact very large lot sizes individually and without equity partners. Sovereign Wealth Funds (SWF) such as Kuwait s St Martins have also been active participants in the office sector as they acquired 5 Canada Square London, a Grade A office located in London s Canary Wharf for USD 595 million. It is interesting to note that Sovereign Wealth Funds continue to account for the largest share of cross-border investments from the Middle East with 48% share of investment volumes in H1 2013. As Arab institutional capital devotes more money to real estate, we expect flows from the Middle East to continue to play a major role in international markets, with these investors increasingly taking direct positions as opposed to indirect fund exposure. London, England
6 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Weight of money creates a seller s market As in the previous edition, this year s survey shows that regional investors are net buyers of real estate, indicating that it remains a seller s market. Regionally, close to half of the respondents identified themselves as exclusive buyers, while only 9% declared being exclusively sellers. There were also a larger number of investors who intended to both buy and sell, indicating a continuing strategy of portfolio rebalancing, a trend that was also highlighted in last year s report. The major challenge to this strategy remains the difficulty of sourcing sufficient suitably priced investment products. Jones Lang LaSalle View: On the back of the current interest rate cycle, the lack of opportunities within other investment classes, the yielding nature of the asset class and economic fundamentals, real estate remains of interest to investors around the region. However, the current lack of alternative options in the deployment of sales proceeds is hampering transactional activity and resulting in owners holding on to assets. As expected, this year s results show a divergence between those regional markets that are perceived to be secure and stable (eg UAE, Saudi Arabia) and the markets where political uncertainty lingers (eg Bahrain, Egypt and Syria). Internationally, the survey indicates that there is a greater interest in purchasing assets by regional investors. Around two-thirds of respondents indicated their intentions in buying real estate in overseas markets, compared to only 2% who stated they will be selling their real estate. The remaining 32% indicated they will be keen to rebalance their international portfolios and they may be looking to dispose of some of their assets and acquire new income producing properties. The survey shows that a large number of investors based in the UAE and Qatar were considering acquiring in international markets, whereas respondents from Saudi Arabia were more evenly divided between purchasing and selling. Bahrain Financial Tower, Bahrain Investor intentions (buy, sell or both) MIDDLE EAST INTERNATIONAL 49% 9% 42% 66% 2% 32% BUY SELL BOTH BUY SELL BOTH
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 7 Dubai remains investors preferred market Dubai, once again emerges as the preferred real estate market for investors within the region. Its safe haven status, market transparency and ease in investment process continue to attract investors from around the region. Coupled with expected demand growth on the back of improving economic indicators and the strong candidature for Expo 2020, this has increased sentiment towards Dubai and faded memories of the property crash of 2008. Europe has emerged as the favourite destination internationally for Middle Eastern investors in the 2013 survey. The majority of the interest is focused on Central London which investors find relatively immune to the economic uncertainty still prevailing elsewhere in Europe. This year, we have seen the resurgence of Abu Dhabi as a regional investment destination, with close to 30% of the respondents keen to consider opportunities in the UAE capital. This also confirms the perception that the real estate market in the city is stabilising and the market is expected to rise in the future. Saudi Arabia continues to be of interest to investors, although we have seen a decline in sentiment compared to the previous survey. While the market fundamentals remain strong, the lack of transparency, the difficulty in breaking into the market and the weak office sector have reduced the interest among investors from outside Saudi Arabia. We have also noted that a number of Saudi investors are looking to diversify their investments outside the Kingdom, which is also reflected in reduced internal interest this year. As would be expected, most investors are currently staying clear of Egypt, until the dust settles. Given the renewal of political uncertainty, the general sense is to wait for firm evidence of returned stability before making any investment decision in the market. The combination of tight investment yields in Europe and improving economic data is providing some risk inclined investors with the confidence to re-enter the US market. Interest in both developed (Japan, Australia, Hong Kong) and developing (China, India) Asia Pacific markets from the Middle East region remains modest. The availability of local funds in many of these markets, along with a general unfamiliarity and the lack of risk appetite are the core reasons for this. Jones Lang LaSalle View: Over the past few years, Dubai has clearly emerged as the centre of regional investor interest in real estate within the Middle East. While there are some signs of overheating in the residential market, Dubai is expected to remain a vibrant real estate market and continue to attract investor interest and capital from around the wider region. We are also witnessing a diversification strategy being adopted by regional players who are investing internationally, particularly in the UK. We anticipate this trend will continue in the near future, given the current political concerns in the Middle East region.
8 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Residential is the preferred asset class Similar to last year, the 2013 survey showed a high level of interest for residential real estate across most regional markets. This investor choice emanates from the dominance of private and family groups in the region and the strong demographic fundamentals, with a growing population and increased need for residential units. The office sector appears to have gained popularity amongst investors compared to last year s survey, which reflects the stabilising market environment in this asset class, particularly in cities such as Dubai and Jeddah that are now positioned in the early upturn stage of their market cycle. Jones Lang LaSalle View: The weaker recovery of the commercial sector in most regional markets and the ownership of retail assets by specialised retail developers is driving investor interest towards the residential and hospitality sectors, where more opportunities are available. With the improving demand fundamentals in Dubai and the tightening of yields, interest in land has increased from last year, which indicates the likelihood of more development activity in the next 24 36 months in the city. Hospitality continued to score well in the survey. Interest in hospitality was particularly strong in Dubai as the Emirate is witnessing a surge in the number of visitors, partially driven by the continued political unrests in various Arab countries. Strong interest was also expressed for hotels in Europe. The drop in logistics interest compared to last year is largely driven by the lack of product availability as real estate in industrial zones is controlled by governmentbacked entities, which are less inclined to sell. Top 10 hot spots 1 2 3 4 5 DUBAI RESIDENTIAL DUBAI HOSPITALITY SAUDI ARABIA RESIDENTIAL DUBAI RETAIL ABU DHABI RESIDENTIAL 6 7 8 9 10 DUBAI OFFICE DUBAI INDUSTRIAL SAUDI ARABIA OFFICE SAUDI ARABIA RETAIL SAUDI ARABIA INDUSTRIAL Improvement Deterioration Stable
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 9 Retail continues to attract strong investor interest with many of this year s respondents indicating they would be keen to invest in retail assets in the region. Interest in this sector was much less internationally. However, there remains very limited choice of investment opportunities in the retail sector as strongly performing centres are tightly held by a limited number of players in most regional markets. Interest in the logistics/light industrial sector has declined overall compared to last year. This can probably be attributed to the strong government control over industrial developments and industrial zones that results in limited scope for private investment. Dubai and Saudi Arabia are the two preferred markets for investments in logistics and industrial in the eyes of investors. The industrial sector remains a niche market, with only a handful of investors currently active. Interest in land has increased in Dubai over the last year. This is probably a reflection of the market recovery that has opened opportunities for development, which had remained a quiet sector until earlier this year. Internationally, the residential sector has emerged as of increased interest, along with the traditionally popular office and hotel sectors, reflecting the interest in second homes in core cities in the US and Europe. This has generated investor interest in partnering with developers on new build residential schemes in these markets. Hospitality remains a key sector of choice for regional investors in Europe. While some of them may be seeking distressed opportunities in challenged European economies, others are continuing the trend of Middle Eastern investors acquiring trophy hotels in Europe, witnessed over the years. Please indicate the asset classes and markets that you would consider investing in 120 100 80 60 40 20 0 UAE Dubai Saudi Arabia Europe UAE Abu Dhabi America Other GCC Developed Asia Pacific* Sub Saharan Africa Developing Asia Pacific** Qatar Other MENA Egypt Number of respondents Land Industrial / Logistics Hospitality Retail Residential Office * Developed Asia Pacific (eg Australia, Japan, Hong Kong, Singapore etc) ** Developing Asia Pacific (eg India, China etc) Note: Respondents able to select multiple markets.
10 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Investors remain income focused As expected, this year s survey continued the trend seen in the last few years with investors still focusing on incomeproducing real estate assets. Having said that, we have also witnessed an increased interest in land in this year s survey, which points to the likelihood of more new development activity in the coming few years. Preferred investment strategy 75.6% 43.6% 42.3% With demand symptoms recovering generally across the region, investors have also showed greater interest in undertaking redevelopment or value add projects in this year s survey. We saw a growth in investors seeking partially completed projects, given the reduction of leasing risk perceived by the market. INCOME PRODUCING* VALUE ADDED DEVELOPMENT * Investors had the option to select multiple strategies The development or opportunistic strategy scored lowest in our survey. This strategy involves high risk but can also generate higher returns. In general, investors who choose this strategy are family offices and developers who hold large land banks. Normally, their strategies involve investments in niche property sectors, such as affordable housing, education, healthcare or logistics. Jones Lang LaSalle View: For now, the inexpensive cost of debt, the continued yield gap and the growth in rents, provides investors with enough spread to continue to focus on income or value add opportunities, where asset stabilisation period is short. The current preference for passive income producing investments could change over the next 12 months, as demand rises and yields for operating assets remain tight, making new real estate development lucrative on a risk adjusted basis. While the emphasis typically shifts away from development to passive income producing investments over time as markets mature, the opposite may apply in the MENA region over the short term. The increased emphasis towards development reflects the relative immaturity of many of the region s markets and the anticipation of increased bank lending to development projects.
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 11 Trend towards larger deals As would be expected, most investors prefer smaller deals, with the largest group (63%) seeking assets in the USD 0 50 million range. This year, we have however also witnessed more confidence amongst investors to seek higher ticket transactions. This reflects a growing confidence in the real estate sector across the region and an increasing appetite amongst banks to lend to the sector. Jones Lang LaSalle View: With a greater level of liquidity available in the banking system and low interest rates, debt is finding its way back in the capital structure for real estate transactions, thus increasing the lot sizes. More than 15% of the investors felt comfortable to invest over USD 100 million in single asset deals, more than 50% higher than last year s survey. Around 33% of this year s surveyed investors expressed a preference for deals of less than USD 25 million (lower than the comparable figure of 44% in 2012). Over the last twelve months, Jones Lang LaSalle has received offers for projects in the region with large lot sizes (above USD100 million) and we believe a number of these transactions will complete in the next few months. Around 45% of respondents have earmarked up to USD 50 million to real estate this year, with over 10% having allocated more than USD 250 million. This points to the improvement of sentiment towards the sector and continued uncertainty towards other investment asset classes. There is also a growing willingness to use leverage to finance real estate transactions within the MENA region, with more than half of the surveyed investors stating that they would leverage up to 50% of their investments value. A slightly lower percentage (44%) said they would leverage overseas investments up to 50%. Despite the increased willingness to leverage overseas investments, the sweet spot for international transactions remains less than USD 50 million. Almost one-third of respondents said they will seek products of less than USD 25 million and few respondents have an interest in deals of more than USD 100 million. Dubai, UAE
12 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Willingness to seek leverage to finance real estate transactions MIDDLE EAST INTERNATIONAL 11% 51% 38% 8% 45% 47% NO YES UPTO 50% YES MORE THAN 50% NO YES UPTO 50% YES MORE THAN 50% Investors sweet spot (preferred deal size) MIDDLE EAST 33% 30% 22% 16% $0 $25 MILLION $25 $50 MILLION $50 $100 MILLION OVER $100 MILLION INTERNATIONAL 34% 29% 24% 13% $0 $25 MILLION $25 $50 MILLION $50 $100 MILLION OVER $100 MILLION Amount of equity to invest 45% 24% 19% 12% $0 $50 MILLION $50 $100 MILLION $100 $250 MILLION OVER $250 MILLION
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 13 Asset specific factors are the most influential Location remains the most significant factor for MENA-based investors, highly influencing their investment strategies. This is likely a reflection of the continued political uncertainty around the region. As last year, the second most important factor for investors from the region is the asset type, with most investors preferring income-producing, risk-free real estate assets with strong covenants. This reflects once again the still prevailing cautious approach of investors amidst a turbulent regional environment. Asset specific considerations (eg location, asset type) remained generally more important than the macro factors, although the local economic environment was ranked third by this year s respondents. Exit strategies have gained importance with respect to last year, suggesting the local market has continued to mature with investors learning lessons from the previous correction of 2008/9. The security of rental income and the likelihood of capital growth remained among the top considerations for MENA-based investors. Jones Lang LaSalle View: Investors continue to prioritise locations when considering investing in real estate. The choice of location at the macro level can be defined by the preference of more mature and politically stable cities such as Dubai. At a more micro level, there remains a big divergence between prime well established areas and secondary locations. Investors from the region seem to be becoming more mature, with increased focus on areas such as exit strategies and transparency. Sustainability remains an area where investors in the Middle East currently attach relatively little importance. We believe that this is likely to change over the next few years as investors become increasingly aware of the attractions of more sustainable developments. Transparency was ranked higher by this year s respondents and appeared to be more influential in the decision-making process. The size of deals, the availability of debt and the global economic environment have all received lower votes and thus appear to have less significance on investment strategies than in 2012. Environmental sustainability remains a relatively unimportant influence on investment strategies among MENA-based investors, although its relevance has increased compared to 2012. Dubai Marina, UAE
14 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 How significant are each of the following on your investment strategy? Location of the Asset Asset Type Local Economic Environment Exit Options Security of Rental Income Likelihood of Capital Growth Market Transparency Regional Political Instability Quality of Property Management Size of Deals Availability of Debt Global Economic Environment Environmental Sustainability (Green Buildings) 0.00 0.50 1.00 1.50 2.00 2.50 3.00 Rating Average Dubai, UAE
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 15 Yield expectations tightening Yields at which investors are willing to buy real estate continue to tighten across the region, especially for well-located and leased assets. Dubai has benefited most from this tightening of yields, with investors now open to buying real estate assets offering cash on cash returns between 7 8%. Investors have a bullish view on the residential sector with some investors willing to accept yields of below 7% to acquire high quality assets. Office market yield expectations were more evenly spread between 7 9% reflecting the perceived risk of the supply overhang that exists in Dubai. Yield expectations in Abu Dhabi were circa 50 100 bps higher than Dubai, as investors feel that this market will experience little or no improvement during the next 12 months. Yield expectations have increased in Saudi Arabia compared to last year s survey. This seems to be predominantly driven by the office supply overhang in the key cities, even though the perception on the residential sector was more positive in the 2013 survey. Investors indicated a willingness to acquire office assets at low yields (below 6%) in Europe and America (7 8%). For residential assets, the majority of respondents stated they would accept tight yields of below 7% in both Europe and America. Those investors looking to undertake new developments were typically seeking equity returns in the range of 10 20%. Within MENA, interest for development was largely confined to the core regional markets of UAE and Saudi Arabia. Global prime office yields, Q2 2013 12 10 8 Percent 6 4 2 0 Mumbai Riyadh Moscow Abu Dhabi Dubai Sydney Frankfurt New York Paris London Tokyo Singapore Hong Kong
16 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Office yields Residential yields 10 9 10% 10 9 10% 9 9 8 9% 8-9% 8-9% 8-9% 8 9% 8-9% 8-9% 8-9% Percent 8 7 8% Percent 8 7 8% 7 7 6 2012 2013 Dubai 2012 2013 Abu Dhabi 2012 2013 Saudi Arabia 6 2012 2013 Dubai 2012 2013 Abu Dhabi 2012 2013 Saudi Arabia Jones Lang LaSalle View: The tightening of yields in Dubai from last year can be attributed to a number of factors including improving fundamentals, expectation of future capital growth, perception of lower risk and positive sentiment created by Dubai s strong candidature for Expo 2020. The stabilisation of demand in Abu Dhabi is providing investors with confidence on the future performance, helping to stabalise of yields in the city. Weakening office fundamentals are drying up potential buyers for commercial assets in Saudi Arabia, pushing up yields, Given the political uncertainty in Egypt, the real estate market is stagnant with buyers unsure of entry price points and sellers not wanting to trade at the bottom of the market. This is resulting in investors taking a theoretical view on the yields that assets should trade at, rather than be guided by actual completed transactions. Riyadh, KSA
On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 17 Expectations of future performance According to the survey, Investors are bullish on the Dubai real estate market over the next 12 months. The residential and hospitality asset classes are expected to significantly outperform whereas the growth in the commercial and retail sector is expected to be more modest. Investors also expect the Saudi market to perform better in the coming twelve months, even if they remain less optimistic regarding the office sector. The prospects for the residential sector in particular are considered to be strong. The hospitality and retail sectors are also expected to registered growth in the coming 12 months. On the international front, the future prospects of the real estate sector in the United States was seen as improving significantly over the next 12 months across all asset classes. Investors expect the retail, hospitality, industrial and land sectors to generally perform better in Europe while the office and residential sectors are estimated to remain stable. Expectations of future performance The growth prospects for Abu Dhabi remain more limited, although investors felt that the market will stabilise throughout the next 12 months. The residential sector is expected to witness stronger growth compared to the other core real estate asset classes. Americas BETTER PERFORMING MARKETS Developed Asia Pacific Dubai STABLE MARKETS Qatar Saudi Arabia Across the rest of the GCC there is a general sense of optimism and expectation of value growth, especially in the residential sector. The commercial sector across the region is expected to remain stable with limited growth prospects over the short term. As would be expected given recent political unrest, most respondents are less positive towards Egypt than in 2012. Abu Dhabi Developing Asia Pacific Source: Jones Lang LaSalle Europe Rest of GCC WORSE PERFORMING MARKETS Egypt Sub Saharan Africa Prime rental property clock (Q3 2013) OFFICE RESIDENTIAL Rental Growth Slowing Rents Falling Rental Growth Slowing Rents Falling Dubai Rental Growth Accelerating Rents Bottoming Out Riyadh Jeddah Rental Growth Accelerating Rents Bottoming Out Dubai Jeddah Riyadh Abu Dhabi Cairo Abu Dhabi Cairo Source: Jones Lang LaSalle
18 On Point Real Estate Investor Sentiment Survey Middle East & North Africa October 2013 Sustainability While investors from the region still attach less significance to the concept of sustainable buildings than their counterparts in Europe or the US, this survey provides the first evidence that positions are beginning to change and some investors are now recognising the potential advantages that green buildings can offer. This year results show that 63% of investors across the Middle East would pay a small premium ((of less than 10%) for a sustainable building, with 4.5% willing to pay more than 10%. This represents an improvement compared to last year when only 41% of the respondents claimed they would pay a premium to purchase a green property. Around 30% of investors in this year s survey declared they will not invest more in a sustainable building. This figure has come down from 52% last year. Jones Lang LaSalle View: Despite the increased talks about sustainability, there has been little action thus far. The limited progress to-date is due mainly to a lack of legislation, the absence of any discernible financial premium, the heavily subsidised energy, water and waste disposal costs in the region as well as the limited awareness of environmental issues. The results of this survey provide the first indication that attitudes might be changing among real estate investors in the Middle East, with 63% stating that they would pay a sustainability premium (if only up to 10%) to acquire a green building, providing that it could be demonstrated that this asset would provide lower operational costs in subsequent years. We expect to see the development of more sustainable buildings and communities over time, but these changes will not necessarily be rapid and the trend to fully embrace the need for more sustainable real estate will take some time. First signs of a sustainability premium in the MENA market 62.7% 4.5% 29.9% 3% YES PREMIUM OF 0 10% YES PREMIUM OF GREATER THAN 10% NO WOULD EXPECT TO PAY LESS
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