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Dubai often attracts multinationals looking for a base to serve the wider region. ��������Ƶ, though armed with a much bigger economy and population than the nearby emirate, can be overlooked.
This is about to change, said Nicholas Maclean, managing director for the Middle East at the real estate services firm CBRE. He believes that economic and political reforms spearheaded by Crown Prince Mohammed bin Salman are drawing the attention of international and GCC-based corporates and investors.
“We see a significant increase in the interest in ��������Ƶ. They want to know what is going on. They are interested in the changes — and they are interested in looking at the country for opportunities,” he said.
Over the past year, ��������Ƶ has lifted the 35-year ban on cinemas, announced plans to build up its tourism sector with luxury resorts on islands in the Red Sea, and revealed details of a new $500 billion business and industrial zone development, called Neom, which will have links to Jordan and Egypt.
“The level of enquiry we have to produce reports or give some commentary on ��������Ƶ to the US and Western Europe has gone up tenfold in the last 18 months,” he said, noting that interest spans sectors including retail, pharmaceuticals, defense, and hospitality.
However, a scarcity of appropriate real estate assets to buy will be a challenge for some of those interested investors.
“The nature of the real estate they require doesn’t exist at the moment. So we see corporates through their funding partnerships looking to create facilities that are fresh,” Maclean said.
The potential of the residential housing sector is another area catching the eye of international developers, particularly from the US, which, Maclean said, are looking to partner with Saudi organizations or families.
“Some of the big housing schemes are probably not in the locations where people want to be — so building housing en masse for young Saudis in locations where they want to live and have jobs is an opportunity for big international house builders,” he said.
With more international firms looking to find, manage or invest in property within ��������Ƶ, it has become increasingly relevant for CBRE to have a presence in the Kingdom.
“Now is the right time to go into the country,” Maclean said.
CBRE has signed a partnership agreement with local firm Dar Al-Riyadh and has been busily recruiting staff for the new office. It is set to bring in a team of members between now and August, and plans to host two launch events planned for October.
“We see that as ��������Ƶ appears to open the doors for more internationalization of its business sector, then we need to be there,” said Maclean.
The company currently has an operational presence in the Kingdom, offering services from ��������Ƶ that fall under its “Global Workspace Solutions” business line.
This area of business — which includes facilities management services — is designed for CBRE’s international corporate occupier clients. These companies could be occupying anything from offices to retail outlets or manufacturing spaces.
Maclean envisaged a “full service business” being offered in the Kingdom in the next few years, which will include a consulting division as well as other business lines such as advisory and transaction services and valuation services.
He is upbeat about the expansion, predicting Saudi business will grow “very fast.”
“It will at least match the scale of the businesses across the rest of the region put together within a relatively short period of time of three, four or five years,” he said.
CBRE’s growth ambitions in ��������Ƶ will benefit from what Maclean sees as a greater “willingness” and “change of attitude” among Saudis to work with companies overseas.
Examples of this willingness could be seen last year when foreign investors were allowed to participate in initial public offerings in the Kingdom, as well as to access a parallel stock market for small and medium-sized businesses.
International cinema chains from the UK and US were the first companies to sign deals to launch multiplexes in the country after the lifting of the ban in December.
“Where the challenge is for us is ensuring we bring some of the international expertise we have and make sure we fit culturally, and it is not insulting or patronizing to the local market,” he said.
Saudis themselves will play an important role in the growth of CBRE’s business, Maclean said, explaining that around half the workforce will be Saudi.
“We want to take young Saudis out of the country and put them through an international training program and bring them back,” he said.
While ��������Ƶ is now catching the eye of corporates, the business and trade hub of Dubai has clung on to its appeal to international business.
The low oil prices seen in recent years had posed a threat to the emirate, with some companies — particularly in the oil and gas sector — downsizing their operations and reviewing whether they really needed their expensive high-rise offices.
Maclean said he had seen signs that Dubai is getting much busier again.
“The drive back from Abu Dhabi to Dubai is painful again in the evenings,” he said anecdotally, referring to the increasingly busy main road linking the two emirates. “Getting around Dubai … it feels busier,” he said.
Maclean added that CBRE has enjoyed its “best year ever” in 2017 in Dubai’s commercial property sector, particularly among the Fortune 500 corporate clients.
This was in part due to many larger companies going through a consolidation process, moving to smaller offices, or taking fewer floors or even sharing property with others. CBRE provided advisory and other services that support those moves.
The quality of new available properties has also improved, Maclean said, noting there has been a “flight to quality.”
A CBRE research note released in February said that sustained occupier demand for good-quality office accommodation is likely to stay “relatively firm” for the next few quarters.
However, available office space will continue to outstrip demand as new completed properties come on to the market, the note said. This has placed particular pressure on “secondary quality” office space.
“The primary segment of the marketplace in Dubai and Abu Dhabi is going to perform quite well over the next two or three years, and probably the secondary or tertiary market will perform less well,” Maclean said.
Dubai-based companies, as well as those elsewhere in the UAE, are also paying much closer attention to how the office environment can help retain staff, which opens up opportunities for CBRE.
“We see more creativity in the interior designs,” he said, noting rising demand for more breakout spaces, and other features aimed at making the workplace a more pleasant place to be.
Retail is another area where CBRE sees increasing opportunity to offer its services, and the company recruited a new team focusing on this sector last year.
Dubai’s malls have long been a vital cog in the emirate’s economy, attracting tourists and locals alike to shop, eat, go to the cinema and even ski.
But with the launch of online retailer noon.com in September and Amazon buying souq.com, the sector is facing fresh challenges.
“Finding the balance between bricks and mortar and online is something we have people that specialize in around the world,” said Maclean. Retailers across the UAE are also dealing with the new value-added tax (VAT) which came into force at the beginning of this year.
However, one of the biggest opportunities in the commercial sector could be to open up the UAE’s commercial real estate market to more international investment, Maclean said.
“From an institutional perspective, there is some level of frustration. “There are lots of institutions that want to take a stake in Dubai but don’t. The nature of the market is relatively illiquid because that stock that comes to market, outside of the residential sector, is snapped up by GCC investors,” he said.
These buyers then tend to hold on rather than sell these assets.
“There is a really interesting opportunity for the UAE to capture a greater slice of foreign institutional capital moving around the world,” he said.
On the residential side, Dubai is preparing for a flood of new units to come onto the market which may keep property prices subdued.
Close to about 30,000 new units were added in 2017, according to CBRE figures published in February. The company has forecast that more than 90,000 new apartments and villas could enter the market between 2018 and 2020.
Maclean said there is always a “question mark” over whether the planned properties will be delivered on time, adding that developers may alter the delivery pipeline depending on demand.
Yet, this excess of supply coupled with reduced prices has lured many buyers back to the market.
Sales of off-plan properties increased by about 56 percent in 2017 compared to the previous year, in terms of the number of transactions, while the total value of sales increased 44 percent on the previous year, according to CBRE data.
“What we deduce from that is that gradually declining prices have reached a level which encouraged people to come back to the market,” he said.