DUBAI — GCC direct commercial investments in international real estate will grow by nearly 50 per cent in 2008, to reach $20 billion, from $14.5 billion in 2007, according to Blair Hagkull, managing director of Jones Lang LaSalle's MENA region.
The GCC commercial real estate market has been transformed into a global market in the space of only 10 years, he said, speaking at the Global City Expansion Congress in Dubai. "The regional market will become increasingly international as the GCC becomes more closely integrated into global real estate markets." Growth in the value of international real estate investments by GCC investors will be driven by sustained high oil prices in 2008, increasing both private and sovereign wealth; the sub-prime crisis providing considerable demand for liquidity in mature markets; the expectation of record exports and the creation of new family offices and sovereign wealth funds, Hagkull said. And as the real estate investment market becomes more global he said to "expect a series of announcements that Gulf investors will take stakes in projects in North America and in Asia." Hagkull also identified the MENA region as one of the high performance markets for commercial real estate in 2008, along with Asia and Eastern Europe. There are several reasons why international developers, from all over the world, are attracted to the GCC markets, he said. Among them are strong government regulation and support, access to land and demand for quality and infrastructure provision. Other factors such as the GCC being a regional hub and an attractive business environment, the diversification of the economies and the speed of growth are also important, he added. The rate of economic growth, rental growth and development activity are an indication of strong market confidence, Hagkull said. Commercial rents in the GCC have continued to rise, with Dubai leading the way. According to statistics from Jones Lang LaSalle, rents in Dubai in 2007 stood at $102 per square foot, while in the Dubai International Financial Centre (DIFC) they were higher still at $139 per square foot. In 2008, commercial rentals in the DIFC are expected to be $170 per square foot, compared with those in London's West End of $224 per square foot. And while rental growth in commercial property is slowing in cities such as Kuwait City, the City of London and London's West End, and even falling in Beijing, they are accelerating across most of the Gulf. This includes Muscat, Abu Dhabi, Doha, Riyadh and Jeddah as well as Dubai, Hagkull pointed out. He also said that investment markets for real estate were are becoming increasingly international. The global listed real estate market is worth $1.8 trillion, institutional investments are worth $9 trillion and all commercial real estate is worth $23 trillion, he said. A number of factors are driving an increase in the number of institutional investors entering the GCC market, Hagkull explained. These are the knock-on effect of the sub-prime crisis in the US, access to local debt, a decreased perception of risk in the region, growth in end-user demand and the delivery of a quality product. Moreover, in Dubai, the increased transparency resulting from the introduction of new real estate laws had further enhanced the attractiveness of the market to international investors. In terms of Jones Lang LaSalle's transparency index, Dubai is placed at the top of tier 3 (out of five tiers), ahead of Eastern Europe, Brazil and India (out of five tiers).
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