EXPERT EYE – Investing in a pre-World Expo environment

 

mrmohanadEvent expected to provide the impetus for continued growth in all segments

A lot has been said,and much has been written about Dubai’s Expo 2020 bid, and the successful after- math of the long wait after it was announced in November last year that Dubai, indeed, emerged victorious.

Many industry insiders predicted how an Expo win would lead to the escalation of property rates in the emirate, and people waited, with some enthusiasm and excitement, and a tinge of fear, thinking that more spikes In rates would definitely take place even as the industry had begun experiencing a modicum of stability and growth some months before the announcement of the bid win.

Logic dictates that hosting the 2020 World Expo will provide the impetus for continued growth in all segments of the Dubai real estate industry but, as with all extraordinary events, there are many nuances that must be considered.

The residential segment will enjoy a surge in demand for accommodation of all types, from labor camps to apartments to executive villas, for the additional 270,000 or so new jobholders that will enter the market.

However, we expect a gradual rise in rents leading up to and including the period of the event to be more likely than a sudden spike.

This expectation is based upon analyses of existing supply-demand streams,increasing industry regulation and oversight, and the fact that Dubai winning the Expo 2020 bid was already partially priced in by the market.

Values will rise, but differing asset types and locations will not move in unison. As the Expo 2020 preparations move from the analytical  and planning phases through to implementation and eventual launch and operational phases, real estate requirements will differ.

Initially, investor demand will drive much of the value appreciation. However, initial end-user demand is likely to increase for accommodation,both for villa and apartment units, with close proximity and easy access to the Expo 2020 site itself.

The demand for this type of property will continue to increase in the run up to the launch and duration of the Expo, and the capital return curve will steepen as the event approaches.

Meanwhile, office and commercial space in general some located within the Jebel Ali Free Zone, will also benefit from a rise in demand as operations are commenced for those companies involved in the initial construction or preparatory phases.

Developments in close proximity to the Expo site will be in focus as logistics, storage and service providers look to set up
operations. Labor camps will be required from the initial stages as the race to implement the infrastructure required to cater with so many visitors begins in earnest.

Demand for residential, retail and commercial space alike will spread to the more central areas of Dubai at a later stage as retailers, hotels, service providers, and those operations supporting the tourism industry hire additional staff and set up operations to support the event, service the bevy of new business operators, or the millions of additional shoppers.

So, while the World Expo 2020 is great news for the industry, it brings with it a new set of considerations for the prudent investor. Which assets, located where, purchased in which timeframe are likely to provide the best return on the investment dollar and, perhaps, more importantly, what is the likely performance of the asset when the event is over? The 2020 World Expo will provide many opportunities for real estate investors, but maximizing returns will require some very careful planning.

 

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