Jul 22, 2011
Sharjah property market update
July 2011
Comment Sharjah's economy continues to deliver solid results in
difficult conditions. The reliance on manufacturing is now seen as the Emirates' great strength and proactive management of this sector over the past two years has been one of the key factors in its success.
Sharjah looks to a vibrant tourism sector
The economy In early 2011 the Sharjah economy experienced
some levels of growth indicating improvements in the levels of exports, production and manufacturing. This growth has been largely attributed to the industrial sector which continues to find the Emirate a suitable location for small, medium as well as large operations.
Average oil price per barrel (OPEC basket)
160 140 120 100 80 60 40 20 US$ 2005 2006 2007 2008 2009 2010 2011 0
Despite the growth, the Emirate has been able to keep inflation levels under control with the Consumer Price Index ranging between -0.4% and 0.26% between February and April 2011. The economic growth will hopefully be sustained through new investment in the Emirate's utilities. This has been one of the major issues that affected economic activity in the Emirate over the past 2 years. The President of the UAE, His Highness Sheikh Khalifa bin Zayed Al Nahyan, ordered the supply of 700MW of power by the Abu Dhabi Water and Electricity Authority (ADWEA) to Sharjah and the construction of a new main transmission station with a capacity of 400KV at a cost of AED 500 million. In addition to this he has also ordered the supply of an additional 10MIGD of water to the Emirate. There are also several exciting new initiatives being planned to encourage a renaissance in Sharjah. The driving factor behind such rejuvenation is the Sharjah government, as it actively seeks to enhance the quality of life in the Emirate for both residents and visitors. Evidence of this trend includes the regeneration of the Al Majaz Waterfront, twinned with the Sharjah Mall Development, the Sahara Mall extension and the emergence of several well known hotel operators in Sharjah for the first time.
past
current to date
minimum
maximum
Source: OPEC
Consumer price index April 2011 (%) Abu Dhabi Dubai Sharjah Ajman Umm Al-Quwain Ras Al-Khaimah Fujairah -0.3 -0.7 0.3 0.5 0.9 0.7 0.4
According to recent research by Shurooq, the Sharjah Investment and Development Authority, Sharjah has the second highest population growth rate in the UAE behind Dubai. The bulk of Sharjah's population is within the 25 34 year old age bracket, which is a key consumer and labour demographic. In addition to its healthy resident population, Sharjah also receives approximately 1.5 million tourists annually, with a projected annual growth rate of 10 15%. With Sharjah airport planning an AED 500 million expansion and Air Arabia opening new routes, there is clear demand to strengthen Sharjah's position as a key destination for both tourists and residents of the UAE.
cluttons.com/sharjah
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Cluttons Sharjah property market update - July 2011
Residential The Emirate is experiencing increasing downward
pressure on rental values as areas of Dubai are now competing with almost parity for budget accommodation like studios and one bedroom apartments.
Apartment rents reduce as a result of competition from Dubai
Residential supply
32 28 24 20 sq ft per annum (mn) 16 12 8 4 0 2009 2010 2011 2012 2013
The aggressive marketing campaigns from some developers in the Dubai market and the significant softening of rents has lead to an exodus of stalwart Sharjah residents who have commuted to Dubai for years. These tenants now have the ability to lease affordable property in Dubai, which was previously beyond their financial capabilities. The affect on rental values for apartments in Sharjah has therefore been considerable with some areas suffering as much as a 50% drop since the peaks of 2009/ 10. Due to the completion and handover of a number of large scale buildings in certain areas of Sharjah like Al Nahda, Al Tawuun and Al Khan, landlords have been forced into a competitive price war where rent free periods and almost monthly reductions of rents are being seen. That said, occupancy levels in well designed, well managed and reasonably priced buildings in popular locations continue to be high with void periods of less than one month on vacant units.
Apartment rents Q1 2011 Q2 2011 0 0
current
future
The villa rental market has seen less of a dramatic reduction however with an estimated downward movement of 20% on average over the past eighteen months. Tenants of villas in Sharjah tend not to be so transient and reside in units longer, thus limiting the availability of stock in the market. Combine this with the fact that there are no large scale villa developments or gated communities in the market, supply is limited to a small number of individuals who build villas and release them for rent. The majority of available stock in the Emirate is being provided by independent GCC landlords, many of whom have taken bank loans or mortgages to fund development. Historically such bank loans have been geared for a period of ten years based on an expected rental yield of approximately 10%. With the significant decline in rents over the past two years, landlords are now under pressure to meet loan repayments and banks may be forced to either renegotiate their loan periods or in drastic cases we may see a rise in repossessions.
One bedroom Two bedroom
(%) (%)
-7.4 -8.6
Average apartment rental rates
60 50 40 30 20 10 0
AED per annum (000)
We anticipate that the residential market will remain slow over the next quarter,
Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011
particularly as we enter the summer months which traditionally sees reduced leasing activity. Movement within the market will however continue with tenants taking advantage of the drop in rents to seek larger, better quality accommodation.
one bedroom
two bedroom
cluttons.com/shajrah
Cluttons Sharjah property market update - July 2011
Retail Retail Development in the Sharjah market is quite fragmented; this is in
contrast to the Dubai market which is dominated by a number of large players, and is typically focused around the new master planned developments. The total gross lettable stock in Sharjah is expected to reach 250,000 square metres by the end of 2011. However, much of the space is poorly designed and would require substantial updating if it is to compete with Dubai retail space over the next few years.
Sharjah continues to lack quality retail space
Growth in retail mall space
80 70 60 50 40 Area (000 sq m) 30 20 10 2004 2005 2006 2007 2008 2009 2010 2011 0 320 280 240 200 160 120 80 40 0 Area per mall (000 sq m)
As can be seen in the adjoining graph, almost all of the retail space was developed prior to 2003, and despite the growth in all other real estate sectors in Sharjah, retail suffered from under investment. This can also be seen in the average sizes of the malls, where the Sharjah average is around 35,000 square metres. The largest mall in the city, after the completion of the extension, will be Sahara Mall, but even with this extension, it will still be less than half the size of recent retail additions to the Dubai market such as Mirdif City Centre which can be seen as a direct competitor due to its location and design. Supply over the next few years is expected to remain restricted, with the previously mentioned Sahara Mall extension due for completion in late 2011, and Sharjah Mall due in 2013. Little information has been published on the latter, but we understand that it is part of a large mixed use development comprising a hotel and residential elements, and it is expected to offer around 26,000 square metres of space. The limited supply has the effect of maintaining rental rates across quality centres in the city. Naturally rates vary greatly by mall, by type of unit and location within a mall but the average rate for medium sized units as of June 2011 averaged AED 2,400 per square metre falling from 2,700 per square metre a year ago. This is due to the longer term leases typically seen in this sector, with anchors typically committing to between ten and fifteen years while smaller units tend to sign leases for a minimum of three years. The longer lease and the larger fit out costs seen in retail make rental rates in the sector less susceptible to short term volatility. The number of older malls in the city makes the retail picture more complex, as a number of these suffer from poor design and inadequate amenities. This factor maintains demand from retail operators for prime space in the city, as well as independent retail with good visibility and main road frontage especially in areas such as Al Wahda Street, King Faisal and King Abdul Aziz Streets.
Average rental rates Q1 2011 Q2 2011 225 -8.2
annual supply
growth trend
Retail development will continue to be very limited and, the recent addition of Union Mall, which specialises in construction supplies, is an indication that developers will be looking at niche markets for their expansions.
Malls (psf) Change (%)
245 -5.5
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Cluttons Sharjah property market update - July 2011
Industrial There is a concerted effort from the Sharjah government to
build on the solid reputation the Emirate enjoys in the industrial sector. The `Made in Sharjah' exhibition which took place in November 2010 is now being expanded into an international road show to promote more investments in the Emirate's industrial sector. Low production costs, the availability of capital resources and of qualified manpower are some of the advantages that are being highlighted in these events.
Sharjah to build on its solid reputation
Warehouse rental rates
40 35 30 25 AED per sq ft per annum 20 15 10 5 0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011
Data from Sharjah Economic Development Department (SEDD) shows that the Emirate witnessed a 7% increase in the number of new and renewed licenses issued in 2010 (52,975), as compared to statistics for 2009 (49,476). During the same period, the number of new licenses and industrial licenses witnessed a 15% and 20% growth respectively. The continued growth in the number of trade, professional and industrial licenses issued in Sharjah is anticipated to increase the Gross Domestic Product (GDP) of the Emirate, enhance its economic diversification and assist in the creation of new jobs. While Sharjah is now seen as a strong industrial manufacturing hub, the Government needs to address a few teething issues that have the potential to snow ball into a major impediment for its growth plans for the sector. Shortage of energy both power and fuel has plagued Sharjah in the past. The Government had promised to take remedial actions which would be put to the test in the forthcoming summer months. Fire accidents in industrial areas have become increasingly common in recent months mainly because nearly 35% of the establishments are not adhering to fire safety regulations. Improvements in existing infrastructure are being executed in around the industrial areas. The Abu Shagara Emirates Road link has created a change in price dynamics within the
Issued licences 2009 2010 5.6 15.5 6.6
Industrial Area 1
Industrial Area 4
industrial areas. The eastern industrial areas are now a preferred location for both the investors and end users because of improved connectivity. The rental rates in the industrial areas have dropped by around 10% over the last six months. Warehouse rentals have dropped mainly because of the significant new supply that has entered the market in Industrial Area 16.
Renewed (%) New (%) Total
9.3 -52.8 3.7
Dubai contacts
Steven Morgan, MRICS Head of UAE +971 4334 8585 steven.morgan@ae.cluttons.com Ronald Hinchey, FRICS Head of Professional Services +971 4334 8585 ron.hinchey@ae.cluttons.com Jonathan Fothergill, MRICS Head of Valuation +971 4334 8585 jonathan.fothergill@ae.cluttons.com Lesley Preston Head of Property Management +971 4334 8585 lesley.preston@ae.cluttons.com
Middle East offices
Bahrain & Saudi Arabia +973 1756 2866 ian.gladwin.cluttons.com Oman +968 2456 4250 philip.paul@om.cluttons.com Sharjah +971 6572 3794 lesley.preston@ae.cluttons.com Abu Dhabi +971 2659 4001 william.dewsnap@ae.cluttons.com
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Whilst every effort has been made to ensure the accuracy of the data and other material in this report, Cluttons LLC does not accept any liability (whether in contract, tort or otherwise) to any person for any loss or damage suffered as a result of any errors or omissions. The information, opinions and forecasts set out herein should not be relied upon to replace professional advice on specific matters and no responsibility for loss occasioned to any person acting, or refraining from acting, as a result of any material in this publication can be accepted by Cluttons LLC. © 2011 Cluttons LLC
Cluttons Sharjah property market update - July 2011
" " . . 2010 .
:
) 52975( 2010 7% .) 49476( 2009 . 20% 15% . . . . 35% . . . 10% . .16
Warehouse rental rates
40 35 30 25 AED per sq ft per annum 20 15 10 5 0 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011
Industrial Area 1
Industrial Area 4
Issued licences 2009 Renewed (%) New (%) Total 9.3 -52.8 3.7 2010 5.6 15.5 6.6
Dubai contacts
Steven Morgan, MRICS Head of UAE +971 4334 8585 steven.morgan@ae.cluttons.com Ronald Hinchey, FRICS Head of Professional Services +971 4334 8585 ron.hinchey@ae.cluttons.com Jonathan Fothergill, MRICS Head of Valuation +971 4334 8585 jonathan.fothergill@ae.cluttons.com Lesley Preston Head of Property Management +971 4334 8585 lesley.preston@ae.cluttons.com
Middle East offices
Bahrain & Saudi Arabia +973 1756 2866 ian.gladwin.cluttons.com Oman +968 2456 4250 philip.paul@om.cluttons.com Sharjah +971 6572 3794 lesley.preston@ae.cluttons.com Abu Dhabi +971 2659 4001 william.dewsnap@ae.cluttons.com
)... ( , . . . )... ( © 2011 ..
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Cluttons Sharjah property market update - July 2011
. .2011 250 .
:
2003 . . 35 . 2011 .2013 26 . . 2011 . 2700 2400 . . . . .
Malls (psf) Change (%)
Growth in retail mall space
80 70 60 50 40 Area (000 sq m) 30 20 10 2004 2005 2006 2007 2008 2009 2010 2011 0 320 280 240 200 160 120 80 40 0 Area per mall (000 sq m)
annual supply
growth trend
Average rental rates Q1 2011 245 -5.5 Q2 2011 225 -8.2
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Cluttons Sharjah property market update - July 2011
.
:
. .2010/2009 50% . . 20% . . . . .10% . . .
Residential supply
32 28 24 20 sq ft per annum (mn) 16 12 8 4 0 2009 2010 2011 2012 2013
current
future
Apartment rents Q1 2011 One bedroom Two bedroom (%) (%) -7.4 -8.6 Q2 2011 0 0
Average apartment rental rates
60 50 40 30 20 10 0
AED per annum (000)
Q2 2010
Q3 2010
Q4 2010
Q1 2011
one bedroom
two bedroom
cluttons.com/sharjah
Q2 2011
2011
. .
:
2011 . .
:
Average oil price per barrel (OPEC basket)
160 140 120 100
.2011 0.26% 0.4 - . 400 700 10 . 500 . . . . )( . . 34-25 1.5 500 .15%-10 .
80 60 40 20 US$ 2005 2006 2007 2008 2009 2010 2011
maximum
0
past
current to date
minimum
Source: OPEC
Consumer price index April 2011 (%) Abu Dhabi Dubai Sharjah Ajman Umm Al-Quwain Ras Al-Khaimah Fujairah -0.3 -0.7 0.3 0.5 0.9 0.7 0.4
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cluttons.com/sharjah
