How would you describe the climate in the real estate market in the UAE today? How different are market dynamics in the individual emirates?

MACLEAN: The property markets in the emirates are very different from one another. There are more than seven different property markets here and Dubai itself has got different subsets within the marketplace. The Dubai market is leading the resurrection of the markets here at the moment and the central business district of Dubai is very busy in terms of demand and in terms of new people entering into the marketplace. This is positive for the UAE overall. Insofar as Abu Dhabi is concerned, there’s a plan to create a major business center based on the development which is currently underway. It is slightly behind where Dubai is, in terms of the development cycle, but we expect quite a lot of stock to be delivered to the market over the next few years. The demand and supply of commercial accommodation is not on par with Dubai in terms of scale but includes some very high, international quality buildings. The Northern Emirates are seeing less international commercial demand but their development models have been different from Dubai and Abu Dhabi. They are dominated by the residential sector, including the second homes market, which globally has seen a difficult recent period of demand. Demand from within the GCC market for this residential sector has remained relatively strong, but European and overseas demand has weakened significantly. So they will need a recovery in the general global economy before they see a significant upturn in their property markets.

According to Deutsche Bank AG, Dubai property prices slumped 62 percent from their peak in mid-2008 after the global credit crisis caused mortgage lending to dry up and speculative demand waned. Looking forward, what are your expectations for prices for both the buying and rental markets?

MACLEAN: I think Deutsche Bank’s report on how the values have fallen this year is probably pretty accurate. The peak of the market was not sustainable no matter what happened in the global economy. Prudent landlords had anticipated a decline in values regardless of what happened elsewhere. It is important to remember that not all prices got to peak levels. Some locations, such as Emaar Square, still achieve rents significantly above the market and we are beginning to see net effective rents increase slightly. I anticipate that the best buildings in the best locations in Dubai will bottom out within the course of this year and there will be no further decline in value. But other locations within the Emirates will continue to see falls in rental values during the next 12 months or so.

Abdul Rahman Al Ghurair, Chairman of the Dubai Chamber of Commerce and Industry said, “the decline in the real estate sector has positively impacted business in the emirate as it has led to the entry of new commercial and housing units into the market and consequently more people and companies.” Do you agree with this statement? Will Dubai be a better market for the stronger players who have been able to survive here?

MACLEAN: The reduction in values here, I think has had a positive effect on the Dubai market because it has made Dubai competitive, not just in a regional aspect, but also comparatively with other centers with which it competes globally. Placing regional headquarters here has made Dubai in particular more attractive to the global corporate. The reduction in values has also meant that only the strongest schemes and developers are still active in the market place. Due diligence and the processes through which landlords, investors, and lenders go through have become much more professional. Some of the poor practices which inevitably develop in an overblown market, particularly related to unrealistic values or feasibility, have been driven out of the market place. So going forward we are more likely to see a more mature, professional development arena.

Recent reports suggest developers in Abu Dhabi are ignoring directives mandating that 20% of new residential projects be affordable housing. What can be done to address the affordable housing issue?

MACLEAN: One of the most important aspects of development in the UAE is the provision of affordable housing. The Emirates controlling authorities and the federal council is looking at this very shortly to provide incentives or special measures that will encourage developers to provide a proportion of their developments to cater to that sector of the marketplace. Historically, because demand was so strong, it is difficult to provide economical housing when people are prepared to bid excessively for all forms of residential unit. This is not just an issue affecting the UAE or the GCC, it is a common global issue. Going forward, the government is looking at creating funding for particular schemes which provide this requirement. They are contemplating the introduction of regulations which compel developers to provide certain types of housing (known as Planning Gain in the UK) particularly when the land is ‘gifted’. At the end of the day, if a developer wants to work with the individual Emirate or Federal governments of the UAE they have to help the state achieve its strategic social aims.

Where do we stand right now with regard to supply/demand ratios for both residential and commercial? Are there any market segments that still merit new projects?

MACLEAN: One of the most difficult concepts for the developers to get over is the profit margin that affordable housing has delivered to them over the years. In the Emirates, historically it has been a very difficult target to achieve because of the cost of land. Going forward, because the land prices have fallen significantly - possibly one of the worst effected asset classes here - the margin for developers to provide return with respect to affordable housing becomes attractive again. Also, the concept for how accommodation is created is being looked at very closely at the moment. Some form of prefabrication means that housing units can be mass produced and can be coupled with re-priced land. The level of interest and the level of encouragement that the government can give to developers will increase the stock of affordable housing here and elsewhere within the GCC. This, however, is not a Middle Eastern issue, this is a global issue. The same impact is being felt elsewhere on governments to make sure that developers receive the maximum return on this type of housing unit. Developers are, for the most part, commercial entities and at the moment, they and their funders are risk averse. So governments have to make it attractive for them to develop in this sector.

How has RERA (The Dubai Real Estate Regulatory Authority) impacted Dubai’s real estate market?

MACLEAN: I think it is very interesting to look at what the government of Dubai is doing here. With the support of the federal government, it is introducing initiatives to encourage banks to lend to developers who have feasible projects. I think that is very important because one of the weaknesses of the market is the lack of liquidity. Banks have not quantitatively, and for justifiable reasons, come back to the lending market in a historically meaningful way. Some developers have found it difficult to complete schemes due to a lack of proportionally small amounts of capital. The other initiatives include what is effectively a ‘marriage guidance system’ that brings large and small developers together. If you marry those two entities together they benefit from economies of scale. It is a very clever initiative that will contribute to the recovery of the development sector. Importantly, although these incentives individually may not, by themselves, regenerate the property sector, collectively they are very helpful and perhaps more importantly, they demonstrate that the government is willing to listen to concerns and act to help to correct them. The single biggest contribution though, is going to come from the global economy. What we've learned over the last couple of years is that we are not building in isolation here. We form part of the matrix of the global economy and we are not going to see a complete recovery here until the global economy is in better health.

Are there any new legislative measures that will have a major impact on real estate in the emirates?

MACLEAN: The real estate sector here is a major contributor to GDP and, like all major global asset classes, is dependent on investor sentiment. Investor sentiment is, in turn, dependent on confidence and so the initiatives that our government has taken to honor the debt incurred by some institutions, whether they be sovereign or not, is very important for the future arrival of new investors. The steps taken between Abu Dhabi and Dubai over the last couple of years have encouraged new investors to come to the marketplace. We are seeing at the moment quite a lot of money coming into the UAE market, especially the Dubai market. But the investors are frustrated by the lack of product, particularly single ownership income producing assets. We also need to ensure that buyer and seller expectations more aligned. The UAE at the moment is looking like a very good value, in a globally comparative way. So I think that putting certain things in place, particularly related to finance, and perhaps taking away barriers to entry that affect certain areas, will positively influence new investors because most of the investment fundamentals are already on show. These fundamentals should allow the UAE to capture a greater proportion of inward direct real estate spending residentially and commercially. And as I’ve said, at the moment, this market, compared with some of the Far Eastern or the European markets, looks to be a very good value.

What new and innovative ways are real estate companies reaching clients today? How have new technology and innovation changed the industry?

MACLEAN: In terms of what developers or landlords are trying to do in order to attract particular occupiers to come to this market, there has been a different mindset that has evolved over the last couple of years. They are not doing anything that is particularly revolutionary, but they are adopting practices which appear to have worked elsewhere. And it is the subtle changes which are making quite a big difference. The way buildings are managed for instance is changing fundamentally here and for the better. When we act for an international corporate coming to the marketplace, some of the first questions are: “Who manages the building?”, “How is it managed?”, and “Show me a service charge schedule.” Something that probably would not have figured so importantly into their decision making process two years ago because of limited choice and decision making time. We see people concentrating on items such as the ratio of car parking, improving the reception areas and the facilities management of buildings, better quality security cameras, etc. So it’s all these factors that are collectively making a big difference. The schemes that have been redesigned in the last two years are much more tenant friendly today; better lift access, car parking,  floor to ceiling heights, the bits that don’t stand out and grab you when you look at a building initially are now very important. To me, that is the sign of a maturing market place that will lead to better quality buildings and help us be competitive in the global market place.

What international markets are most interesting for you today?

MACLEAN: Helping international corporates go through their decision making process for new offices, often in new locations, is a part of our business that is likely to continue to expand. For this region, the most attractive market is Dubai. We have found that more than 50% of businesses seeking to enter the GCC choose Dubai. What we do is go through effectively a complicated check list of advantages that one location may have over another. Dubai is the number one choice for the following reasons. Firstly, the quality of the existing  infrastructure. Secondly, the commitment of the government to developing new stronger infrastructure, for example, the airport, the airline, the road network, the metro and the quality of the build environment here. Thirdly, the relative maturity of the market is increasingly important. Legal regulations allowing investor, landlords and tenants to feel secure lead to greater confidence. Finally, fourthly, and the single most important factor here for Dubai, is the quality of its pool of labor. Organizations come here because they can recruit meaningfully. Dubai has, at the moment, a resident work force that is significantly ahead of its competitors, certainly within the GCC. These four components together make a fairly compelling argument for Dubai's continued success.

How does valuation impact the real estate market?

MACLEAN: Valuation practices have changed considerably over the last few years, not only here, but around the world. Here, the historical lack of transparency and the current lack of transactions require a closer relationship between client and valuer. After all, a valuation is only an opinion and the client should appoint a professional for the quality of their opinion. So what we’ve seen, fortunately, is a significant increase in our valuation work flow. People trust our brand, we know the market very well, and we have a large share of the agency and valuation markets here so the quality and volume of our base data is high. Practice has become more collaborative and clients have become more interested in the details. When we are awarded a large valuation, we sit down right away with the client and ask the commissioning party to agree on assumptions. We act in accordance with the RICS and international accounting standards guidelines. This is the best way to avoid widely different viewpoints from the outset. It also allows us to guide our clients as to what auditors or lenders or investors may be seeking from valuation reports. The key factor in commissioning a valuation is trust in the professional giving you that valuation advice. For us, adhering to international standards is critically important for the majority of our clients and is, in itself, a very valuable competitive advantage.

What role are you playing in the Dubai World Central (DWC) development?

MACLEAN: We have been appointed by Dubai World Central to market and advise in respect of the accommodation that is available in the new airport environment. This consists of about 3m square feet of office accommodation and about 1.5m square feet of logistics space, together with significant parcels of land that can be developed for manufacturing and storage. What DWC provides is unique as a subset of the Dubai real estate market because of its contiguously designed high-quality office park, adjacent to what will become one of the world’s highest traffic airports. We are delighted to be involved because we believe it adds something strategic to not just the Emirate of Dubai but to the UAE directly.