Diversification Of The Real Estate Portfolio

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Real Estate Portfolio

At JLL we deliver market information and publish our Property Clock’s on a quarterly basis. We are firm believers in the diversification of a Real Estate Portfolio, be it geographically or market.

It is not the case that when hotels are doing well, residential is also doing well. Or when the office market is booming, so is retail. The skilled investor is able to predict with a degree of certainty, how each market is performing within its own lifecycle (global crashes aside). Our Clocks show the stage we feel the market is at, whether on the way up or down. It’s not uncommon for the property clock to show Retail and Office at exact opposites of the spectrum for example. Diversity is important since not all sectors perform the same in any given quarter.

A few very shrewd investors were able to succeed during the Dubai Real Estate boom of recent years by buying comparatively lower priced office space (we are not permitted to name them). Residential property was the story of the city however those able to diversify could offset unexpected price movements.

More recently, the Dubai Property Clock shows residential rents starting a downward trend in Q3 2015 and bottoming out one year later. Q3 2016 also shows office space at the bottom of the cycle. Now may seem an opportune moment to buy residential  units in Dubai, given that the  market is not expected to dip much further. While the office market is also close to the bottom of its cycle, it has not really seen the same boom in prices as the residential sector.

The differences in movement around the clock face show that real estate is the sum of its parts rather than a whole. It is likely that the price of offices in Dubai will rise over time as new units are coming online each year, but there is no way to guarantee exactly when the upturn will occur, or, if the upturn will be sufficient to provide strong investment returns. In contrast, the residential market has moved fast in both directions and for those in the market at the right time, has created wealth. Whether you’re in the market long or short term, diversification within the Real Estate Portfolio is a sensible tactic.

Residential developers in Dubai have spent the last four years focussing on high end product, attracting the interest of short-term investors and secondary home purchasers. As the market begins to saturate in the high-end and luxury sectors, opportunities are becoming apparent in the middle and low-income segments where the demand base is more secure. As a highly competitive market, focus on end-user conveniences and access to transportation infrastructure will become critical success factors.

 

Craig Plumb

Author: Craig Plumb

Craig has over 20 years’ experience providing clients with quality advice on real estate market conditions in the UK, Asia Pacific and the Middle East. With a background in urban economics and spatial planning, he has particular expertise in the areas of property market research, development consultancy, transport related infrastructure projects and corporate real estate.

Since moving to the UAE in 2006, Craig has authored over 50 research reports on different aspects of the MENA real estate market. He has also provided market research and consulting services to major investor, developer and government clients and has appeared as an independent real estate expert before the Dubai International Arbitration Centre (DIAC).

Craig holds a Bachelor of Arts in Economics & Geography from Lancaster University and an M.Phil in Environmental Planning from Reading University (UK).

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