However, despite some stabilisation, challenges remain for the office and residential sectors.
As per the agency’s expectation, retail rentals and hospitality revenues are holding up and have shown healthy performance in 2011 and 2012 to date and have potential for a strong start in 2013. Although offices and residential prices and demand are stabilising in prime locations in Dubai, widespread recovery in these sector is still challenged over the medium term.
The performance of prime retail and hospitality was resilient in 2011 and 2012, with occupancy rate and prices holding and improving. These sectors continue to benefit from healthy tourism, partly due to the turmoil affecting some Middle East destinations and the positive impact this has had on Dubai as being a major Middle-Eastern preferred destination.
For Dubai’s office and residential sectors, despite signs of stabilisation, Fitch believes that a widespread recovery is still challenging and the sectors will remain pressured, although prices in premium areas of Dubai are now recovering. Overall, most property investment and development companies in Dubai (and the emerging markets in general), have had a very bumpy ride since mid-2008. However, companies operating in prime retail and hospitality have been able to weather the challenging market conditions better than companies focussed on the office and residential sectors.
The sector’s stable outlook is reliant on the ability of real estate companies to refinance debt, and the main challenge of maintaining performance in light of the over-supply of residential and office space. The successful refinancing of maturing debt by real estate companies in 2011 and 2012 has helped remove the negative bias in the outlook. Dubai’s ability to sustain the positive momentum and building up confidence in the real-estate serves as a key to maintaining the sector’s stability.
Fitch affirmed Majid Al Futtaim Holding LLC’s (MAF) Long-term Issuer Default Rating (IDR) and senior unsecured rating at ‘BBB’, with a Stable Outlook on 22 March 2012. MAF is one of the largest property investment companies in the Middle East and North Africa region (MENA). The consolidated group has a total retail area more than 937,214sq m and its centres are prime sites in strategic locations in major cities, with up-to-date leisure and entertainment. MAF is also involved in the development of wholly-owned hotels in close proximity to MAFP’s shopping mall assets.
Fitch upgraded Jebel Ali Free Zone FZE’s (JAFZ) Long-Term IDR to ‘B+’ from ‘B’ in June 2012. The Outlook is Stable. The upgrade reflected the successful completion of the sukuk offering and bank refinancing, which address the refinancing of a sukuk due in November 2012. Fitch also revised the Outlook of Dubai Holding Commercial Operations Group LLC (DHCOG) to Stable from Negative and affirmed its Long-Term IDR and senior unsecured rating at ‘B’ on 25 January 2012.