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Revitalisation was the solution put forward by experts to tackle the growing challenge of property asset depreciation for many owners, at a recent industry event in Dubai. The panel discussion, organised by international project management and consulting company, Drees & Sommer, and moderated by MEFMA board member Ali Al Suwaidi, discussed the impact of revitalisation on returns on investment in real estate assets.
Over the last ten years, there has been a 74 per cent increase in commercial and residential buildings in Dubai, as well as a 38 per cent increase in hotels and hotel apartment buildings, which has created a highly competitive space for developers. A continuous rise in building standards has also made it more difficult for older properties to remain attractive, further accelerating depreciation.
Peter Prischl, International and Global Head of Corporate Real Estate, Drees & Sommer, explained that revitalisation is the key to increasing the value of properties for developers and landlords: "A building's value depreciates over time. The rate of depreciation is dependent upon three key quality factors which will have been completed at the start of the project: design, materials and construction. Effective minimisation of depreciation can be achieved through regular maintenance of structure and MEP, as well as refurbishments. However, if we are to achieve renewed ROI, we must undergo a revitalisation project, ideally every 15 years."
According to the panellists, Dubai currently has more than 500 hotels over ten years old, which has forced the issue of finding a solution to the emerging problem faced by owners of property depreciation and reduction in ROI.
"What we are now facing is the fast depreciation of many of the properties built during the downturn years, when cost-cutting was a must. We now find more and more buildings in dire need of fundamental repairs because of the low-quality materials used, built that way through necessity at the time. Couple that with the astronomical growth across hospitality and residential construction, and we are left with a highly competitive field within which developers are required to constantly innovate to ensure ROI," added Prischl.
Alex Craine MRICS, Executive Director Real Estate Operations, Dubai Properties Asset Management, said: "As a buy-to-let developer our average tenancy is five years. Revitalisation is even more important in the buy-to-let space because responsibility remains with us and ROI is much longer-term than off-plan and other properties for sale, so on average we carry out a revitalisation project every seven years."
Panellists agreed that while revitalisation is up to ten times more expensive than a project 'facelift', which could involve new paint and a property deep clean, it could extend the average lease time from the national average for expats of three years.
Craine adds: "Revitalisation can take the form of unit structure, community amenities and interiors and by undertaking these revitalisation projects at the frequency we are, we have retained our ROI. the long-term return has enabled us to make use of our developments for far longer than most of our competitors. Buy-to-sell properties, especially off-plan properties, have undergone what is termed 'value-engineering' and results in cost reduction at build, but a shorter life span of the building, especially when it comes to MEP services."
Micha Pawelka, Managing Director at Priedemann Façade Engineering added: "UAE developers spend 75 per cent less per square metre than they do in Europe on façades. The most common reasons for a façade refurb is governmental enforcement, for example cladding for fire proofing. Either that or due to fundamental failures.
"Currently only 10 per cent of buildings across the Middle East comply with the standard air leakage rate allowance. In addition, over 20 per cent of hotel rooms are unusable due to damage, usually structural or MEP-related. Statistics like this really hit home the consequences of poorly constructed properties. Revitalisation would resolve all of these issues and return capabilities to acceptable ROI-generation levels."
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