Andrew Chambers

Decree No.27 for 2007 states that “rent will be capped by 5%, which is a drop of 2% from 7% last year. In 2008 we have seen the rent lower from 7% in 2007. In your opinion how do you see this move? How do you asses this move by the government?

I think it has 2 or 3 benefits to the market, one is it does cap the rents of existing tenants which is comforting because they can plan the next few years finances which is good and it keeps the stability there. A second point is that it‘s very valuable that the overall market sees the government understanding the inflationary pressure of rentals and that they are taking definite action. Ultimately it will be supply and demand that that will determine final rentals but it‘s good seeing the government doing something in the interim. Thirdly, it is being followed by other emirates and so the benefit of it has shown and other emirates have picked it up so while it‘s helped Dubai for 2 years now other emirates have started to pick it up which will also help them perhaps at an earlier stage in their rental growth so it‘s got a secondary benefit.

Can you tell us more about the situation in other emirates?

Yes, Abu Dhabi has put rent caps on and that has worked about the same amounts and I imagine others will start to follow as they see the benefits of it. The other emirates which we may talk about later are smaller and a bit earlier in the cycle.

The apartment rents in Dubai have increased by 25% from 2005 to 2006 and by 18% from 2006 to 2007. How do you see the future evolution of these prices?

In Dubai specifically one thing we did notice not year on year but last quarter 2007 to first quarter 2008 in some area there was a definite residential growth slowdown so there was still a growth but in some areas it has slowed a bit so what I think we‘re seeing is people are saying we will negotiate or not accept the high rents and we‘ll look for areas where it is a bit cheaper. Also Dubai is the first of the emirates to have a lot of supply or stock coming onto the market there are in the pipeline 245,000 apartments coming online, already we are seeing in Jumeirah Lake Towers, Dubai Marina, The Palm and some other areas: Discovery Gardens for example, International City apartments are coming online and a lot of those are in the 45,000 to 100,000 a year rather than the very top 250,000 a year. So, all those are helping the supply and demand which I mentioned earlier will be the real determinate.

Is there any specific year when we can expect rentals really lowering?

Well if I could forecast that I‘d be a wealthy guy! I don‘t know, what we see is supply will probably match demand as we imagine it at the moment by about 2010 I would imagine. I think we‘ve got 2 more years of steady growth in rental levels.

Is there any difference between residential, commercial and office spaces?

The rental levels differ when it‘s a different product, but they both suffered from a shortage of supply and an incredible demand and office rentals haven‘t yet started to soften at all because there is such a shortage and again we will see an 18 month to 2 year period before there is enough supply coming on. Some areas have shown quite big increases in rent in the last 6 months to a year because there‘s just no stock available.

Which areas are the highest and the lowest rentals?

Some of the highest rents in Dubai are probably right where we are sitting now along Sheikh Zayed Road, DIFC: the financial centre right behind us. The reasons are a lot of businesses want to be focuses here, Sheikh Zayed Road is the main road, DIFC is the main financial centre that has come here and they‘ve got space that‘s been there for a couple of years so they tend to be the highest. But we‘re also seeing now some quite strong rises in rent along the new line metro line which goes from Jebal Ali to the Airport, we‘re seeing that along the areas where the stations are there have been some spikes in rent there.

Founded in Dubai in 1985, Asteco is the UAE’s largest property services company. Asteco has taken a leading role in the Dubai, Abu Dhabi, Sharjah and recently in the Al Ain property market. What are your key success factors and how did you manage to achieve such a result?

The long term history has meant that we‘ve got a lot of credibility and that we know the market. We do the quarter reports because we‘ve got a big research team and we‘ve got data in the database that goes back a long way. We have also determined 6 years ago that whilst we were a small regional operation at the time we wanted to cover the whole Middle East and we wanted to be able to compete with the international real estate brokers and service providers. So it was a planned course of action which has allowed us to bring directors from all around the world to run each business area and we‘ve invested in it, we‘ve decided that we will grow and that‘s helped us regionally as well.

You also have contracting and consulting and development divisions in the company?

They are not divisions in the company they‘re actually complete and separate companies. Seven Tides is the development company that owns assets, that‘s completely separate from me that has a different shareholding structure and Asteco Development Management is a completely separate company but they all have Sultan Bin Sulayem as the chairman.

Staying the leader in the market must be challenging. What are the real challenges you are facing?

Well our challenges right now are getting the quality of people to come to the Middle East, there‘s a recently strong property boom in many parts of the world: China, India, Asia Pacific generally. There are smaller booms: Panama, South America. Getting well qualified people between the ages of 30 and 45 is very difficult and that has probably slowed us as much as anything in growing around the region because we have opened offices in Jordan, Bahrain, Qatar and it‘s taken a long time to get the right people.

So how do you address these challenges?

If we can get people to come to us and see us and meet us we‘ve got over the obstacle. The main challenges are that people understand the market here and want to come here and to be able to pay them enough to leave their fairly secure traditional market although the work is very similar, the skills are the same needed here and the standards of property here are now as high as anywhere else in the world it‘s quite a leap for people to make that break and come and base themselves here especially if they‘ve got families. So we do spend a lot of money on recruitment agencies around the world.

As for Asteco do you have a very international workforce?

Yes, we‘ve got at the last count 28 nationalities that work in our company. Everywhere from Afghanistan to Zimbabwe so we can go from A to Z. We‘ve got quite a lot of guys from the region: Lebanon, Syria, Jordan and as far away as New Zealand, Australia, Europe, the UK and some South African. About half of our workforce are from this region.

Asteco has been actively undertaking market research to identify the profile of the end user for commercial retail, commercial office and residential developments. Could you provide us with the result of your research? Who are the end users coming to Dubai?

We‘ll start perhaps with commercial. With commercial, we are seeing a lot of the Fortune 500 companies or similar major groups who see Dubai and Abu Dhabi as a good base for the region because when they look at the services you‘ve got the Dubai Airport and the new airport planned which is a great hub for the region and particularly Emirates Airline and Etihad in Abu Dhabi are growing enormously so it‘s quite easy to jump off from here to go to the sub continent: Pakistan, India, Bangladesh which are major markets, the Mediterranean is 3 to 6 hours away depending on where you go, then there‘s Africa: North Africa and even down in South Africa it‘s only 7 or 8 hours away. So a lot of companies are saying lets use Dubai which is safe, it works, telecommunications, law, legal structure generally and it‘s a tax free environment so that‘s a good base. So commercial spatial requirements for those big companies and they like big footplates large spaces 1000 to 2000 metres. Also a lot trading based companies like to be based here because Dubai ports is developing as one of the major regional shipping hubs so that and the airport a lot of small trading companies like to be based here and they‘ll take secondary space for smaller offices. So behind that you get the flood of employees, you get the project managers and development managers who are not seeing it as a 1 or 2 year stay but more of a 2 to 5 year relocation so they need schools and education generally and entertainment. So you‘re not seeing a wild west town which is a short term occupation place, you see people making it their home. It‘s not just the workers that come here stay for a bit and then leave, you are getting a lot of upper and middle income people who are making it their base; villas and better quality apartments are in demand.

Was there anything surprising in your research?

Not particularly because year upon year we‘ve watched it steadily grow. I think if anything is surprising it‘s the continued demand, I‘ve not been in a market in the 30 years that I‘ve been in property where there‘s been a continued demand for space, I‘ve seen a lot of market where there‘s been speculative development where you borrow money build a building and hope somebody will take it up later and if you‘ve borrowed in foreign currency you‘ve got to repay back and when your currency drops you‘ve got a problem. Here I haven‘t seen that it‘s been quite unique, the developments here tend to be self funded or if financed it form within the region, so there‘s been a lot of inter-regional financing and that‘s protected them from foreign borrowings; also the demand for the space has been there especially as it comes towards completion, whenever we see a residential or an office tower about to complete we notice that there‘s a premium of often 20% just for people to occupy the space which I haven‘t seen in other markets.

Over the years, Asteco has become synonymous with quality real estate development, through their involvement in many of the projects that have defined the landscape and physical infrastructure of the UAE. What is Asteco‘s responsibility in development of the country? How do you address Corporate social responsibility in you company?

Good question and very topical at the moment. One thing we do which is a marketing line but is very relevant is when we look at a development we try and get with the developer very early when it‘s a piece of land or before the master plan or before the architect even gets involved and 2 or 3 of our senior people have been involved in developments that are environmentally sound where we look not just at cost savings from a developers point of view but maintenance, operational running costs, electricity, water, cooling and we make as many contributions as we can. We can that our consulting period, it has a value to us as a company as it tend to allow the developer to stay with us to sell or to lease the property so our commercial gain is great but it also means there is a development which will have long term corporate social responsibility. On practical themes we do, we have set up a corporate social responsibility team and we‘re looking at ways in which we directly help the region and groups within the region: there‘s one school cum educational centre called Al Noor for children with mental health problems and we do a lot with them for example we‘ve encouraged them to do some paintings and then we have those made to full size prints and then sell those because they are very high quality and the money goes back there so they‘ve actually got artists that are helping themselves. We‘ve collected money from them in others ways to help the school get quality teachers and equipment. Other areas we‘re looking at are environment where we will for every new apartment we rent or sell we will encourage the owner to shop with environmentally friendly bags not the hundreds of plastic supermarket bags but the reusable duke bag, we are investigating that now as an ongoing program because over the years I‘ve seen a lot of short term programs that look good for about a week and then they tend to drop off but we‘re been looking at responsibility for a very long time. In Jordan we are looking at sponsoring road safety campaigns and that‘ll be happening in the next 2 or 3 months but it‘ll be our Asteco team working with the community.

You mentioned that you offer developers and services. So if I wanted to invest in the UAE what kind of services would you be able to offer me if I was buying a whole tower?

We have an investment agency team and what they will do is look at what you want, do you want the tower for putting into a fund, a real estate investment trust, do you want to put it in your personal portfolio, what are your tax issues, where are you based, would you like it to become a REIT here which we are working on as one of the first to happen in the near future, do you want to put it through the Caiman islands or do you want to own it directly and live here. We will then look for a tower for you, there may not be one that suits you so we will work with a developer or construction company to perhaps even build it for you. There‘s an element of that coming across the region where people are saying I want a 2000m footplate 20 storey tower you‘d have to have that built because it probably doesn‘t exist at the moment so we‘d help you on that level and we‘d help you with the finance as well the feasibility models; when you want to borrow the money we‘ll work on the financial model and the evaluations as well.

As for your clients, do they mainly come from Europe or other regions?

Some from Europe, foreigners are starting to look at the Middle East now because freehold, Escrow accounts, strata title, condo association rules are all coming in so we‘re now able to comply with a lot of the traditional mutual, pension funds requirements. There are a lot of individuals wanting to buy towers here: big trading houses in India say well if your going to have a head office with a thousand people lets have our own tower with our own name on it. Then you go to the smaller scale where people like to buy one floor of the development for their head office for example and I mentioned earlier those trading companies. So a lot of people buy 400-500 metres of space just so they‘ve got their own head office and they can enjoy some capital growth for the property itself.

Asteco’s CEO Elaine Jones mentioned that you‘re aligning with Savills in March 2007 entering into an alliance with one of the worlds biggest property companies is a reflection of the standing of Asteco here in the Middle East and on the massive expansion of the regional property industry. What are your expectations and how to you assess this alliance to date?

Being fortunate that I worked with Savills for 15 years, so relationships were a key part of a our alliance with Savills and we worked mainly with their Hong Kong and London offices as probably their 2 biggest groups. How it‘s worked in practice to date is people that are looking to by villas on the Palm or want to bring their companies here are getting advice from us that’s at an early stage. Now we are seeing some of the funds in for example UK looking to buy assets to put into their Caiman Island funds and we‘re helping those people. In Asia we are seeing people for example in Hong Kong and China looking to invest over here, there‘s quite a lot of interaction between China and the Emirates in particular at the government level and obviously following from that is the commercial level; so I was only in Hong Kong 2 weeks ago on a weeks tour of a lot of the investment houses and we‘re getting advice that we thought was common knowledge but it‘s amazing how little is known about this region even in Hong Kong. So with Savills it‘s education and early advice in Asia, Europe they know a bit more about this region and there it‘s probably more getting on with contracts to sell.

And how is Asteco going to help improve this information gap?

I brought a report which is now formalized which has been going for years now is sent to Savills and all their customers and we meet Savills quite regularly and they by introducing clients start to develop a relationship, it‘s a long term program.

Are you looking for some other strategic alliances?

Not at this stage, not in the real estate brokerage but we‘re always open to talk to people about compatible or related products, we don’t always see we have to grow organically or internally. We would look at similar companies that would add value to our services in the future. Each year we do strategic planning where we plan the next 3 or 4 years and at those meetings we say what business should we be in? Should we be in facilities management? If we should, should we grow that organically or should we partner with somebody.

What are some of businesses that you are planning or have planned to start on?

One area that we have developed and are developing organically at the moment is engineering services. For all these new developments that come on it‘s not true facilities management it‘s pure engineering. They have thousands of air conditioning units, chilling units, water systems, recycling systems and landscaping systems. All those need to be looked after. The major developers often have their own FM companies but if you owned a villa or an office floor somewhere you might find there‘s nowhere to go to get a professional on time, quality maintenance contract so we see that as a big growth just by the sheer volume of the property. Another area would be secondary sales, the high street real estate agent. We don’t do that, we tend to sell projects, whole buildings a sole broker even if we are selling individual units it‘s for towers. But eventually those will be recycled by people who want to move on, go to a bigger place or leave and that secondary market is not tackled by us but it could be a very big one. So whether we grow organically or invest in other companies.

This secondary market you mentioned before, is there a lot of competition?

There is a lot of competition, there are lots of people in it because it‘s relatively easy to get into it at the moment but it hasn‘t been a big market yet but it will become big as properties become used and recycled.

You‘ve also set up offices in Qatar, Jordan, Bahrain, Saudi Arabia and others do you have any other international expansion plans?

No other country at this moment, Oman we see as valuable market: it‘s small but certainly is starting to grow, tourism has been the main pushing factor but we see a lot of the north African countries in particular I think they are going to have considerable growth from Morocco, Libya they will certainly be looked at and it‘s just waiting till we see that the services we offer would be valuable to a market. We could go there tomorrow and set up shop but that’s not the way to do it, probably the biggest one in the immediate future will be growing the Saudi market as we haven‘t done a lot there yet but we‘ll probably jump from Bahrain across the water there to Khobar area, I think that‘ll be a very big market in the near future.

Now we‘re coming to the end of the interview would you like to say something about Dubai, Abu Dhabi for our viewers?

I‘m starting to sound like an ambassador for the place so I would go on for a long time. I came 6 years ago intending to stay for a few months to consult but the excitement of the property market and the rapid growth towards maturity has made it a wonderful career opportunity. So I think for cautious investors it‘s starting to be a good time to come here and have a look at least and understand the market and if we can help in anyway we are able to do that for you.