Many dwellers in the Gulfs major conurbations have had good reason to bemoan the disruption that has accompanied the ambitious slate of metro schemes that have got off the drawing board over the past five years.
The massive tunnelling and building work has forced many businesses and residents in Riyadh and Doha to up sticks and find space elsewhere. But landholders and property owners have got an eye on asset valuations as a result of the emergence of metro stations nearby.
The rationale is that land and properties that line the route of metro networks will experience substantial price and rent increases, as stations become sizeable retail, commercial and cultural hubs drawing significant footfall.
Once dusty and neglected areas are looking to capture the metro effect, by which the opening of an urban rail station triggers higher values and rents in the vicinity. Real estate agents have long worked on the principle that land and properties close to public transport exhibit better growth rates, as part of their marketing efforts.
Stations are not just conceived as stopping off points for passengers; they are also substantial retail opportunities. That means proximity to those stations delivers a clear commercial bonus.
This theory has been tested globally. Studies in Europe, Asia and North America show public transport in general has a positive impact on the value and rents of properties, with increases ranging from 3 to 50 per cent. Most studies find that urban rail transit systems have a positive effect on land and property values for both commercial and residential uses, says US real estate consultancy DTZ.
Studies in Europe, Asia and North America show public transport has a positive impact on the value of properties
Dubais Roads & Transport Authority (RTA) released a report in 2012, three years after the Dubai Metro first went live, which found the value of property close to stations (as well as areas served by feeder buses) had surged by 7 to 34 per cent. This was the result of a jump in demand for buying and renting properties close to the metro stations, attributed to the ease of mobility and the provision of multi-transit options at lower costs. But that value uplift is not always uniform. As DTZ notes, much depends on how far the property is from the transit hub and the availability of other transport options. Accessibility is a key element in determining residential and commercial price value change.
The best-placed Dubai metro stations Burj Khalifa, Business Bay and Deira City Centre quickly attracted the strongest retailers. Those further out tended to struggle. The higher concentration of residential facilities at areas such as Jumeirah Lake Towers (JLT) or commercial buildings at the Dubai International Financial Centre have a stronger impact because these stations are likely to experience higher footfall.
Ironically, properties situated very close to stations and therefore exposed to higher noise and vibration may see an opposite impact, despite evident proximity benefits. This affects residential dwellings far more than retail or commercial buildings.
A DTZ study found that in terms of catchment areas, the positive impact on land values and property prices will be experienced up to 400 metres from the station for commercial properties and a longer distance of 800-1,000 metres for residential property.
The general principle in real estate terms is that the sales market sees the more immediate benefit as the impact on the rental market does not kick in until after the metro is actually completed.
Despite the RTAs findings confirming strong gains for some closest to stations, other analysts point out that the situation is far from clear-cut. A report issued earlier this year by Dubai consultancy Unitas found a different message. It says the two communities that were the most measurable in freehold Dubai were JLT and the Marina, due to the orientation and zoning of the stations.
Nakheel is clearly confident planned rail extensions are bringing a new dynamic to the Dubai real estate market
Both communities showed similar results. In the Dubai Marina area, however, there appears to be a mildly negative impact with the proximity to the metro stations. Overall, says Unitas, there was no obvious price impact of buildings close to metro stations in either community differentials in price performance were explained by the quality of the building fit-out rather than the proximity itself although in both cases, an increase in transactional activity was witnessed during the time of the completion of the metro.
Any surge, says the consultancy, was the result of property speculators trying to capitalise on the metro effect. Over time, the speculative activity has receded, as no price impact has led to investors moving away from these areas and homeowners starting to assert their impact.
Of course, this finding does not negate the boost to values experienced by many Dubai property holders. More time is needed to gauge the impact, particularly with public transport not yet fully embedded in the culture of the emirates population.
The Red Line extension announced this year, adding seven new stations toward the Expo 2020 site, should underscore price and rent rises by those near the site. Those within a 10-minute walk of the new stations on the extension are due an uplift of up to 15 per cent, compared with similar homes located further from the metro stations, according to UAE research firm ValuStrat.
Residents and investors in Doha, Riyadh and the Saudi holy cities all of which are establishing extensive metro networks will have taken note of Dubais experience.
Already, many Riyadh landholders will have benefited from Arriyadh Development Authoritys decision in 2013 to spend SR3bn ($800m) on acquiring land in the capital to build the metro system, which will involve six rail lines and 87 stations. Construction began in 2014, and completion is due by the end of 2018.
So far, evidence of the metros impact on the Saudi capitals real estate market is sketchy. There is evidence of some price movements close to metro construction areas, but according to US consultancy JLL, Riyadhs real estate market has remained largely stable over the first quarter of 2015, with no major change in either supply levels or performance.
In fact, in Riyadh, it is the long-awaited Saudi mortgage regulations that have had a more marked impact, in giving a shift towards renting (with villa prices softening). The announcement of a new tax on undeveloped land within urban areas the first real estate tax in the kingdom will register the biggest impact on property values in the Saudi capital rather than the proximity to rail nodes.
All this suggests is that more time is needed to gauge the effect that the metro network will have on the citys real estate prices. Compared with Dubai, where a more cosmopolitan population is more amenable and accustomed to metro travel, the conservative Saudi metropolis will take longer to bed in the habit and to see the follow through on land prices once the benefits of improved accessibility are more widely appreciated.
However, US consultancy CBRE sees a stronger impact on the retail and office sector than on the residential market as the most likely outcome. Given the short distances that people in Riyadh are prepared to walk, the catchment areas that will see uplift are relatively small.
In Riyadh, the biggest demand is likely to be registered in the office market given strong latent demand for space in high-end properties. This is currently in short supply and the office market witnessed no major completions in the first quarter of 2015.
The Qatari capital presents a different case study, with greater difficulty in pinpointing the metro effect. Doha has been the centre of a herculean construction effort for the past few years, much of it related to the Fifa 2022 football World Cup. Stripping out the impact of the Doha Metro on real estate prices with its four lines and 98 stations is difficult in this context. The Doha Metro is only one of several major infrastructure projects in the Qatari capital.
Recent real estate activity does not reveal clear evidence of an uplift for land close to metro stations, although retail is likely to be the biggest winner. According to DTZ, the volume of shopping mall space in Qatar will triple in coming years, evolving into a two-tier market with premium malls benefiting from the strongest connections to the metro and commanding the higher rents.
Despite some discordant voices, the general consensus among developers and real estate agents alike is that location does matter when it comes to property prices near urban metro schemes. Local developers such as Nakheel are clearly confident that planned rail extensions are bringing a new dynamic to the Dubai real estate market.
Despite the different characteristics of other major Gulf centres, there is no reason why landowners in Riyadh, Doha or Mecca should not expect stronger yields once the trundle of metros echoes around their cities as in Dubai.
Dubai Metro Retail opportunities
- Property availability
- Retail units and ATM locations
- Size available: 9-331 square metres
- MEP/power: 10-50kW
- Preferred lease terms
- Lease tenure: two to five years
- Competitive fit-out period
- Opening hours: as per metro station requirements
- Current tenants include:
- Mashreq Bank
- Abu Dhabi Islamic Bank
- UAE Exchange
- Tenant mix by sector
- Food and beverage
- Clothing and accessories
MEP=Mechanical, electrical and plumbing. Source: JLL