Fitch Ratings says that despite the real estate sector in Dubai being significantly affected by its own fundamentals and the global financial crisis, prime retail and hospitality assets have been resilient and the agency believes they have some flexibility to weather further volatility.
“Retail rentals and hospitality revenues are holding up relatively well and performing better than expected in 2011 compared with Fitch’s base assumptions,” Bashar al Natoor, Director in Fitch’s Corporates team in Dubai, said.
“This is partly because the turmoil affecting some Middle East destinations had a positive impact on Dubai’s hotel, retail and residential sectors as well as active asset management by leading players.”
Despite signs of stabilisation in Dubai’s real estate market, Fitch cautions that the real estate and hospitality sectors could potentially experience increased vacancy rates and a higher risk of buyer and tenant defaults, due to depressed fundamentals, such as oversupply and low investor confidence and liquidity (albeit improving) and the effects of another global crisis. The latter would be closely linked to macroeconomic conditions in Dubai and the region.
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. MAF maintained strong financial metrics in FY10 and FY11, despite the challenging property environment in the UAE and exposure to Bahrain and Egypt. Operational performance was resilient, with the occupancy rate remaining at 98.6% as MAFP benefits from an average lease length of 7.7 years, which compares well with European peers, a quality and diversified tenant base exhibiting an estimated 95% lease renewal rate, and a low tenant default rate below 1%.
Fitch revised the outlook of Dubai Holding Commercial Operations Group LLC (DHCOG) to stable from negative and affirmed its long-term issuer default rating (IDR) and senior unsecured rating at ‘B’ on 25 January 2012. The outlook revision reflected the company’s good progress with its non-core asset disposal programme, its better-than-expected operating performance in the hospitality and rental divisions, and reduced leverage.