The Ticket to Success? the Impact of the Dubai Metro on Real Estate Values
Total Page：16
File Type：pdf, Size：1020Kb
The ticket to success? The impact of the Dubai Metro on real estate values Dubai, U.A.E October 2009 The beginning of a new journey The opening of the Dubai Metro last month heralded a Introducing rail transit into a region often step-change in public transport provision in the United creates expectations about the impact of Arab Emirates (UAE) and the wider Gulf region. Although the rail project on property values. much has been written in the media about the challenges Information on the impact of rail on property of persuading the Emirate’s car drivers to take up public values is often incomplete and limited to transport, relatively little scrutiny has been placed on the anecdotal evidence, leaving regions planning potential impact of the Metro on Dubai’s real estate market. for rail investments without a firm basis to The Dubai Metro, the world’s longest driverless automated judge the future impact of such an railway system, is being constructed in a number of phases. investment” (Diaz, R) The first 2 phases to be launched – the Red Line and “ the Green Line – are part of a 320 km network which the Dubai Roads and Transport Authority (RTA) aim to …it has long been recognised that the complete by 2020. provision of public infrastructure has a profound influence on the pattern of urban As the first transport project of its kind in the Middle East, development and the spatial distribution of the RTA has visited a number of global cities including real estate values” (Damm et al) Paris, London and Singapore to speak to the experts and see how they constructed, operated and maintained their metro systems to ensure a best-in-class service. Rail transit has its greatest impact on transit Similarly, DTZ as a global provider of property advice and station areas where transit confers a distinct solutions, has used its extensive experience advising on “accessibility advantage on a location as a infrastructure and real estate projects throughout the world, result of the size or characteristics of the as well as a range of other international case studies, to transit system operating in that region” explore the likely impact of the Dubai Metro on the Emirate’s (Transport Research Board UK) real estate market. 1 “ Impact on real estate values. The economic theory Palm Deira Al Ghubaiba Al Ras Baniyas Square Salah Al Din Abu Baker Al SiddiqueAl Qiyadah Abu Hail Al Fahidi Stadium (BurJuman) Khalid Bin Al Waleed Union Al Rigga Al Nahda Al Karama Square Deira City Centre Airport Free Zone Al Jafiliya Oud Airport Metha GGICO Terminal 1 Al Qusais Emirates Dubai Airport Towers World Trade Healthcare City Terminal 3 Centre Etisalat Financial Centre Al Jedaf Emirates Creek Burj Dubai / Dubai Mall Rashidiya Business Bay Dubai Creek Al Quoz First Gulf Bank (Burj Al Arab) Mall of the Emirates Sharaf DG Dubai Internet City Nakheel Dubai Marina Jumeirah Lake Towers Nakheel Harbour & Towers (Jumeirah Islands) Ibn Battuta Energy Jebel Ali Port Jebel Ali Industrial Jebel Ali It is widely understood that increased accessibility tends The figure below illustrates the basic principles of the land to have a positive impact on real estate and land values. rent theory. It assumes a centre which represents a desirable There are three concepts at the core of the land rent theory location with a high level of accessibility. The area, within a which help explain why rents around a city centre or transport radius of 1 km, has about 3.14 square kilometers of surface hub vary. area (S=πD2). Rent Under such circumstances, the rent is a function of the availability of land (1/S). As we move away from the centre, A surplus (profit) resulting from some advantage such as the rent drops substantially since the amount of available accessibility. The rent is the highest for retail because this land increases exponentially. asset class is closely related to accessibility. Figure 1 Rent gradient Land Rent Theory and Rent Curve This represents a decline in rent with distance from a centre. Rent This gradient is related to how distance influences an asset’s bidding rent. The friction of distance has an important impact on the rent gradient because with no friction all locations 1/S would be equal. S=πD 2 Bid rent curve function This describes prices that the tenant/owner would be willing ∆D to pay at varying locations in order to achieve a given level S = 3.14 ∆1/S of satisfaction. The land use having the highest bid rent at S = 75.40 1 km 5 km 10 km one point is theoretically the land use that will occupy this S = 235.62 location. In practice, this can be distorted by planning policies to control dominance of uses within economic cycles. Source: Dr. Jean-Paul Rodrigue, Dept. of Global Studies & Geography, Hofstra University 2 Interesting insights on value uplift There are numerous case studies on the impact of rail transit • Prices in the Central Business District (CBD) are likely on the urban real estate market. Most of these studies find to increase less than locations at the fringe of a that urban rail transit systems have a positive effect on land city, this is because prices are often higher and and property values for both commercial and residential accessibility is normally already good in the CBD. uses. The following sections explore interesting insights from In short, there is a greater impact where current those case studies – drawing comparisons with the Dubai accessibility is poor. case where appropriate – as well as highlighting impacts, by • Distance from public facilities is a very important way of actual uplifts, from various international examples. consideration for residential pricing and the Metro opening improves access to public facilities. Magnitude of uplift • Sites closest to stations are often more attractive for higher density mixed-use and commercial projects, • The value uplift depends on how far the property is whereas with distance from the stations, attraction from the transit hub and the availability of other transport diminishes and conversely density falls and residential options. Therefore accessibility is a key element in sites become more attractive. determining residential and commercial price value change. • At suburban stations, the sphere of influence is larger particularly if parking facilities are available. • The higher the usage rates of the Metro, the higher the value uplifts. This reinforces the notion that transit • Different communities experience property value accessibility is the strongest determinant of property benefits differently. Value is imparted where the local value uplift. population values the additional access provided by the Metro regardless of the income of the district. In some • The evidence base suggests that in the majority of examples, this has translated into high income areas cases the extent of value uplift is significant achieving minimal value uplift as the car is still the (see case study section for examples of value uplift). preferred mode of transport. • There may, however, be some loss of value immediately around stations, particularly for residential, due to environmental factors such as Land use / zoning implications noise levels, increased vibration, increased car traffic • In general, residential uplifts occur because locations and visual intrusion. become more attractive as they are more accessible to regional employment, retail and cultural activities. • Commercial properties benefit because they have increased access to a larger labour market which Location factors reduces costs and creates agglomeration benefits. • In terms of catchment areas, evidence suggests • The impact is likely to be larger for retail and office uses that impacts on land values and property prices will be than for residential because they are the most closely experienced up to 400 metres from the station related to accessibility (see Figure 1 on page 6). for commercial properties and a longer distance of 800-1,000 metres for residential property. • Offices benefit more as a result of their tendency to form high density clusters. • This catchment area relates to the distances people are prepared to walk. This usually translates to 5-10 • Retail benefits due to the increase in pedestrian traffic minutes for commercial buildings and 10-20 minutes for and footfall. residential. Therefore the catchment areas are wider for • There is limited evidence of property value uplifts for residential than commercial, but in the case of Dubai, industrial land uses. This is due to a number of reasons, the acceptable walking distances will be at the lower including the tendency for industrial uses to be located end of the spectrum because of the prevailing weather on the outskirts of cities, where public transport conditions. provision is often low; relatively unrestricted car parking; • In Dubai, acceptable walking distances will vary greatly and comparatively low employment densities (workers depending on whether there is a walkway and it is per sq m) when compared with other commercial uses. covered and air conditioned (a pedway) or open to the • Industrial land uses can reduce values adjacent elements. This suggests that proactive action can be to a Metro. taken to extend the catchment area by providing covered walkways. 3 Investment and development opportunities • The business cycle and more specifically the property cycle is key. If infrastructure investment coincides with • It is very difficult to isolate the ‘Metro Effect’ because a downturn, a potential positive impact could be property markets are not heterogeneous and localised temporarily mitigated by the depressing effect factors will impact on values (variable patterns of price on rents and capital values of the downturn. change). • Availability of suitable sites and especially the availability • Rail infrastructure is thought to have played a direct role of development potential at, or close to, transit stations in increasing the density of development in many cities is an important factor.