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Property auctions are held when a lot of interest is generated in a particular piece of real estate.
IFA Hotels & Resorts auctioned four of its office buildings on the Palm Jumeirah's ‘Golden Mile' last month, in a bid to capitalise on the buying interest shown in the project. The property sale offered investors the opportunity to buy the only freehold office space available to date on the prestigious development; approximately 120,000 feet of commercial property was auctioned. The Palm Golden Mile is a joint venture initiative between IFA Hotels & Resorts and Nakheel, and is comprised of 10 buildings, which encompass a mix of residential, retail and commercial space.
The developer's decision to auction the spaces, as opposed to taking the route of traditional sale, is commonly made when there is a lot of interest surrounding a project. High demand was expressed for property on the Palm Golden Mile when it first launched in 2004, which led to the decision to hold back the commercial space and see how the market developed. In June, nine months from the start of delivery, IFA Hotels & Resorts went ahead with the auction.
"We weren't completely certain as to what the actual market value of the property should be, which is often common with very unique properties," explains Piaras Moriarty, vice president for sales, IFA Hotels & Resorts. "A good way to establish the commercial value of office space is to invite a number of qualified investors or purchasers to an auction where they can express their interest. The property then gets sold to the highest bidder."
The developers were optimistic from the outset that the commercial property auction would be a success due to the prestige that is attached to the Palm Jumeirah and, in particular, the Golden Mile.
A lot of the development's investors have already seen a significant rate of return for residential properties. For example, the average purchase price of a two-bedroom sea-facing beach-front apartment in The Palm Residences at launch was between Dh1.2 million and Dh1.45 million. However, the value of these apartments at present averages at between Dh3.2 million and Dh3.4 million, representing an increase in value of more than 160 per cent.
"Investors are doing very well and generating a lot of premiums from buying and selling on the Palm Jumeirah," explains Moriarty. "The marketing machine behind Dubai has focused on showcasing the Palm Jumeirah as one of the premium developments in Dubai. When a product receives so much advertising, exposure and focus, it achieves a prestigious status. That's been to the benefit of the investors on the project."
With the demand for commercial property in Dubai still outstripping supply, developers have a distinct advantage in the market. Property portal Gowealthy estimates that the amount of real estate available for office and commercial activities would need to increase by 325 per cent to meet demand this year. They also estimate that the massive undersupply in Dubai office space could see rental prices surge as much as 60 per cent. "Dubai is a fast-growing city, so there is pent-up demand for office space and a requirement for more commercial space," says Moriarty. "The city is advertised heavily, so businesses are moving here. I certainly believe there will be continuing demand for office space for the next three to four years."
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