Refurbish to recover
Anthony Taylor, head of Real Estate at Emirates NBD Asset Management, argues that upgrading and refurbishing existing assets will help improve occupancy levels in a challenging market space
In September 2020, ENBD REIT, the shariah-compliant real estate investment trust managed by Emirates NBD Asset Management, announced the launch of a major refurbishment programme for the largest asset by value in its portfolio – Al Thuraya Tower in Dubai Media City.
Valued at $77.04 million, the tower accounts for 20% of ENBD REIT’s total portfolio value and consists of two basement levels, ground floor retail units, five floors of parking, and 24 floors of leasable office space, at a total new leasable area of 19,376sqm.
Constructed in 2005, the building’s refurbishment project includes aesthetic improvements and material upgrades, as well as the construction of infrastructure to align it the standards of newer, nearby buildings, ENBD REIT says, adding that the project was a strategic measure to enhance the tower’s leas ability and boost occupancy levels.
Amongst the upgrades made were changes to the foyer and entrance, as well as to lighting and tiling in corridors throughout the tower. Common bathrooms also had their layouts improved and restyled, with increased access for people of determination, while extensive upgrades were carried out to fire escape stairs, chillers, and lifts, as well as to the car park, which included new signage, re-surfacing, lighting, and painting.
Furthermore, extensive measures were taken to ensure that the building operates as a safe and virus-free environment for its occupants, in light of the COVID-19 pandemic.
The project to upgrade Al Thuraya Tower is but one example of ENBD REIT looking to add value to its portfolio through an active asset management strategy that aims to improve the leaseability of its units to achieve tenant satisfaction.
This strategy is set to continue into 2021, with Anthony Taylor, head of Real Estate at Emirates NBD Asset Management telling Big Project ME that the current focus is on ENBD REIT’s office portfolio, with ground-floor upgrades being made to the trust’s Dubai Healthcare City’s 25 and 49 buildings, while it has also created smaller, fully fitted offices in Burj Daman for businesses looking for ready-to-move spaces.
“Our biggest project at the moment is the refurbishment of Al Thuraya Tower 1 in Media City, our largest asset by value.
The building has seen some pressure on occupancy, and the Board has approved a major refurbishment of the building, with the intention of transforming this asset into a destination of choice for potential tenants,” he explains.
“For the refurbishment of Al Thuraya, we engaged consultants Savills as project manager and cost consultants, Bluehaus as interior designers, KPS as the main fitout contractor and KONE as lift suppliers. The ENBD REIT Board approved a budget of up to $5.44 million to facilitate these works.
“For our Burj Daman office spaces, we appointed Colliers as project leaders, Atelier Five Interior Works LLC as our fitout contractor and, Spencer Interiors and Sedus as furniture specialists. For our DHCC buildings we are working with KPS,” Taylor outlines, pointing out that ENBD REIT works closely with its service providers and appointed entities to ensure that the project scope and budgets are achieved.
A large part of this shift towards refurbishment and retrofitting is due to the COVID-19 pandemic impacting the local real estate market, Taylor says. He explains that the office market is seeing tenants require more flexi-office space, and in some cases, smaller spaces to accommodate down-sizing plans.
“The pressures faced during the pandemic provided a good opportunity for landlords to assess their buildings and identify where improvements are necessary to improve occupancy as the market reopens. Refurbishing work, particularly in commons areas, is a lot easier to complete while buildings are not operating at full capacity and the prevalence of remote work provided an opportunity to undergo significant work in office assets,” he continues, pointing that an additional benefit for landlords is that due to the market’s changing dynamics, contractors’ pricing remains competitive, providing them with another incentive to finalise refurbishments in the current environment.
“With the real estate sector facing market headwinds there is definitely a realisation that not upgrading assets can have a long-lasting effect on performance. Retrofitting assets is important to maintain tenant satisfaction and attract new tenants in the future,” he explains.
Taylor also emphasises that ENBD REIT is actively engaged in the refurbishment of four of six office buildings, and that maintenance of assets to a very high standard is a key part of their asset management strategy as occupancy levels are crucial to the company’s performance as a REIT. Switching focus, Taylor highlights that while there has been a lot of talk about converting offices to residential units in the medium term as office spaces remain under pressure. However, he warns that the costs of such repurposing are often not feasible due to the high prices involved, and due to the glut in supply of apartments in Dubai at the moment, which is keeping rentals and capital values down.
“We anticipate alternative sectors to remain attractive given longer lease terms and higher demand for units. Healthcare and logistics are the two sectors we expect to outperform in the medium term. As employee wellbeing becomes more of a focus post-COVID-19, office and residential towers with more common facilities and break-out areas that improve occupants experience at the building are likely to perform better.
“The market is expected to remain price sensitive for some time so providing this in a cost-effective way will be key for landlords realising better performance from their assets,” he continues, adding that the current market conditions makes upgrading existing assets a more viable strategy, compared to disposing and acquiring new assets.
“However, once the market starts to pick up it is unlikely that ENBD REIT will be purchasing older assets with the intention to upgrade. We intend to complete the upgrade projects mentioned previously, maintain high levels of building maintenance standards and work with new and existing tenants in securing long-term leases at attractive market rates,” he states.
Looking towards the remainder of 2021, Taylor says that he expects net asset values to stabilise in 2021 as Dubai Expo 2020 kicks off and the pandemic is better controlled around the world but cautions that its impact will continue to be felt for a while longer.
“In mid-2020 we were anticipating an uptick in 2021 as we came out of the pandemic and market conditions began to stabilise. As we enter the second quarter of the year, we are now expecting the market to stabilise toward the end of the year as the impact of the pandemic still exists globally, despite the UAE Government’s highly effective initiatives to mitigate the spread of the virus and targeting an ambitious vaccination programme facilitating the recovery of overall economy and allowing local businesses to operate in a safe environment,” he says.
“A fall in the valuation of our assets has put pressure on ENBD REIT’s portfolio. In addition to upgrading our assets and maintaining an active leasing strategy we are closely monitoring our loan to value (LTV) ratio and would consider disposals if the right pricing for an asset can be achieved. If we took that option, it would most likely be in the office or retail space for the purpose of maintaining a balanced portfolio.”
However, he asserts that ENBD REIT remains in a healthy financial position with positive rental income and sufficient cash to meet all foreseeable obligations, attributing this to the measures taken previously to minimise costs and bring down expenses on debt in a lower interest rate environment.
“In line with its strategy to deliver value to shareholders, the REIT’s management has negotiated down a number of service contracts to mitigate the impact of sustained softening in the real estate market, and this has positioned us well to weather current conditions and offer shareholders improved returns when the market begins its recovery,” Taylor states in conclusion.
