Developers tap demand for corporate housing
Manpower-intensive sectors keen to rent purpose-built staff accommodation
Manpower-intensive sectors such as healthcare and education are keen to rent purpose-built staff accommodation.
Labour-intensive sectors in the UAE such as hospitality, retail, education and healthcare are increasingly considering purpose-built corporate housing projects. With high residential rents in the UAE, this allows companies to freeze the labour cost for a set number of years. This also enables them to manage their core business without having to deal with volatility in the housing segment or changes in their staff headcount.
Earlier, employers would prefer to provide a housing allowance to avoid the hassle of negotiating and securing accommodation on behalf of employees. For middle and upper employment levels, employers are involved in the housing arrangements of their employees in all cases, but to varying degrees. More employees are now seeking remuneration packages inclusive of accommodation due to the increasing housing costs, which forces companies with a large workforce to rent purpose-built staff accommodation in order to reduce employee turnover.
There is a gap in the market for corporate accommodation. In a subdued sales market, some developers are quick to sense this opportunity to generate recurring income. As leasing activity continues to remain strong in this segment, staff accommodation is a good source of recurring revenue for developers looking to diversify their offerings and build a robust leasehold portfolio.
“Staff housing is a lucrative segment due to the demand is driven by the continued influx of new professionals in search of better opportunities in the UAE. We expect this trend to grow in the years to come due to the strong performance of various economic sectors, especially non-oil sectors, as well as the infrastructure projects linked to Expo 2020,” says Sameh Muthadi, CEO at Bloom Holding.
“As we approach Expo 2020, the UAE is generating significant employment opportunities for the young working population. As the existing supply within this segment is limited, we anticipate a sustained demand for purpose-built accommodation to house this rapidly expanding professional workforce and meet their lifestyle needs. Additionally, the increased demand from labour and manpower-intensive sectors such as construction, hotel and retail has also resulted in a significant shortage in staff accommodation,” he adds.
UAE-based investor Foundation Holdings and developer Bloom Holding are now collaborating to provide holistic workforce housing solutions in the region. The Foundation Holdings and Bloom Holding project will offer high-quality corporate accommodation for middle-income employees in the healthcare, education and services (hospitality and retail) sectors in the UAE.
“Our collaboration with Bloom Holding will provide a living experience that keeps the employee needs in mind while securing value for money for the employer. Building communities is a key component of the offering. We combine quality residential accommodation with enabling amenities such as Wi-Fi, recreational facilities, F&B and lifestyle services in proximity,” says Abhishek Sharma, CEO at Foundation Holdings.
As companies grow in headcount, employers are receptive to outsourcing accommodation to a company that has the ability to offer customised solutions.
“Foundation Holdings and Bloom Holding’s project can provide long-term leases, renovate existing facilities and build accommodation to custom requirements. The flexibility of options that we provide will allow employers to focus on their core business with the confidence that all service and accommodation requirements are being managed by a professional company,” Sharma explains.
The target market for corporate accommodation is the young workforce of various national and multinational companies who look for quality housing that provides them with everything required for convenient living.
Demand for staff accommodation is poised to grow by seven per cent between 2016 and 2020 – from 203,000 individuals to 263,000 individuals. The value of the corporate housing segment is also set for an exponential rise from Dh5.2 billion to Dh7.4 billion during the same period.
With the UAE’s growing population and focus on the education sector, top international university and school branches are being set up. This makes student accommodation and staff accommodation lucrative markets for investors due to steady rentals.
“Our aim is to be in close proximity to high educational institutes such as schools and universities as well as healthcare facilities such as hospitals, allowing for the staff to easily access the facilities. Between the years 2018 and 2019, Dubai will see an influx of 13 new schools; and by 2020, Dubai is set to have 38 private hospitals,” continues Sharma.
The collaboration between Foundation Holdings and Bloom Holding will provide a combination of three models: (i) buy an asset, (ii) build an asset, (iii) fix an asset. Each model will require a different amount of capital investment.
“We are exploring opportunities to develop projects that can be rented out through bulk leasing deals,” observes Bloom Holdings’ Muthadi.
“The longer the lease, the more security for the landlord. Such an agreement tends to bring the cost down to five per cent below market rate. Therefore, long-term contracts offer an opportunity to optimise pricing,” informs Sharma.
One example of large-scale staff housing programmes is that of Emirates airline. Its long-standing collaboration with developers has made staff accommodation available to more than 10,000 employees. Other examples include Dubai Properties and Sakany at Dubai South that has recently delivered staff housing developments with more than 1,000 units each.
“Staff accommodation is a segment that many developers seek to serve as large corporate clients look for purpose-built residential assets for their employees. Historically, developers have served mainly the low-income market or developed staff housing for ad-hoc requests. Middle-income staff accommodation is a more upcoming market segment for developers,” says Martin Berlin, partner and global deals real estate leader at PwC.