Investors are ready and willing to buy property in the UAE but they cannot find "realistically" priced, good-quality buildings, says the property consultancy Jones Lang LaSalle.
"There is cash available and investor interest but transactions are not happening," said Jesse Downs, the director of the consultancy's Middle East office.
In 2008 when the market was still booming, there were 680 property sales in the UAE of more than US$10 million (Dh36.7m), data compiled by Real Capital Analytics show. Last year, there were 67 sales, of which 63 were for developable land sites, not buildings.
The number of sales was expected to remain "subdued" this year because of the "shortage of investment-grade stock offered to the market at realistic prices", Jones Lang LaSalle said.
But there are investors shopping for property. Global investments in commercial property rose 42 per cent last year to $564 billion, Cushman & Wakefield said.
"There is liquidity here," Ms Downs said. "It's just not resulting in transactions."
Standard Chartered announced last week it would spend $140m to develop its office building in Dubai, rather than leasing or buying a building, the Jones Lang LaSalle research director Craig Plumb said.
The bank will occupy more than 125,000 square feet in the building, which is scheduled for completion next year. "That says something about what the market wants," Mr Plumb said. "There is increasing demand for office space."
Standard Chartered opted to build despite a well-documented oversupply of commercial space in Dubai, and soon Abu Dhabi.
Vacancy rates in office buildings is expected to surpass 45 per cent this year, with a further 103,586 sq metres of space and 25,000 residential units expected to come online this year, Jones Lang LaSalle said.
In Abu Dhabi, 500,000 sq metres of office space and 25,000 residential units are scheduled for completion this year.
But there is demand, the consultancy reported. Prices for property across most sectors in Dubai are starting to level out and should start to pick up next year, with Abu Dhabi's market following in 2013.
A two-tiered market is developing, Jones Lang LaSalle said. Although there were more buildings, there were few available with secure, long-term revenue.
Many landlords in Dubai have only signed short-term leases with tenants, making it hard for investors to commit, Ms Downs said. "The yields don't justify the risk-reward equation."
Investors would rather buy in the US or UK where there is "less perceived risk" than the UAE, she said.
The Emirates offers buyers the newest office stock of any market in the world, with 90 per cent of the buildings in Dubai less than 10 years old. Investors are increasingly evaluating those properties based on international standards.
"While supply is important, it's management that will drive the market going forward," Ms Downs said. "Quality will be rewarded and poorly managed buildings will suffer more."