Dubai – MENA Herald: JLL, the world’s leading real estate investment and advisory firm, today released its third quarter (Q3 2015) Dubai Real Estate Market Overview report, assessing the latest trends in the office, residential, retail and hotel sectors.
Commenting on the report, Craig Plumb, Head of Research at JLL MENA, said: “The Dubai real estate market continued to experience a slowdown in performance during the third quarter, a trend which is expected to continue over the remainder of 2015. Residential sale prices continued to decline (villa prices have declined by 11% over the year to August). For the first time, rental prices have also declined (albeit marginally) over Q3..
JLL has recently highlighted the region’s shortage of Middle-Income Housing. This quarter, we have seen increased recognition of the issue with the introduction of a number of initiatives from both developers and the government targeting the affordable housing market, (these include Nakheel’s launch of Jebel Ali Estate at Cityscape and further stages being launched within Nshama’s Town Square project). In addition, the lack of major new mega projects and the increased emphasis on housing for the middle-income segment of the population signifies the maturing of Dubai’s residential market.”
“The hotel market continued to witness a slowdown in performance, partly attributable to a decrease in the number of tourists from Russia, South Asia, Far East Asia and Africa visiting Dubai. Despite this, occupancy rates are still high when compared to other international markets, but we expect this to soften with the delivery of an additional 450 rooms at the Intercontinental in Dubai Marina, Ibis Styles in Jumeirah and Hyatt Place in Deira. We are also seeing efforts to diversify Dubai’s tourist base away from leisure and entertainment with the potential to establish Dubai as a leading medical tourism hub. Initiatives such as this will help to ensure a constant stream of visitors.”
He continued: “The commercial sector has been largely stable with demand focussed on the higher quality offices of the Central Business Districts, most notably the DIFC, which continues to see increased demand and thus higher rents. Conversely, lower occupancy rates have resulted in a marginal softening in rents in secondary locations. One notable trend is tenants are now migrating between free zones as licensing requirements are relaxed. The limited supply of new office space in TECOM has resulted in many tenants moving to the nearby JLT free zone. ”
He concluded: “The retail market remained subdued over the third quarter as annual rental growth rates across all mall types continued to slow down. There are signs that landlords have recognised this softening and have adjusted rental levels to more realistic levels in order to differentiate their offerings in the face of strong competition. We expect rents to drop over the 12 months as the market moves through its cyclical peak.
SECTOR SUMMARY HIGHLIGHTS – DUBAI:
- Office: The third quarter saw the delivery of around 283,000 sq m of office GLA, of which 53% are strata owned buildings located in Business Bay such as ‘Bay Gate’, ‘Iris Bay’, and ‘The Binary A & B’. Elsewhere, TECOM Authority delivered ‘The Makateb 1 & 2’ in the International Media Production Zone (IMPZ). An additional 948,000 sq m of GLA is scheduled to be delivered by 2017; however we remain cautious on the delivery of these projects within this time frame. Already some towers have been delayed, while others like ‘Symphony Tower’ and ‘Platinum Tower’ in Business Bay (initially scheduled for delivery in 2016) have been converted to hotel apartments. In terms of performance, the DIFC (e.g. The Gate) and surrounding buildings (e.g. Daman) continue to see increased demand and command higher rentals, while Grade B stock suffers from higher vacancy rates and a marginal decline in rents.
- Residential: The downward trend in residential performance continued in the third quarter with sale prices falling further and rents registering marginal declines. While the general REIDIN sales index dropped 10% Y-o-Y in August, the rental index points to a 1% decline in rental values. This comes as tighter government regulations, higher inflation levels and a stronger dollar have made property expensive for both local and overseas investors, resulting in a decline in the volume of transactions and a drop in prices to more sustainable levels. Prices are expected to continue softening over the remainder of the year and into 2016, before the Emirate witnesses another growth cycle in the years leading up to Expo 2020.
- Retail: Activity in the retail market remained subdued over the third quarter as annual rental growth rates across all mall types continued to slow down. As the growth in retail sales figures remains sluggish, landlords now have to adopt more realistic and rational approaches to leasing in order to retain their tenants. With the market currently situated at the top of the real estate cycle, we expect rents to drop over the next quarter and into 2016. Q3 saw the delivery of phase 1 of MAF’s City Centre Me’aisem in International Media Production Zone (IMPZ), adding 23,850 sq m of GLA to the total retail space. An additional 161, 00 sq m is expected to be delivered in the remainder of the year, comprised mainly of extensions to existing super regional malls.
- Hotels: The hotel market continued to witness a slowdown in performance over the third quarter of the year, partly attributed to the seasonal nature of tourism in Dubai, but also to the slowdown in tourist arrivals. While occupancy rates registered 77% YT July, ADR’s dropped 7% Y-o-Y to reach USD 227 over the same period. In turn, RevPar’s declined 9% Y-o-Y to reach USD 175 in the YT July. In terms of supply, the third quarter saw the addition of approximately 450 room keys with the delivery of Intercontinental in Dubai Marina, Ibis Styles in Jumeirah and Hyatt Place in Baniyas Square, Deira. Despite strong demand, the delivery of an additional 32,400 room keys by 2018 is expected to exert further downward pressure on ADR’s and RevPar’s.