|22 September, 2019

Dubai Market Update Q3 2019

Most deliveries continue to be focused in the outer areas of Dubailand, Jumeirah Village Circle and Triangle, Meydan and MBR City

Residential market

  • Approximately 16,500 units were delivered YTD 2019, while additional 13,000 units are expected over the remainder of 2019
  • 95% of the YTD deliveries were apartments, while we expect higher proportion of villa deliveries for remainder of 2019 (31% villas compared to 69% apartments)
  • Most deliveries continue to be focused in the outer areas of Dubailand, Jumeirah Village Circle and Triangle, Meydan and MBR City
  • Rent and sales prices continued to see drops across most districts, while transaction volumes remain steady

Office market

  • Over 1.19 million sq. ft of new office space was delivered YTD 2019 with major handovers including One Central Office 4 and 5
  • An additional 1.12 million sq.ft is anticipated for the remainder of the year
  • Dubai’s office market continues to see relocation and consolidation activity exerting downward pressure on office occupancy levels (across Grade A and Grade B stock) and rents

According to CORE’S latest Dubai Market Update YTD 2019 “A range of demand side drivers have been announced over 2018 - 2019 such as long-term visa regulations, ease in company formation laws and smart government initiatives. Furthermore, with the recent announcement of the real estate committee, we are seeing strategic efforts to moderate supply side deterrents. This is a landmark step and it continues to show the government’s impetus to provide balance and stability in the market.”

Prathyusha Gurrapu, Head of Research and Advisory at CORE says “As we near the end of 2019, we are reaching a cyclical peak in supply deliveries in both the residential and commercial markets with developers aiming to handover projects before Expo 2020. However, with objectives to align stock segments with target demand, safeguard private investor interests and arrive at a strategic plan for major projects over the next ten years, we expect ongoing government reforms to limit supply and drive demand to help absorb existing inventories – albeit, pushing sales and rental markets towards a recovery in the midterm.

“In the near term, we expect the market to continue being highly occupier friendly, with underlying demand being met, evidenced by steady transaction volumes, particularly in the secondary sales market. The drop in rents and sale prices across asset classes has made Dubai increasingly attractive to live and work and service a wider demand base. Landlords and developers are expected to continue deploying strategies to absorb existing inventories and offer higher levels of flexibility to maintain occupancies, while a flight to quality is witnessed across residential and commercial asset classes.” Prathyusha adds.

Residential Supply: As per our initial forecast at the start of 2019, Dubai is on track to deliver nearly 29,500 units by the end of 2019. Approximately 16,500 units were delivered YTD 2019, a significantly higher pace of deliveries than previous years while an additional 13,000 units are expected over the remainder of 2019.

 “Most deliveries continue to be focused in the outer areas of Dubai Land, Jumeirah Village Circle and Triangle, Meydan and MBR City. Dubai Creek Harbour and Dubai South are also witnessing a rise in handovers.” The report outlines

Residential Market Trends:

Sales Market: The report highlights “Sale prices softened across most of the districts, with villas in Jumeirah Village (-13%) and apartments in Dubai Land (-19%), Discovery Gardens (-15%) and Dubai Sports City (-15%) witnessing the sharpest drops in the last 12 months.  Interestingly, apartments in Palm Jumeirah, Jumeirah Village and Business Bay saw an uptick in average sales prices as newly developed projects in these areas are in the higher price range and thus elevate the area average while the older stock continues to show subdued performance.”

Prathyusha says “The positive offset of the ongoing softening of the sales market is that it is definitely a buyers’ market with both individual property owners and developers being flexible and in line with market conditions. The secondary sales market, mainly the mortgage market has seen an uptick over the last three years, reflecting that the sales market is increasingly being driven by end-users.”

“That said, with existing inventory and future stock brought to the market over 2019 - 2020, sales prices are forecast to remain under pressure in the foreseeable future as the market gradually adjusts to supply and demand dynamics on the back of ongoing reforms.” She adds.

Rental Market: The weakest performing apartment districts in terms of rental reductions were Discovery Gardens (13%), and Dubai Land (12%), as competition intensifies in the affordable market segment with more options becoming available, either within the community or in nearby communities.

On the other hand, centrally located districts such as Business Bay, Dubai Marina, and DIFC have observed relatively lower levels of rental falls when compared to outer areas.

Prathyusha says “We expect rental prices to remain under pressure in 2019/2020 and the rental market to continue being tenant friendly with many tenants looking to move by upgrading to bigger units within newer projects for similar or lower rents. Those choosing to stay are negotiating various incentives such as rent-free periods, longer contract terms, multiple cheques, refurbishment of units and contribution to utilities as tenant retention becomes increasingly challenging for landlords.”

Dubai Office Market

According to CORE’s Dubai Market Update “A large portion of demand for office space in Dubai continues to stem from relocation and consolidation activity, with tenants taking advantage of softer market conditions. Many international tenants, who were locked in at relatively higher headline rents are looking at lowering rental outflow and optimising footprint when approaching the end of their lease term. They are either relocating/consolidating into more competitively priced units with substantial savings on headline rents or upgrading to superior built premises at similar rents as previous lease terms”

Robert Thomas, Head of Agency at CORE says “With a significant rise in new Grade A supply and vacancy created in prime existing office premises in the wake of relocations, tenants now have a variety of options to choose from.”

“While supply side deterrents continue to exert downward pressure, we are witnessing a raft of demand side drivers by the government such as the recent announcement of a single freezone passport. This move is aimed to ease current regulations and allow companies registered with any single freezone to operate in other freezones without the need for additional licenses. The new long-term visa regulations and changes in company ownership laws are also expected to aid demand.” Thomas adds

Office Supply

We are witnessing a spike in office supply, led by the delivery of several projects including Innovation Hub Phase One, One Central Office 4 and 5 and other smaller Grade B offices, bringing current total office stock to 102.32 million sq. ft.

The reports highlights “Many prominent projects are nearing completion with handovers spread over Q4 2019/Q1 2020. These include ICD Brookfield Place and Dubai Hills Business Park. Later in 2020, major deliveries include Mashreq Bank headquarters, DAFZA 9W and The Court in Business Bay. From Q4 2019 until end of 2020, we forecast nearly 3 million sq. ft. of office space to be handed over, taking the total Dubai office stock to over 105.3 million sq. ft.

Office rental

The report states “Rentals have contracted across the board, except the smaller freezones such as D3, One Central and DAFZA. We have seen secondary market locations such JLT, Business Bay and older Dubai districts (Deira, Bur Dubai, Garhoud and DHCC) witness significant year on year drops as relocation activity intensifies and landlords struggle to maintain occupancies.”

Occupancies have dropped in eleven of the twelve districts we track, with D3 being the only submarket witnessing a rise. Districts with larger amount of stock such as JLT and Business Bay continue to be at lower occupancy levels compared to other smaller submarkets.

Thomas says “We are also witnessing landlords become increasingly flexible during new leases and rent renewals in order to maintain occupancies. Number of cheques are limited to one to four cheques while the trend for fitting out units and extending rent-free periods are increasing. Clients continue to prefer fitted and plug and play offices and this has seen a rise in co-working and serviced office spaces, particularly from start-up and SME clients. We are seeing large single owned assets offering smaller, fitted and micro office options within in their portfolio to cater to this rising demand segment.”

Office market outlook

Robert Thomas concludes “With ample new and secondary supply coming into the Grade A market, blue-chip corporate occupiers have a considerable inventory to choose from - with large floor plates across contiguous floors, smaller fitted offices and strong F&B presence, with a few projects offering dual licencing and LEED certification as well. On the downside, rents and absorption are expected to remain under pressure in this segment as demand, although steady, is spread over various projects. As competition intensifies in Grade A stock, Grade B stock will see further drops in occupancies due to tenants either undertaking a flight to quality or relocating to more cost-effective units. We anticipate the market to continue being tenant friendly in the near term until the supply and absorption levels reach an equilibrium”

For further information or media queries, please contact:

Prathyusha Gurrapu, Head of Research & Advisory, CORE, prathyusha.gurrapu@core-me.com

Robert Thomas, Head of Agency, CORE, robert.thomas@core-me.com

Fiona Johnston, Marketing Manager, CORE, fiona.johnston@core-me.com

© Press Release 2019

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