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The COVID-19 outbreak is creating disruptions across industries, and the UAE’s real estate sector is no exception.
In Q1 2020, residential unit handovers in Dubai were down 27 percent year-on-year (y-o-y) while new project launches were reduced by 14 percent, according to real estate consultant CORE.
Nearly 5,000 residential units were handed over in Dubai in Q1 2020. The industry is expected to face strong headwinds in the near term owing to weak demand, a report from CORE said.
In comparison, 13,000 units were handed over in Dubai in Q4 2019. However, it is important to note that Q4 traditionally has a higher number of deliveries than any other quarter in any given year, Prathyusha Gurrapu, Head of Research and Advisory at CORE said.
“We have seen a slowing down of handover volumes compared to the same period last year. Due to ongoing COVID-19 restrictions, further downward revisions are expected on supply forecasts as they will inherently depend on the period of the pandemic and the pace at which functionality returns coupled with buyer confidence as developers adjust to ongoing market conditions,” Gurrapu said.
Green shoots in the market
However, Dubai off-plan transaction volumes increased by 9 percent year on year in Q1. Even in the secondary market, transactions (funded with cash and mortgages) registered an annual increase. “But, these numbers are yet to reflect the impact of the ongoing COVID-19 situation, mainly because sales volumes registered in Q1 2020 had mostly been agreed during late last year and early this year,” Gurrapu added.
In the sales market, almost all areas in Dubai registered year-on-year declines in prices. In the apartment market, Discovery Gardens saw the biggest fall in sales price at 13 percent while in the villa segment, The Lakes accounted for the sharpest price reduction at 16 percent, as per data from CORE.
Dubai entered 2020 on a strong footing with robust market performance during January and February. This was led by attractive price points, positive market sentiment induced by Expo 2020 and higher transaction volumes, the Core market update explained. However, property demand has dropped drastically in March. The limitations for buyers to physically view properties and conduct businesses are leading to delayed transactions.
Office market
COVID-19 had a big impact on office enquiries and leasing activity in March 2020, with many transactions being deferred as tenants take a wait-and-see approach.
As social distancing measures are being applied stringently, demand for office space has dropped drastically in Dubai, forcing landlords to be more flexible in negotiations.
According to the CORE report, the majority of office tenants are asking for rent freezes in existing leases. With tenant retention proving to be a major challenge in this market, several commercial landlords in Dubai are offering April 2020 as a rent-free month and agreeing to evaluate this option on a monthly basis, the CORE report explained. Some tenants are also discussing early exit clauses as they foresee potential downsizing in the near term.
The only major delivery in the commercial market in Q1 was Mashreq Bank’s purpose-built office tower in Downtown Dubai. Other prominent deliveries nearing completion include ICD Brookfield Place in DIFC, the report pointed out.
Robert Thomas, Head of Agency at CORE, said: “Of the transactions going ahead, we are seeing extended rent-free periods [2-4 months for fitted options and 9-12 months for shell and core options], capital contribution to fit-outs and shorter notice periods with limited or zero penalty on early break clauses being discussed in ongoing negotiations.
“With the current uncertainty, we see landlords being increasingly adaptable, willing to accept lower headline terms in negotiations to ensure leases are executed and long-term revenue is preserved,” he added.
(Writing by Disha N, editing by Seban Scaria)
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