BUSINESS

Dubai residential market sales contract 1% in Q2

July 11, 2017

DUBAI – Dubai’s residential market witnessed a very minor contraction during Q2, with both sales and rental rates seeing modest declines. This is driving the progression of a tenant-led market and ultimately handing bargaining power to new tenants, according to the Q2 2017 Dubai MarketView by global real estate consultancy firm CBRE.

However, tenants on existing leases are generally not finding the same level of flexibility from landlords, although rental increases are becoming less prevalent.

“The sales market has witnessed an improvement in transaction numbers during 2017, with off-plan properties remaining favorable among investors, underlining the speculative nature of the local market,” said Mat Green, Head of Research & Consulting UAE, CBRE Middle East.

Residential sales prices fell by close to 1% during Q2 2017, with the sector slowly edging towards the bottom of the market, with just a 2% drop recorded year-on-year.

Future supply levels continue to grow at a rapid rate, which is a longer-term concern for the market, with a significant pipeline of new properties set to be completed in the build- up to expo 2020, with annual deliveries rising already well above the five-year average.

Dubai’s office market remains fragmented, with stable conditions for many prime free-zone and non-free-zone properties, but continued declines in the secondary market. The report states that average prime rentals have now remained unchanged for five straight quarters, at AED1,920/m2/annum. This stability underlines the relative scarcity of good quality accommodation in key office areas, which is helping to maintain rates at the current levels despite weaknesses in certain parts of the economy. Secondary office rentals have continued to fall, declining by around 4% during the quarter to AED1,000/m2/annum. With additional new supply expected to be completed in locations such as Business Bay, Dubai Silicon Oasis and JLT in the short to medium term, CBRE expects a further softening of rentals.

Mat Green, said “latent demand for Grade-A office spaces remains, particularity for properties that are able to offer tenants a dual licensing option. However, demand for typical onshore buildings in the traditional business districts continues to weaken, resulting in declining rental trends and greater flexibility in leasing terms.”

According to the MarketView, Dubai’s hospitality market continues to see weak performance conditions, prompted by rising new room supply, and a general softening of key fundamentals.

This has consequently led to a wave of marketing for discounted room offers, as hoteliers strive to sustain occupancy rates and non-room revenues during the traditional low summer season. This appears to have had a positive impact on average occupancy rates, which have risen 2.1% year-on-year according to data from STR. Average occupancy rates for the year to May reached 83.8% versus 82.1% during the same period in 2016.

However, ADR’s and RevPAR’s have continued to decline, falling 3.2% and 1.1% respectively in the year to May. This resulted in an average ADR of AED758/room/night versus AED783/room/night during the same period in 2016.

“With developers pushing to complete hospitality projects in time for the Expo 2020 event, supply levels continue to expand rapidly, with over 35,000 new hotel keys and hotel apartments are still to be completed by the end of 2019. The vast majority of these properties are found to be 4-Star and 5-Star hotels, reflecting the market orientation towards higher quality products despite government incentives to increase the focus towards mid-market rooms,” Green concluded. — SG


July 11, 2017
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