Dubai’s office market continues to see strong corporate demand for good quality and well located accommodations, resulting in declining vacancy rates in some key sub-markets according to Q1 2016 Dubai MarketView by global real estate consultancy firm CBRE.
There has also been sustained demand for new free-zone licenses, with DMCC currently experiencing positive take-up rates, driven by demand for smaller office spaces from start-ups and SMEs. A similar story is also prevailing in TECOM and DIFC, with demand outstripping supply, encouraging a new wave of development starts. This includes the highly anticipated Brookfield Place at the DIFC which will comprise around 1.1 million square feet of Grade A offices and high quality retail spaces.
Mat Green, Head of Research & Consulting, CBRE Middle East, said, “Overall, the availability of good quality single held offices remains tight, with a surge in pre-leasing activity over the last 24 months stripping a large portion of the recently delivered and upcoming office space from the market before completion.”
Around 800,000 square metres of new office space is expected to be completed over the next three years, with the majority to be located within the Business Bay masterplan, which will contribute roughly 25% of the total – A further 10% is anticipated from Dubai Trade Centre District.
Average prime CBD office rentals saw some marginal growth during the quarter with rates rising to AED1,916/m²/annum, reflecting the sustained demand for well-located and good quality office products.
According to the MarketView, Dubai’s residential rental market has started to show more widespread deflationary trends, with average rentals declining by around 3% during the quarter. Residential properties have faced sliding rates across virtually all locations, reflecting the negative impact of new supply on the market and slowing new job growth caused by ongoing economic challenges in the region.
“As has been the trend in recent quarters, prime locations have experienced some of the most pronounced declines, with Downtown Dubai in particular witnessing a notable dip in rentals during Q1. However, we have also seen deflationary pressures creeping into some of the more affordable leasehold locations, including Al Barsha, Oud Metha and Bur Dubai, whist freehold sub-markets such as International City have also suffered more market downturns in performance,” said Green.
“Average residential sales prices have also continued to fall, with a further drop of around 2% recorded quarter on quarter, down from a 4% decline quarter the final quarter of 2015. This broadly reflects current sentiment, with weaker investor demand, US dollar strength, and sustained economic challenges regionally and globally, combining to create an uncertain transactional market environment,” further stated Green.
According to data from the Dubai Land Department (DLD), total real estate transactions were recorded at around US$15 billion (AED55 billion) during the first quarter of 2016, delivered through 12,568 transactions.
This comprised of 8,440 sales transactions with a value of US$5.8 billion (AED21.6 billion), with mortgages accounting for 3,213 transactions with a total value of US$6.7 billion (AED24.9 billion). A further undefined 915 transactions with a total value of US$2.2 billion (AED8.1 billion) were also recorded.
Dubai Marina was again the most prolific sub-market for sales, followed by Burj Khalifa and Business Bay. In terms of mortgages transactions, Dubai Marina was again first, followed by Muaisem 1 and Business Bay.
Based on recent construction updates, close to 15,000 new residential units could complete during the course of 2016, with the majority of these properties from secondary locations such as Dubailand (35%), Dubai Silicon Oasis (20%) and Jumeirah Village (6%). In terms of new supply from the more established sub-markets, Dubai Marina is likely to see the highest allocation, with around 8% of the total new units.
According to the report, Dubai’s tourism market continues to see downward pressure on occupancy, ADRs and room revenue amidst expanding supply, sustained US dollar strength, and global economic uncertainty, which has resulted in further deflation across all key performance indicators during the first quarter. However, the Emirate still remains on one the World’s top performing hospitality markets from an ADR perspective.
According to recent data published by STR Global, Dubai’s average occupancy rate fell by around 1.0% during the first three months of 2016 versus the same period last year, whilst ADRs dropped by around 10.1%. This culminated in an 11% dip in the RevPAR. However, Dubai remains one of the best performing markets in the GCC, with various markets in Saudi, Qatar and Oman actually experiencing more pronounced declines as a result of low prices and the negative impacts on the economy and corporate demand in particular.
According to figures published DTCM, Dubai attracted around 4.1 million visitors during the quarter of 2016, which reflected a 5.1% increase over the same period last year. Growth was primarily driven by a solid increase in visitor numbers from the GCC and India.
“The GCC comprised roughly one quarter of all visitors to the Emirate, driven by strong growth from Dubai’s main source market, Saudi Arabia. The number of Saudi guests rose by close to 14%, with 476,000 overnight visitors recoded in the period January to March. Oman was identified as the second largest source market in the GCC with 322,000 visitors, which was 32% higher than the same period in 2015. This was then followed by Kuwait and Qatar,” concluded Green.
Outside of the GCC region, India remains the key source of visitors, with 467,000 guests recorded during Q1, equating to a 17% increase over 2015 performance. There was also strong growth from United Kingdom, with a 10% increase year-on-year against the arrival of 334,000 visitors.