Global firm reaffirms steady growth in Dubai’s real estate market

Dubai skylineDUBAI continued to see steady supply growth during the first six months of the year, as performance within the residential and hospitality markets began to soften after a three year period of sustained growth, according to the Q2 2015 Dubai MarketView by global property consulting firm CBRE.

According to the CBRE report, Dubai’s rental market continues to outperform the transactional market in 2015, although residential leasing rates are beginning to witness marginal declines. This reflects the relative strength of the Dubai economy and the sustained levels of occupier demand, against the emergence of weaker sentiment in the sales market, particularly for completed and ready-to-occupy properties.

Mat Green, Head of Research & Consultancy UAE, CBRE Middle East said, “Average residential sales prices have fallen by around 2.0% quarter on quarter, mirroring the decline recorded in the first quarter. This reflects the current weakening of demand, as well as global economic conditions that have negatively impacted investor sentiment.”

Despite the declines recorded during H1 2015, sales prices still remain around 1% higher than the same period last year. As has been the trend in recent times, Downtown Dubai, Dubai Marina, Emirates Living and Palm Jumeirah continue to generate the bulk of transactions, noted the report.

“Whilst there was an overall decline in average sales values, certain submarkets actually saw more pronounced declines. Interestingly, the largest value drops were recorded in prime areas, with more affordable locations in many cases outperforming,” further added Green.

According to the report, as the market has started to cool over the past year, payment plans have become an increasingly important driver of the investment decision for off-plan properties, sometimes even outweighing price per square foot. Flexible, back weighted payment plans are allowing investors and end-users to secure properties with a minimal initial down payment and low instalments, with a large lump sum paid upon or after completion.

“Similar to the sales market, the rental market has also seen marginal deflation in rates during Q2 2015, posting the first quarterly drop since 2011. Rentals within the villa market saw the steepest decline, falling by an average of 3%, as compared to a 2% dip in apartment rentals. Higher end areas, including Dubai Marina, JBR, Palm Jumeirah, Greens and JLT, have actually suffered some of the heaviest declines, with rental rates falling between 1-4%,” further commented Green.

Rates in many secondary locations remained unchanged, including Al Nahda, Hor Al Anz and Discovery Gardens, reinforcing the resilience of Dubai’s low-cost housing options and reflecting the continued flight to affordability. However, as the pace of rental declines picks up pace, we would expect to see a gradual reversal of this trend as occupiers start to focus on quality, although this is unlikely to emerge until 2016.

Hotels in Dubai continue to be impacted by the strengthening dollar and depreciation of the euro and ruble, which have reduced Dubai’s affordability for many of its primary source markets, stated the report. In May, Revenue Per Available Room (RevPAR) fell 8.3% to AED 764 year-to-date compared to the same period of the previous year.”

“The decline was attributed to the combined effects of lower Average Daily Rates (ADR) and occupancy levels, which fell 6.9% and 1.5 percentage points, respectively, according to STR Global. Although the Dubai hotel market saw performance soften during the first five months of the year, demand remained rather robust, with occupancies and ADR averaging 83.8% and AED 913, respectively,” stated Green.

In conjunction with global economic uncertainty, average rates may face additional downward pressure from the continued delivery of hotel room supply. Dubai currently has around 28,000 keys in various stages of development that are set to be delivered by 2018.

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