Market Update - Dubai
Residential
Residential rental yields set to rise
The end of summer and the holiday season marked a rise in tenant movement in the Dubai property market. Many residents relocated either as part of their flight-toquality or to upgrade to larger sized units.
Overall apartment rental rates witnessed a small decline of 1.5% over previous month, contrary to the stabilised rental rates of the villa properties. Apartment rents in Downtown Dubai and Jumeirah Beach Residence witnessed a marginal rise on the back of higher
occupancy rates corresponding to increasing tenant interest. Rents in Jumeirah Lake Towers, Discovery Gardens and International City witnessed the highest fall due to high volume of
supply being released.
Properties in close proximity to Dubai Metro stations fetched 5-8% higher rentals than their counterparts. The metro-effect is finally casting its mark on the Dubai property market. Owners and landlords with properties located at walking distance to the Metro can expect to fetch
higher rental yields in near future.
Demand for villas has been on a steady rise in the emirate with no significant supply being added to the market. This has led to a surge of 2% in villa sales prices with The Springs community witnessing a growth of 25% during the period of Q1-Q3 2011.
However, apartment sales prices recorded a decline of 0.6% over the last month. Apartment units sized below 50 sq.m witnessed a nominal decline of 0.8% in their sales prices and maximum change was recorded for 1 bedroom and 2 bedroom apartments.
A sign of stabilisation in sales prices has been contributing to rising confidence amongst mortgage providers. Currently, retail mortgages are available at the starting rate of 5.5% per annum, though a lower rate of interest may be offered by selected providers during promotional periods. The Loan-to-Value (LTV) ratios which dipped as low as 50% during the economic downturn have also been re-instated to 80-85% of the property value.
However, the interest rates further need to drop to attract buyers and lead to a significant resurgence of the property market. Many buyers benefited from the availability of easy finance, higher LTVs and lowered finance rates for their mortgage deals. Hamptons Research recorded a growth of 6.5 % year-on-year in apartment and villa sales in the emirate. As per Dubai Land department’s data, South Asians, especially Indians, topped the buyer’s chart with an investment totalling AED 5.28 billion in apartments and villas. Saudi nationals have displayed highest buyer interest amongst the Arab nationals with total investment value of AED 742 million. This is followed by Jordanian nationals investing AED 444 million in plots/apartments/villas. Canadian nationals have invested AED 639 million in first half of the year, which is double the investments by their western counterparts.
Commercial
Commercial users seek attractive options
paced recovery due to subdued demand and oversupply. Tenant movement is witnessed across the emirate in search of larger floor spaces, affordable rents and upgraded facilities.
Vacancy rates in the older buildings of the congested business districts of Bur Dubai and Deira have further gone up. However, the highest vacancy rates to the tune of double digits were marked in TECOM and Business Bay either due to ongoing construction activity in the vicinity/fringe location or due to more supply being added to the market. Rents are stabilising
in the prime business districts such as DIFC, which has been attracting tenants by reducing set-up and licensing costs.
A limited number of transactions both in sales and leasing are being recorded in new buildings which offer increased parking, free A.C. chiller facility and fitted-out offices, among others, at minimal cost difference over shell-core facilities.
The Government expects the UAE GDP to grow over 4% and Dubai’s GDP to expand by 3-3.5% in 2011. The government statistics coincide with many corporates planning expansion in workforce during 2011-2012. This could contribute to a pentup demand for additional office space, which may subsequently minimise the demand-supply mismatch in the medium
term.
Hospitality
The Dubai hotel market has managed to leverage its strategic location as a regional
hub. Geo-political instability in many Arab countries further enhanced Dubai’s
appeal as a safe destination for leisure travellers as well as corporates planning MICE events in the region. As a result, the hospitality sector has been on a rebound since the beginning of 2011.
The luxury segment of hotels has been witnessing double digit demand, while the mid-scale/economy segment of Dubai hotels experience slightly lower demand. A robust demand for luxury hotels has marked the emirate on the expansion map of International hotel brands such as Accor and Hilton. Accor hospitality has announced plans to open its upscale hotel
brand Pullman in Jumeirah Lake Towers by mid-2012.
Additionally, Sofitel Dubai Palm Jumeirah Resort & Spa and the Sofitel Dubai Shaikh
Zayed Road, are slated for delivery during 2012 and 2013 respectively.The Hilton
group has partnered with Al Habtoor group to develop Waldorf Astoria Hotels &
Resorts on the Palm Jumeirah, which will be delivered end of 2013.
Tourist arrivals are expected to grow further now on back of favourable weather and launch of attractions such as Global village and Eid in Dubai. This will be followed by the holiday season of Christmas through New Year, which will further augment the REVPAR and
occupancy levels in the hotels of the emirate.
Retail
The retail market has witnessed no new supply being added. The existing malls such as Al Ghurair and Burjuman have been on expansion spree with the former adding up 150 retail and food outlets, and the latter adding 100 boutique brands and an entertainment zone with 8 cinema screens to its existing facility.
This additional supply is being planned to be delivered from end of 2011 and early 2012, increasing their market share in the fast-growing retail sector of the emirate.
Mall operators have managed to retain retail rental rates due to growing footfall and increasing spend by residents as well as tourists. The beginning of the festive season with Eid al Adha followed by Christmas and New Year is expected to bring in added footfall, thereby
boosting the retail market in the shopper’s paradise-
Market Update- Abu Dhabi
Residential
The real estate market of Abu Dhabi, after a relatively sluggish during summer, witnessed a
return to activity with rising enquiries and increase in transactions in the residential sector.
Tenants took advantage of lower rents by either renewing their contracts for lower annual
rents and flexible payment terms or upgrading their accommodation by relocating to
newer developments.
Overall, rents in Abu Dhabi still maintained a premium of 30-40% on rental rates over Dubai.
This scenario is expected to change in the medium term with the completion of a significant
number of quality residential units that are currently underway in Abu Dhabi. The most significant new supply is that of 1221 units delivered in the Al Zeina project at Raha Beach, comprising 80% apartments, 11 villas and nine per cent townhouses.
Some 550 families, the first residents, have begun moving in, while thousands more are
expected to follow in the near future to take-up 1,150 units in the towers of the Sun and Sky and Marina Square on Al Reem Island. This also marks the beginning of the first community being formed; the island’s first supermarket is slated to open in Q1 2012.
Upcoming supply in near future, villas as well as apartments, is expected to push rents downwards in the coming months. This may help to draw commuters back to the capital, increasing demand for residential real estate in the capital.
Tawtheeq, an online property database on Abu Dhabi, went live in November 2011. Tawtheeq will keep track of all tenancy contracts, which will be standardised.
Eventually, tenants and property owners will be able to conduct rental transactions online. This is expected to streamline rental agreements and provide greater transparency to the residential rental market.
Commercial
There is significant demand for fitted Grade-A office space, focused on smaller sized units of up to 500 sq m across the capital. Besides the rental rates, service charges, payment terms and rent-free periods, infrastructure remains a key in the decision of tenants to take-up office space.
The increase in availability of quality office space, coinciding with declining rental rates
is likely to further strengthen the office real estate market in Abu Dhabi.
Retail & Leisure
Abu Dhabi retail market will witness the addition of 235,000 square metres of retail space on Yas Island by the end of 2013. The facility will comprise hypermarket, concept stores, high street and high-end fashion outlets, a multiplex cinema and family entertainment centre, as well as many of the world’s leading retail, restaurant and leisure brands.
Polo RAK Amusements has announced its plans to develop another Ice Land water park,
a theme park, in Abu Dhabi. It will be similar to its 25 acre property in Ras Al Khaimah.