Dubai house rents, prices to fall further

Dubai - The residential sector is expected to see further sales price deflation in coming months as supply levels gradually pick up, resulting in further falls for both rentals and sales values.

Average residential sales rates in Dubai have fallen 16 per cent and14 per cent in the first 11 months of 2015 for apartments and villas respectively, while overall unit transactions declined by 33 per cent year-on-year, CBRE said in a forecast on Monday.
The residential sector is expected to see further sales price deflation in coming months as supply levels gradually pick up, resulting in further falls for both rentals and sales values. Approximately, 48,000 units are expected to be delivered between 2016 and 2018.
Dubai's residential sector experienced further declines during fourth quarter 2015, with sustained pressure on the transactional market reflected in the -4 per cent drop in sales rates and the lower sales volumes according to the Dubai Annual Market Update Report by global real estate advisor, CBRE.
Apartment rents were flat over the same period, while house rents dipped four per cent, CBRE said.
"The (rental) market has held up very well but it doesn't tell the full story," said Mat Green, UAE head of research at CBRE Middle East. "We have a very fragmented market."
"With the actual delivery of units falling short of anticipated supply levels, the occupier market has held up comparatively well, particularly for more affordable locations such as Jumeirah Village Circle, Dubai Sports City and Dubailand Residences which all achieved rental growth. As has been the trend, prime areas such as the Palm Jumeirah, Dubai Marina and Downtown Dubai continued to see rental deflation with rates falling between one to three per cent during the quarter," said Mat Green, head of Research & Consultancy UAE, CBRE Middle East.
"The sector has remained steady despite the emergence of more challenging economic conditions in the region amidst a period of lower oil pricing. Prime rents have been stable with no change recorded year-on-year. However, there has been a pick-up in pre-leasing activity during 2015, reflecting the presence of latent demand for good quality single owned office accommodation in locations such as Dubai Media City, D3, Trade Centre and JLT," said Green.
With a robust economy underpinning the office sector, the total office stock during 2015 stood at 8.5 million m², as compared to 3.0 million m² in 2007. Future supply of 1.1 million square metre is expected to be delivered between 2016 and 2018. 
"Demand for good quality office accommodation across single-held towers is expected to remain firm, driven by expansion within Dubai's private sector employment base. This will ultimately lead to further speculative office starts over the next 12 months, with activity likely to be focussed on the Freezones and the CBD area," said Green.
According to the report, Dubai's hospitality sector has proven to be very resilient in the face of more challenging economic conditions, locally and globally. During the first nine months of 2015, the Emirate welcomed 10.5 million guests, as compared to 9.6 million during the same period in 2014, registering around nine per cent growth.
"Despite the increase in visitors, year-to-date occupancy rates for the first 10 months of 2015 were down around one per cent at 77 per cent. ADR and RevPAR performance have suffered more markedly, falling 7.6 per cent and 9.5 per cent respectively. This was largely attributed to increased competition amidst rising room supply, with over 6,000 new hotel and hotel apartment keys delivered during 2015," added Green.
Increasing competition and a strong US dollar are likely to maintain deflationary pressures on ADRs in the short-to-medium term. However, occupancy rates are expected to fare better amidst strong visitor growth. Approximately 22,000 rooms are expected to be delivered between 2016 and 2018 to cater to this expected growth.
Supply in Dubai's retail sector expanded by around eight per cent during 2015, with the opening of a number of notable retail facilities, including City Centre Me'aisem, Box Park, Dragon Mart 2 and the Golden Mile, as well as MAF's expansion of Mall of the Emirates, stated the report.
"Despite the rise in supply, occupancy rates within the major centres (Dubai Mall, Mall of Emirates, Ibn Battuta Mall and Mirdif City Centre) remain exceptionally high, running at close to 100 per cent. Dubai continues to attract an ever increasing number of international brands, with the likes of Apple, All Saints, and Lulu Lemon all opening their first regional stores this year," added Green.
With the demand outstripping supply across the retail market, vacancy rates across major malls in the Emirate is less than two per cent.  An additional supply of 556,000 square metre is in the pipeline between 2016 and 2018.
With Dubai continuing to attract a rising number of tourists, the retail sector is expected to maintain current performance. However, there are some potential headwinds to consider, specifically the US dollar strength which could have an impact on retail sales.
- issacjohn@khaleejtimes.com

• Dubai