DUBAI – Overwhelmingly positive sentiment
1 December 2014
Throughout the year, all of Dubai’s real estate sectors have performed well, albeit in a fragmented fashion, according to Mat Green, Head of Research & Consultancy UAE, CBRE Middle East.
Whilst the residential sector has slowed, “the hospitality, office and retail sectors have all continued to see sustained growth amidst strong economic conditions and overwhelmingly positive market sentiment,” he said.
“Over the course of the year, the residential market has progressively slowed with transactions volumes well down on 2013 performance. Whilst values have grown steadily during the period, the growth is just a fraction of the 30% growth achieved last year. A similar story has also been evident in the residential leasing market, wherein rentals suffered a first quarterly decline since the last downturn in 2008,” Green explained.
Over the next 18 months, CBRE expect supply to be relatively well aligned with the demand generated by the incoming population growth. “However, looking further forward the risk curve certainly starts to increase, particularly once we start to see major new supply entering from recently launched master plan projects,” Green said.
STRONG ASSET CLASSES
“Whist all sectors have performed well, perhaps the most promising have been the retail and hospitality sectors which have seen rising demand amidst increasing visitors to the emirate,” Green said.
According to CBRE’s latest report on global retail trends, Dubai is the second most important international retail destination globally. “The emirate’s success in retaining its position for the third year in a row underpins its status as a regional hub for business and tourism. The retail sector in Dubai continues to be one of the most significant contributors to the emirate’s economic activity and in the lead up to the Expo 2020 the retail industry is likely to witness further positive growth,” Green explained.
The expert attributes recent growth to a number of factors such as rising visitor numbers, an increasing population, and a strong brand affiliation. “This has been underpinned by the development of mega sized destination malls, which are anchored with large-scale leisure attractions, with entertainment forming an increasingly important part of the retail mix. Leisure amenities such bowling, cinemas, ice rinks and amusement areas are now commonplace, creating centres that become social meeting points, particularly among the young local population. Not to mention other major leisure attractions such as Ski Dubai, Dubai Aquarium and i-Fly. This has created a new dynamic with shopping centres evolving into a place to be, not just to shop,” he said.
Furthermore, Dubai is a very popular tourist destination which obviously impacts positively on the hospitality sector. “After a fantastic performance during 2013, wherein average hotel occupancy rates reached over 80% across the market, 2014 has seen a similarly firm footing with rising visitor numbers.
“By the end of 2017, over 20,000 new hotel keys and more than 6,000 hotel apartments could be delivered, adding capacity for more than 9.0 million room nights a year to Dubai’s annual room inventory.
“Whilst 2015 is set to see significant new supply with over 4,500 new keys, 2016 and 2017 are the real growth years with 15,000 new keys in these two years alone. Over the next 12 months there will be 1,500 new hotels keys delivered in the Dubai Marina, JBR, Jumeirah Beach and Palm Jumeirah sub-markets, although the main focus of supply remains business focused,” Green commented.
OUTLOOK FOR 2015
Overall, CBRE expect the scheduled pipeline of offices and residential units to help constrain rental inflation and add more balance to the market in the coming quarters. “As has been the trend, a fragmented market will continue with certain products and locations performing independently from the wider market. For example, the villa market which has been relatively stable in recent quarters could be set for rental deflation in certain areas as a substantial supply of new units starts to emerge from locations such as Jumeirah Park, Arabian Ranches, Dubailand and Jumeirah Golf Estates,” Green said.
Strong growth in the services sector (particularly from the retail and hospitality industries) is expected to drive up demand for mid to low end residential offerings where the supply is limited.
“With 53,000 sqm GLA of retail space and over 7,000 hotel and hotel apartment rooms expected to complete during 2015 alone, the demand for executive staff accommodation is forecast to remain high, particularly with many existing staff accommodation facilities achieving occupancy levels of over 90%,” Green said.
With a solid economic outlook, Dubai’s position as the headquarter city of choice for global corporates in the Middle Eastern region looks set to continue, CBRE believe. “However, with limited good quality and efficient office properties available in the market, it is likely that this segment of the market could see a growing demand and supply imbalance in the coming quarters. Whilst a number of major office developments, such as DTCD Phase 1, are under construction, the supply is likely to remain constrained in the short-term,” Green concluded.
Dubai 2014 highlights
- Strong demand for Grade A office space
- After continuous price growth since 2012, the residential sector experiences welcomed stability
- The off-plan sales market experiences a shift as developers seek to attract more end-users by
introducing flexible payment terms
- Announcement of Mall of the World, the world’s largest shopping & entertainment destination
- Strong tourist numbers drive the hospitality sector, occupancy rates exceed 80% on average
ABU DHABI – improved year for almost all sectors
For the first time since 2008, almost all of Abu Dhabi’s real estate sectors are now poised for recovery.
“The Abu Dhabi market has seen an improved year almost across the board, with the office market really the only exception,” commented Mat Green, Head of Research & Consultancy UAE, CBRE Middle East.
Looking back at the Abu Dhabi market performance this year, Green added:
“Solid rental growth has been seen in the residential leasing market after the government’s decision to remove the rent cap at the end of 2013. This initially led to a spike in rental rates with 13% growth recorded during the first half of the year, before dipping down to 3% growth during Q3.
“The hospitality market also saw a marked improvement in performance with rising visitor numbers and higher occupancy rates. By the end of the year, total visitor numbers are expected to surpass the targeted 3.4 million guests, with the capital’s hospitality market enjoying are far improved year.”
STRONG ASSET CLASSES
However, despite positive signs in nearly all of Abu Dhabi’s real estate sectors, “the residential market has really been the stand out sector during 2014, achieving solid growth in both sales and rentals as increased occupier and investor demand has emerged,” said Green.
According to CBRE, the positive performance of the residential sector has been driven by strong economic conditions as well as a number of key government interventions in the form of new regulations. “The strong residential performance has consequently encouraged developers back into the market, with Aldar launching a number of successful schemes during the course of the year. As a result, we expect to see other developers re-enter the market during 2015, as market conditions continue to look attractive for new development,” Green commented.
According to data from JLL, around 1,200 units were added to the residential stock during Q3, bringing the total residential stock to approximately 242,000 units at the end of Q3 2014 (JLL Abu Dhabi Real Estate Market Overview Q3 2014).
November this year also saw the opening of Yas Mall in the capital, the UAE’s second largest shopping destination after the Dubai Mall, significantly improving Abu Dhabi’s retail offering. Experts say the mall will reduce the amount of retail spending that is currently lost to Dubai.
Further growth for the retail market is expected; “Abu Dhabi’s retail market will see the influx of significant new retail supply over the next three years, potentially outpacing its neighbour Dubai,” said CBRE’s Green.
According to CBRE, Abu Dhabi has approximately 778,000 square metres of new retail space in its development pipeline, placing it amongst the leading cities globally in terms of future retail development.
“The capital is witnessing significant development activity as it seeks to establish itself as a prime destination for entertainment and shopping and ultimately improve its appeal for international tourists. The increasing demand for retail space is supported by strong economic growth along with an influx of a growing number of tourists and expatriates alike,” Green commented.
According to the expert, Abu Dhabi has become an increasingly attractive proposition for international retailers, and is viewed as a great launch pad into the Middle East and African markets.
“While Dubai has certainly been a jewel in crown for the UAE, Abu Dhabi is also seeing significant shopping centre development. Hence, the capital, in many respects, remains an accessible test bed for new brands and retailers seeking a Middle East exposure.
“This was highlighted with opening of The Galleria last year, with a significant number of new luxury and food & beverage brands entering into the emirate for the first time. Brands are looking to capitalise on the young population, high disposable income levels and strong market fundamentals that prevail in the emirate. Recent developments have also brought Abu Dhabi forward on the global retail map, positioning the capital, rightly, as an independent global brand,” Green further commented.
OUTLOOK FOR 2015
2015 is likely to be another positive year for the capital with an improving picture across all sectors, according to CBRE. “Even the office sector, which has seen a relatively flat year, is expected to see a return to rental growth for prime properties with occupier demand for high quality accommodation on the rise as the market experiences a sustained flight to quality,” Green said.
The residential, retail and hospitality sectors are also expected to perform well over the course of next year, with some interesting new developments set for completion. However, CBRE pointed out that one potential area of concern is the current oil price slide, which if sustained for a long period could start to have an impact on local economies and could even result in a slowdown in public spending. “However, for now 2014’s average oil price is still well above the breakeven point for all GCC countries, but the situation will require some monitoring as move into next year,” Green concluded.
Abu Dhabi 2014 highlights
- Housing demand remained strong across all price points
- A number of new residential projects have been announced, including TDIC’s first residential development within Saadiyat Cultural District
- AD witnessed increased interest from international travellers, especially China
- Opening of Yas Mall, the UAE’s second largest shopping destination
- Abu Dhabi’s prime office project, Sowwah Square, remains on hold as the government progresses its plans for the new financial freezone