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July 2016

Real estate overview

According to Volkers, the slowdown in real estate activity in Dubai can be attributed to a combination of local and global events that have dampened demand.

“The softening in demand may be attributed to several factors, including the EU’s enforced sanctions on Russia, a period of low oil prices, and the ongoing volatility in global currency markets which have had a major impact on local real estate, influencing inbound and outbound capital flows. The U.S. dollar strength and euro/pound weakness has made Dubai a much more expensive investment proposition for many would-be investors from Europe and other regions,” the CBRE expert says.

Let’s look at the different market sectors in a bit more detail.


According to JLL’s Dubai Real Estate Market Overview for Q1 2016, sales and rental indexes for the residential market are still declining but at a slower pace as the market moves closer to the bottom of its cycle.

Residential sales prices declined by 10% and 11% Y-o-Y for apartments and villas respectively. According to JLL, this can be attributed to a number of factors including the strengthening USD which has led to a fall in the purchasing power of overseas investors from non U.S. denominated economies; and falls in purchasing power of regional investors as a result of lower oil prices.

“The residential sector is currently stabilising, with the rate of decline in prices and rentals now moderating. If the economic climate remains favourable, we could see increases in prices and rents from the end of 2016 or in early 2017. There are however large levels of potential new supply in some locations and any improvement in performance is therefore likely to be patchy and uneven,” Plumb says.

CBRE maintain a similar stance with Volkers saying the firm expects deflationary pressure on residential prices to continue during 2016 with the cycle reaching its potential bottom by the end of this year/early 2017.

But despite the continued short term softening, market sentiment remains relatively positive towards the medium and longer term, as previously mentioned, which is evidenced by the launch of several new projects by leading developers over the quarter, says JLL. Prime examples of this trend include Emaar’s announcements of a new tower (higher than Burj Khalifa) and a new mega retail district within the Dubai Creek Harbour project.

One of the trends in the residential sector as identified by JLL is the move towards affordability; there has been continued interest amongst developers in the affordable sector of the residential market. A recent example is the launch of Dubai Properties’ new Serena project within Dubai Land in Q1 2016, which comprises a total land area of 8.2 million sq ft. with the 1st phase expected to be completed before the end of 2018, JLL reports.


Dubai’s office market continues to see strong corporate demand for good quality, efficient, and well located accommodations, resulting in declining vacancy rates in some key sub-markets, says CBRE’s Q1 market overview for Dubai.

According to CBRE, there has also been sustained demand for new freezone 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 prevailing in TECOM (now called Barsha Heights) and DIFC, with demand outstripping supply, encouraging a new wave of development starts, which includes the highly anticipated Brookfield Place in DIFC, says CBRE.

According to JLL, the long-term picture for Dubai’s office market remains relatively positive, given the diversification of the economy and the attraction of Dubai as a regional office destination. Furthermore, the opening of the Iranian market is a key development which should support the office segment in the city, as multinational companies seeking to do business in Iran use Dubai as a hub for operations, the JLL report says.


With occupancy rates of 92%, the strength of the Dubai’s retail sector is evident.  According to JLL, developer sentiment remains positive and the firm expects to see further completions over the remainder of the year including the Dubai Mall – Phase 2 (52,400 sqm GLA) and the Outlet Village (20,000 sqm GLA).

However, with an increase in retail supply and a slowing rate of increased spending, the retail market is likely to become increasingly fragmented, JLL says.

“With more projects entering the market, retailers will continue to have greater choice. With some of the new projects seeking to charge higher rents, larger retailers could crowd out smaller and mid-sized tenants who are forced to consider more secondary locations with lower levels of turnover and footfall,” the JLL report states.

Low oil prices are also of concern for the sector, despite its strong performance. “The strengthening USD, lower oil prices and a decline in trade has weighed negatively on market sentiment. Although oil only constitutes about 4-5% of Dubai’s economy, the impact is greater. The retail segment depends heavily on tourists from neighboring GCC states and their spending is clearly reduced by lower oil prices,” the JLL report says.


Amidst expanding supply, sustained U.S. dollar strength and global economic uncertainty, Dubai’s hotel market continues to see downward pressure on occupancy, ADRs and room revenue, says CBRE’s latest report.

According to recent data published by STR Global, Dubai’s average occupancy rate fell by around 1% 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 RevPAR.

JLL’s figures are even slightly more modest, with the firm reporting occupancy rates as having declined by 2% in the first two months of 2016 (yet still remaining high at 84%) and average room rates as being down by 13%.

Despite this, the emirate still 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 oil prices and the negative impact on the economy and corporate demand in particular,” CBRE says.

According to JLL, the outlook for the hotel sector remains positive despite the current slowdown. “Continued investment in tourism infrastructure is expected to support demand, with the opening of a number of new attractions including new theme parks in 2016,” the firm says.

In terms of trends, JLL identify consolidation as a hot topic in Dubai’s hotel sector going forward. “There have been a number of hotel consolidations recently and this trend is expected to continue. At the end of 2015 Accor Hotels acquired FRHI holdings, the owner of Fairmont, Raffles and Swissȏtel chains. The USD 2.9 billion deal gives Accor the operation rights to 17 luxury hotels in MENA which include the Fairmont hotel on the Palm Jumeirah.

“More recently is the announced merger of the Marriott & Starwood brands. In this deal, which is expected to close [soon], Marriott will pay a total of USD 13.3 billion to Starwood creating the largest hotel chain in the world.

“At present, the two brands dominate the market. By the year 2020, the consolidated group will make up for 15% of the hotel supply, followed by Accor at 7-8%. Historically, we have seen new operators arising with distinctively different product offerings. An example of this trend has been the introduction of new brands into the market by some of the major local developers such as Emaar and Meraas (Rove),” JLL reports.

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