Q2 2015 Dubai Real Estate Market Overview
Dubai Market Summary Dubai s real estate market saw little change in the second quarter, with the slowdown in performance across all asset classes continuing, led by the hotel and residential sectors. Despite strong occupancy rates, hotel ADR s dropped 6% to May. While this can be partially attributed to the seasonal nature of tourism in Dubai, the number of room expected to enter the market will continue to place downward pressure on performance indicators. Similarly, the significant decline in residential sale activity combined with the number of additional scheduled for delivery over the next couple of years will depress rents and sale prices further. Meanwhile, the retail and office markets are expected to maintain their stability in the short-to-medium term. Dubai Prime Rental Clock Q2 2014 Retail Q2 2015 Residential Hotel* Residential Rental Growth Slowing Rents Falling Rental Growth Slowing Rents Falling Hotel* Rental Growth Accelerating Rents Bottoming Out Rental Growth Accelerating Rents Bottoming Out Retail Office Office * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL
Dubai Office Market Overview Market Summary Dubai s office market saw the delivery of approximately 162,000 sq m of GLA over Q2 2015, increasing the total current supply of office space to 7.8 million sq m. These completions include 8 buildings in the Dubai Design District (D3), 4 buildings at Arenco Business Park (DIP), and The One Tower in Tecom, Al Barsha. Faced with new supply and a limited increase in net absorption, the office market remained relatively stable over the second quarter of the year. Average rents across the prime CBD registered AED 1,860 per sq m, while vacancy rates spotted a marginal decline to 23%. An additional 704,000 sq m of office GLA is expected to enter the market in H2 2015. The majority of this supply is located in Business Bay, such as Westbury Square & The Binary. With this new space, office rents are expected to remain stable in the short-to-medium term. Hot Topic The Dubai International Financial Center has announced an ambitious strategy to triple in size by 2024, aiming to position the DIFC among the top 10 financial centers globally. The Center expects to increase the number of active financial firms to 1,000 in 2024 compared to 362 in 2014, and grow the workforce from 17,860 to 50,000 over the next 10 years. These plans highlight Dubai s recognition for the need to diversify it s economy, as the strategy aims to support the financial services sector to contribute 18% to Dubai s GDP in the next decade. This further cements Dubai s position as the regional business hub, and is expected to reflect positively on the office market performance in the long-term. Office Supply Current Supply (2012 2015) Future Supply (2015 2017) 7.1M 7.4M 7.6M 7.8M 704K 200K 338K 2012 2013 2014 Q2 2015 6M 2015 2016 2017 Office Performance CBD Vacancy Rate 25% 23% Q2 2014 Q2 2015 AED Prime CBD Rents (per sq m) / Annual Change 1,860 1,880 1% % Q2 Q1 2014 Q2 Q1 2015 2015 / 2016 2015 / 2016
Dubai Residential Market Overview Market Summary The residential market in Dubai continues to face downward pressure as rents and sale prices registered Q-o-Q declines and annual declines vs. Q2 2014. While the general REIDIN rental index remained flat in June 2015, the sales index dropped 8% for the same period, with declines in apartment sale prices exceeding that of villa prices. The market is expected to continue to see a downward trend in prices over the second half of the year and into 2016. In terms of supply, an additional 1,200 were handed over in Q2 2015, increasing the total supply to 379,000. A further 16,000 are due for completion over the remainder of the year, however with the market expected to face further declines, we may see projects delayed into 2016 and beyond. Hot Topic Residential transactions registered with the Dubai Land Department show a 66% decline in aggregate value and a 69% decline in the number of transactions in the first half of the year compared to the same period in 2014. H1 2015 saw a total of 7,400 deals transacted (compared to 23,800 in H1 2014), with a total value of AED 12.7 billion. These figures come as no surprise given Dubai s residential market was booming over the first half of 2014, and in the primary and secondary market were overpriced, so any figures would be reflective of that. These levels of decline in transaction activity have resulted in a single digit decline in sale prices, contrary to the major declines seen in 2008/2009, reflecting signs that Dubai s market is maturing. Residential Supply Current Supply (2012 2015) Future Supply (2015 2017) 356K 366K 377K 379K 16K 19K 17K 2012 2013 2014 Q2 2015 6M 2015 2016 2017 Residential Performance Dubai Residential Property Rent and Sale Indices Apartment residential Sales -1% Rentals -1% Villa residential Sales -2% Rentals -2% Q-o-Q Q-o-Q Sales -9% Rentals 1% Sales -5% Rentals -2% Source : REIDIN Source : REIDIN
Dubai Retail Market Overview Market Summary The retail market remained stable over the second quarter, with no new completions added to the pipeline. The remainder of 2015 is expected to witness the delivery of 194,000 sq m of GLA, comprised mainly of extensions to existing super regional malls (Dragon Mart, Ibn Battuta, Mall of the Emirates). Retail performance remained flat across all mall types in the Emirate, with a slowdown in annual rental growth levels. This comes as the growth in retail sales continues to slow down, particularly in the luxury segment, as tourist spending from Russia has declined. Hot Topic The F&B market in Dubai has undergone significant expansion over the past couple of years, and is set to grow further in the near future as demand remains strong. However given the current levels of market saturation, retailers have come under pressure to differentiate their offerings in order to attract footfall and maintain their competitive edge. While new operators entering the market may initially find it easy to set up their business, maintaining a niche product and accounting for high costs need to be taken into consideration as F&B operators are faced with strong competition, which will inevitably result in a high turnover ratio. Retail Supply Current Supply (2012 2015) Future Supply (2015 2017) 2.8M 2.9M 2.9M 2.9M 194K 419K 82K 2012 2013 2014 Q2 2015 6M 2015 2016 2017 Retail Performance Vacancy Rate 8% 8% Q2 2014 Q2 2015 AED Primary Secondary Average Retail Rents (% change) Q-o-Q 0% Q-o-Q 0% 4% 6% 2015 / 2016 2015 / 2016
Dubai Hotel Market Overview Market Summary The second quarter witnessed the delivery of 132 at the Intercontinental Marina, increasing the total hotel stock to 65,000 rooms. This comes as the general market performance weakens, with ADR s registering a 6% decline to USD 249 in the YT May. Coupled with a marginal decline in occupancy rates, RevPar s registered USD 208 YT May, a 9% decline. With an additional 30,000 scheduled for delivery over the next couple of years, and a slowdown in tourist numbers from Russia & the Eurozone, ADR s are expected to face further downward pressure in the short-to-medium term, negatively impacting hotel RevPar s. Hot Topic As Dubai sees a change in its visitor profile, with fewer tourists from Russia & Europe and more from Asia & Africa, we expect to see a shift in developer and operator business models towards the mid-market hotel segment. This is supported by initiatives launched by the Dubai government which include the allocation of land to 3 & 4 star hotel developments, the waiving of the 10% per room municipality tax (for four years), and the cut back on approval processes for construction permits. Recent research by Bloomberg found that Dubai was the fourth most expensive city in the world for hotel stays, therefore any efforts directed at increasing the market s competitiveness and attractiveness will boost the sector further. Hotel Supply Current Supply (2012 2015) Future Supply (2015 2018) 57,000 60,200 64,400 65,000 Keys 3,000 Keys 8,500 10,100 Keys 9,300 2012 2013 2014 Q2 2015 6M 2015 2016 2017 2018 Hotel Performance Occupancy Rate 85% 84% YT May 2014 YT May 2015 USD Average Daily Rate / Annual Change 267 YT May 2014 249 YT May 2015-6% 2015/2016 Source : STR Global 2015/2016 Source : STR Global
Definitions and methodology Interpretation of market positions: 6 o clock indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards. 9 o clock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation. 12 o clock indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards. 3 o clock indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation. The supply and stock data is based on our quarterly survey of 53 sub markets, starting from 2009. This data excludes labour accommodation and local Emirati housing supply. Completed buildings refer to those handed over for immediate occupation. Future supply is based on projects under construction. Residential performance data is based on the REIDIN monthly index. REIDIN Dubai Residential Property Price Indices (RPPIs) use monthly sample of offered/asked listing price data and land registry price data (trans- action data). Index series are set at 100 starting at the beginning of each data set. The supply data is based on our quarterly survey of 32 sub-markets, starting from 2009. Completed buildings refer to those handed over for immediate occupation. Future supply is based on projects under construction. Central Business District includes DIFC, DTCD, Sheikh Zayed Road, Burj Khalifa Downtown. Prime Office Rent represents the top open-market net rent (exclusive of service charge) for a new lease that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date. Data relates to headline rents, exclusive of incentives. Vacancy rate is based on estimates from the JLL Agency team. It represents the average rate across a basket of buildings in the CBD that make up around 80% of the CBD supply and 15% of the total current supply. Classification of Retail Centers is based upon the ULI definition and based on their GLA: Super Regional Malls have a GLA of above 90,000 sq m Regional Malls have a GLA of 30,000-90,000 sq m Community Malls have a GLA of 10,000-30,000 sq m Neighborhood Malls have a GLA of 3,000-10,000 sq m Convenience Malls have a GLA of less than 3,000 sq m The supply data is based on our quarterly survey of 45 sub-markets, starting from 2009. Future supply is based on projects under construction. Malls are categorized based on their turnover levels. Primary Malls are the good performing malls with high levels of turnover. Secondary Malls are the average performing malls with lower levels of turnover. Average rents represent the top open market net rent expected for a standard in line unit shop of 100 sq m in a basket of regional and super regional centers. Given rentals vary hugely within centers, we quote % change for retail rents rather than actual figures. Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit shops at super regional malls. Hotel room supply is based on existing supply figures provided by DTCM as well as future hotel development data tracked by JLL Hotels. Room supply includes all graded supply and excludes serviced apartments. STR performance data is based on a monthly survey conducted by STR Global on a sample of more than 32,000 rooms across Dubai.
Dubai Emaar Square Building 1, Office 403 Sheikh Zayed Road PO Box 214029 Dubai, UAE Tel: +971 4 426 6999 Fax: +971 4 365 3260 For questions and inquires about the Dubai real estate market, please contact: Dana Williamson Head of Agency MENA dana.williamson@eu.jll.com Andrew Williamson Head of Retail MENA andrew.williamson@eu.jll.com Chiheb Ben-Mahmoud Head of Hotels & Hospitality MEA chiheb.ben-mahmoud@eu.jll.com Craig Plumb Head of Research MENA craig.plumb@eu.jll.com Dana Salbak Research Manager MENA dana.salbak@eu.jll.com @JLLMENA youtube.com/joneslanglasalle linkedin.com/companies/jll joneslanglasalleblog.com/emearesearch jll-mena.com This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of JLL IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. JLL does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.