Dubai Real Estate Market Analysis Report – Q1 2018
Affordability has been a key theme across all segments of the Dubai real estate market in Q1 2018. On the commercial front, tenants are cautious and continuing to seek smaller office units. Residential developers are offering smaller units at competitive prices in areas such as Dubai South, Dubailand and JVC. With a number of retail brands vacating underperforming stores, landlords are offering further incentives to retain existing tenants. Hotel operators remain committed to expanding the price sensitive midscale segment, to meet growing demand.
The first quarter of 2018 saw the completion of The Exchange in DIFC (13,700 sq m) and the first phase of Motorsport Business Park in Motor City (6,000 sq m), collectively adding 19,700 sq m of office GLA to the market. This is lower than the levels of completion seen in previous quarters and for some part could be attributed to delays in construction. Some developers have temporarily put the office components of their projects on hold (which at present represent approximately 279,000 sq m of GLA) as current market conditions remain in favour of tenants. With supply levels outpacing the demand for office spaces, this trend should persist, although there remains more than half a million sq m of GLA expected to enter the market in the next three years.
Residential Hot Topic
Regulating the off plan sales market and the control of ‘property flipping’ has long been an objective of Dubai’s Real Estate Regulatory Agency (RERA). As the off plan sector of the market has become more significant (accounting for more than 50% of all sales in 2017), RERA has been considering new and tighter restrictions. The current regulations require developers to own the land and to have deposited 20% of the total construction cost in an escrow account. RERA floated the idea of increasing this percentage to 50% of the total project value in Q1 2018, but this change has not yet been implemented.
Retail Hot Tpoic
The retail sector is experiencing contraction in many parts of the world. In 2017, more than 25 retail companies filed for bankruptcy in the US, with this trend continuing into 2018. This global trend has trickled down to Dubai, affecting the retail market, which is currently experiencing increased levels of store closures. Some brands are pulling out of the Dubai market entirely, whilst others are rationalising their footprint by disposing of surplus space and concentrating on their better performing stores. The F&B sector, which was the positive game changer during the past few years, has also started experiencing a downturn in recent months with a number of high profile new projects seeing F&B tenants closing their operations despite spending large sums on fit-outs.
YT February 2018 ADRs decreased by 3% compared to the same period in 2017 to USD 214, with RevPAR declining by a similar rate to USD 184. Hotel performances may weaken further in the year as the negative impact of VAT takes effect. Occupancy levels remain strong at 86%, a continuation of the same trend seen in previous quarters. These high levels of occupancy and performance are likely to decline with Ramadan in May and then the relatively quiet summer season.
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Author: Craig Plumb
Craig has over 20 years’ experience providing clients with quality advice on real estate market conditions in the UK, Asia Pacific and the Middle East. With a background in urban economics and spatial planning, he has particular expertise in the areas of property market research, development consultancy, transport related infrastructure projects and corporate real estate.
Since moving to the UAE in 2006, Craig has authored over 50 research reports on different aspects of the MENA real estate market. He has also provided market research and consulting services to major investor, developer and government clients and has appeared as an independent real estate expert before the Dubai International Arbitration Centre (DIAC).
Craig holds a Bachelor of Arts in Economics & Geography from Lancaster University and an M.Phil in Environmental Planning from Reading University (UK).