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News Release

UAE

JLL Reveals “2015 Top Trends for UAE Real Estate”


​​​JLL, the world's leading real estate investment and advisory firm, has today released its '2015 Top Trends for UAE Real Estate'.  For the eighth consecutive year, this highly anticipated research assesses and forecasts the major trends that JLL anticipate are likely to impact and shape the UAE real estate sector over the next 12 months.

Launching the report Mr. Alan Robertson, CEO, JLL MENA, said: "Dubai's real estate sector witnessed stable rents and prices during Q4 2014, and the New Year has started with increased uncertainty facing the UAE real estate sector.  A major dampening factor over recent months has been concerns about the negative impact of lower oil prices on the UAE's economy and therefore the real estate market.  Dubai's success at diversifying its economy and the continued growth of non-oil sectors makes it less vulnerable to lower oil revenues than other GCC oil exporters.  There is no doubt that the bubble has deflated rather than rapidly burst and the leading question now being asked is 'what is next'.  JLL's view is that the Dubai residential market will see some welcome stability in 2015, with average residential prices ranging from flat to declining by up to 10% over the year."

In the 2015 Top Trends report, JLL outlines the below key trends affecting the UAE real estate market this year:

1. The Dubai residential bubble deflates: The overall macro-economic environment for 2015 remains relatively comfortable.  In some ways this cooling of sentiment is a positive, in that it has affectively reduced the pressure on asset prices that was emerging in 2013 and the first half of 2014.  The talk of an asset price bubble that dominated discussion of the Dubai residential market up to mid-2014 has now been replaced by a more sombre sentiment.

2. Hospitality market facing increasing challenges in 2015: The Dubai hospitality market is also positioned close to the peak of its cycle and is facing increased challenges as we move into 2015.  The immediate trigger for the slowdown in activity is the strength of the US$, which has made Dubai relatively expensive for those coming from non-dollar dominated economies.  With the value of the Ruble falling so significantly over the past six months, the number of Russian tourists to the UAE fell by 8% in October (compared to the same month of 2013), with a much more pronounced fall expected in 2015.  The Russian Consul General in the UAE has estimated that 2015 may see a decline of up to 40% in Russian visitors.

3. Commercial market maturing: In 2015, office rentals will remain stable, which is good news for occupiers.  However, vacancy rates will remain significant despite a continued gradual improvement in the strata title market, where different investors own one or more floors.  In general, the office market is becoming more similar to developed markets overseas with more leasing prior to completion of new projects in 2015.

4. Varied source of funding: JLL expects that varied sources of funding will be the dominator in 2015, with equity a preferred funding approach.  Dubai saw its largest ever IPO in 2014, with the successful launch of Emaar Malls Group.  Another significant IPO has already come to market this year with Damac listing on the local Dubai market, and JLL expects to see further public equity raisings over the rest of the year.  The number of successful listings will however depend upon the overall condition of the market.  While debt levels have declined in recent years as major real estate developers have been able to refinance loans on more attractive terms, the level of debt remains significant. 

5. ​Supply will be significant but not excessive: JLL expects a significant but not excessive level of new supply to dominate discussion in the Dubai real estate market in 2015.  While there are significant levels of supply currently projected to complete over the year (25,000 residential units, 1.2 million sqm of office space, 267,000 sqm of retail space and 4,700 hotel keys), not all of this space is likely to materialise as some projects experience delays in delivery.  Given the 'mega projects' announced over previous  years, such as the Dubai Water Canal, Dubai Creek Harbour and the Mall of the World, there will be more focus on construction of existing projects rather than the launch of new mega projects.

6. Regulations becoming more sophisticated: JLL welcomes the recognition that the real estate market needs to be better regulated.  Examples of this include an increased recognition that the existing Dubai rental cap provisions need to be refined to reflect differences in building grade or quality.  A new rental cap is likely to be implemented in Abu Dhabi that has also published draft regulations covering real estate laws within the cities new financial free zone on Al Mirayah island.  Additionally, transparency is improving with more data on transactions provided by Dubai Land Department and more private sector data providers entering the market.

7. Return of building cost inflation: Over the past two years, costs have remained largely unchanged.  Cost inflation is expected to return in 2015, particularly for stand-alone projects as only major developers will still be able to negotiate fixed price contracts.  Higher building costs reflects general increases in the cost of living in Dubai and the strong regional competition for construction resources between the UAE and other GCC markets such as Qatar and Saudi Arabia.  The recent reduction in oil prices could lead to some announced projects being delayed or postponed, thereby helping to ease pressure on construction costs.

8. Car parking, quality road access and public transport will have greater influence on rents and values in 2015: The increased level of traffic and the disappearance of 'sand parking lots' have combined to highlight the deficiency of parking in many existing projects.  As paid parking becomes more commonplace, JLL would not be surprised if car parks joined education and health care as emerging real estate asset classes in 2015. 

Craig Plumb, Head of Research, JLL MENA concluded: "While sentiment towards Dubai real estate has certainly softened over the past six months, this cooling of sentiment is a positive in some ways, in that it has affectively reduced the pressure on asset prices that was emerging in 2013 and the first half of 2014.  However, the market looks very different from the previous peak in 2007/2008.  The rate of price and rental growth in the residential, retail and hotel sectors over the past two years has been unsustainable.  2015 promises to be a more subdued year with minor corrections in prices in some sectors but this stability may be just the thing that Dubai needs in the long term."

Prime rental clocks

This diagram illustrates where JLL estimate each prime market is within its individual rental cycle as at the end of the relevant quarter along with the forecast for the end of 2015.

Dubai Prime Rental Clocks



Abu Dhabi Prime Rental Clocks