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According to JLL Q3 2016 Dubai Real Estate Market Report
JLL, the world's leading real estate investment and advisory firm, has released its Q3 2016 Dubai Real Estate Market Overview report which reveals how demand has shifted towards smaller deals in the Dubai office market as occupiers respond to more challenging market conditions. At the same time, there were relatively few large transactions for office space agreed during Q3.
"This reflects occupiers' caution in the face of more challenging economic conditions in both Dubai and across the broader region," said Craig Plumb, Head of Research, JLL MENA. "While there remains strong demand for smaller units, it is taking far longer to negotiate larger deals as companies remain uncertain about their staffing and space requirements."
A number of office towers across Dubai are now catering for this trend towards smaller units. Index Tower (located in the DIFC), for example, has divided four of its floors into smaller units, offering suits of 50, 150 and 300 sq m on a fully-fitted ready to lease basis.
"The exercise has proven to be successful, with most of these floors now leased," said Mr. Plumb.
The quarterly report notes the "muted market conditions" that characterised Cityscape Global 2016. The overall sentiment at Cityscape Global 2016 in September reflected the relatively "subdued nature of the current real estate market conditions in Dubai as well as the broader region", according to the report.
Dubai Expo 2020 was a dominant topic during the presentations at Cityscape Global, as was alternative real estate investments, including education, healthcare, infrastructure, logistics and student housing.
"What we've seen at Cityscape Global 2016 reflects the subdued condition of the real estate market right now," said Mr. Plumb. "We've seen a lot of projects being re-announced and fewer new projects being launched compared with previous years". While short term sentiment remains soft, most developers and investors are expecting conditions to improve over the medium term, with an increase in activity anticipated in the lead up to Expo 2020":
"Due to the changing economic climate in the region, investors are looking for ways to diversify their portfolio which have led them to look into alternative investment opportunities. This was one of the trending topics during Cityscape with the education sector leading the way."
One of the most notable projects to be re-launched during Q3 was Jumeirah Central, the master plan for which was announced by Dubai Holding on the eve of Cityscape Global. The mega scale project will include 11,000 residential units, with construction of phase one - which will include 13 residential buildings encompassing 3,000 units - starting in 2017.
Also highlighted was the opening of Dubai Opera, which opened its doors in the heart of the downtown precinct
"Dubai Opera forms part of the government's plan to broaden the base of the cities tourism and leisure offerings and adds further diversity within the downtown precinct," said Mr. Plumb.
IMG World of Adventure, which has brought Marvel and the Cartoon Network together for the first time, also opened in August.
SECTOR SUMMARY HIGHLIGHTS – DUBAI:
Office: The third quarter saw the delivery of 51,000 sq m of office GLA, 64% being single-owned projects in TECOM, with the remaining 36% being strata titled space in Business Bay, which has been the most active precinct for completions so far in 2016.
While the total office stock in Dubai has now risen to around 8.6 million sq m, Quarter 3 also witnessed a number of changes of office projects into alternative uses. For example, Le Presidium, Nova and Moon towers have been converted to residential or other uses.
Looking ahead, an additional 152,000 sq m of GLA is scheduled to be delivered in Q4, almost three times that delivered during Q3. Business Bay continues to be the focus for completions, with projects also expected to complete in Silicon Oasis, the Greens and TECOM.
The trend seen in Q3 showed a move towards smaller offices with few large transaction during the quarter. This is a result of the measures the occupiers are taking to be cautious in the face of more challenging economic conditions in the region, where a number of firms are reviewing their staffing and space requirements. The demand for small units are currently strong in the market and this trend is expected to continue.
A number of office towers across Dubai are catering for this trend towards smaller units. Index Tower, located in the DIFC, has divided four of its floors into smaller units, offering suits of 50, 150 and 300 sq m on a fully fitted ready to lease basis. The exercise has proven to be successful, with most of these floors now leased.
Emirates NBD, which owns 3 floors in Burj Daman in the DIFC, has followed a similar strategy, offering small units of between 250 and 300 sq m.
Residential: The completion of 5,400 residential units during Q3 2016 marks the highest quarterly completion since Q4 2012 (when approximately 6,200 units came into the market).
Apartment units comprised the majority (63%) of total residential units completed during the past quarter, with Wasl Oasis II (a 13 building project) releasing approximately 690 units. The largest completion of villas was the 400 units completed and delivered in Rahat Villas (the second phase of the Mudon project).
The supply pipeline remains active, with a further 11 thousand units scheduled to enter the market in Q4 2016, although not all of these projects are likely to be delivered on schedule. Completions scheduled for Q4 include approximately 2,500 townhouse and apartment units in the Akoya project by Damac on Al Qudra Street.
Jumeirah Central master plan announced by Dubai Holding group at Cityscape Global 2016 is a milestone project that will establish new levels of infrastructure, environmentally friendly transportation and a new pattern of urban form and community within Dubai.
The location of this mega project replaces Mall of the World which was announced in 2014. Jumeirah Central will include 11,000 residential units. Construction of phase one, which will include 13 residential buildings encompassing 3,000 units, will start in 2017, on a land plot on the opposite side of Sheikh Zayed road from the Mall of the Emirates.
Retail: The third quarter saw the delivery of two retail projects with a total GLA of 28,000 sq m, the majority (25,000 sq m) of which is the Outlet Village; a community type development in Saih Shuaib, while the other community centre was located in Dubai Silicon Oasis.
A further three projects (with a total of 20,000 sq m) are scheduled to complete in Q4. These centres will be located in Al Furjan, Al Badrah and International Media Production Zone (IMPZ).
Dubai Opera with its dhow-shaped structure in the middle of the Downtown Dubai skyline opened its doors on 31st August 2016 with 2,000 seats in the main auditorium and a series of smaller studio and classroom spaces.
Given its proximity to the Dubai Mall, the opening of the Dubai opera is expected to support additional footfall for the major expansion of the mall (due to open in 2017) as well as generate additional demand for additional F&B outlets along Mohamed bin Rashid Boulevard.
Hotel: A total of 5,500 hotel rooms have entered the market since the beginning of the year, indicating the continued momentum in Dubai's hospitality and tourism sector. Among the projects completed in Q3 were Westin Al Habtoor with around 1,000 rooms, and Atana Hotel in TECOM with 830 rooms.
Major projects expected to complete by the end of 2016 include the Jumeirah Al Naseem (430 rooms) and Dukes Dubai on Palm Jumeirah (279 hotel rooms and 227 serviced apartments). The 117 key Nikki Beach Resort on palm Jumeirah is also expected by the end of the year, following the opening of its beach club earlier during 2016.
Hotels performance in Dubai remained under pressure over the third quarter of 2016 due to the combination of low oil prices (affecting business travel) and the strong US Dollar (reducing demand from many traditional leisure source markets).
The relatively diversified spread of source markets and the growth of demand from new markets (especially in Asia), helped minimize the impact on occupancy rates which remained almost stable at around 76% over the YT August. Average daily rates were more strongly impacted, with a 11% decrease to USD 191.
While a further decline in room rates and yields can be expected over the short term, the medium term outlook for the market remains positive due to the heavy government investment in expanding the cities tourism infrastructure.
Dubai prime rental clock
This diagram illustrates where JLL estimates each prime market is within its individual rental cycle as at the end of the quarter.
*Hotel clock reflects the movement of RevPAR.
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Head of Research - MENA
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