- Prime CBD office rental rates have risen by 3% year-on-year while secondary rates recorded an increase of around 7% year-on-year
- Annual residential rental growth in the year to Q1 2015 measured just 3%, reflecting the emergence of more stable market conditions
- Residential sales rates fell by around 2% during the quarter
Dubai, 08 April, 2015 - Despite a substantial rise in new stock, the residential and office markets have still remained broadly stable, a positive indicator after a period of significant rental and sale price growth over the past two years, according to the Q1 2015 Dubai MarketView by global real estate consultancy firm CBRE.
Mat Green, Head of Research & Consultancy UAE, CBRE Middle East, said, “Strong economic fundamentals and increased government spending towards infrastructure projects have been instrumental in maintaining a healthy equilibrium across the real estate sector, during the first quarter.”
“Around 0.42 million m² of new office space and 16,000 residential units (apartments & villas) entered the market during 2014, helping to control rental inflation in the second half of the year.”
According to the CBRE report, the office sector remained steady during the quarter with the average CBD rental rates unchanged at AED1,885/m²/annum while year-on-year the increase has been marginal at 3%.
“Positively, Dubai hasn’t experienced a slowdown in demand as a result of the declining oil price, largely due to the diverse nature of the emirate’s economy and the UAE’s position as the regional business hub,” further commented Green.
The total office stock as of Q1 2015 measured 8.1 million m² with an addition of approximately 40,000 m² from the Dubai Design District delivered during the quarter.
According to the report, sustained growth in small and medium enterprising (SMEs) within Dubai’s free zones continues, helping to improve occupancy rates and drive rental rates. Furthermore, larger space occupiers continue to seek consolidation opportunities in better quality accommodation.
“Secondary rents now average AED1,170/m²/annum, compared with AED1,090/m²/annum during Q1 2014, representing 7% growth year-on-year,” stated Green.
According to the CBRE report, year-on-year, residential sale transactions registered a significant drop in overall value terms, falling 20%, whilst volumes also declined by around 4%. However, on quarter-on-quarter basis, there has actually been a rise in both transaction values and volumes.
During Q1 2015, total sales transactions were valued at AED6.39 billion with 3,896 transactions completed. This compared with a value of AED4.55 billion and 2,573 deals during Q4 2014. However, it was not sufficient to avoid a decline in average sales rates, which fell by around 2% over the quarter.
“Prime residential areas continue to attract the bulk of investment appetite, with properties from Palm Jumeirah, Dubai Marina, Emirates Living, Jumeirah Beach Residences (JBR) and Downtown Dubai recording a total sales value of AED3.27 billion, equating to 51% of the total value transacted,” further stated Green.
Dubai Marina/JBR recorded a total transaction value of AED1.08 billion, spread across 512 deals, which equates to an average deal value of AED2.11 million. During the same period Emirates Living recorded total sales measuring AED0.808 billion, from 245 transactions. Palm Jumeirah remained the most expensive in terms of transaction value per deal. The development recorded total sales measuring AED0.815 billion across 145 deals, which calculated to an average deal value of AED5.62 million. This reflects the significant influence of villa sales on the overall transaction values.
“The residential leasing market has remained broadly stable for a third consecutive quarter, with only minor changes in rental rates recorded. The markets relative stability during the past nine months is reflected in the huge swing in growth figures from 27% in the year to Q1, 2014 versus 3% in the year to Q1, 2015,” added Green.
Within the apartment segment, emergence of new supply and traffic related issues has led to drop in rental rates in few residential districts while other developments with improved infrastructure and retail facilities maintained healthy rental rates, mentioned the CBRE report.
The average drop/gain in apartment rental rates during the quarter has been in the range of ±1 to 3%. Districts which have witnessed a drop in rates include Al Nahda, Al Barsha, International Media Production Zone, Motor City and Liwan, whilst the gainers included Jumeirah Lakes Towers, Discovery Gardens and Karama.
Villa / townhouse rental rates remained largely unchanged during the quarter, with smaller 2-bedroom unit types witnessing an increase of around 1% quarter-on-quarter, while larger three to five bedroom units experienced a drop of close to 1% during the same period. This has been driven by an increase in the supply of villa units, a trend that is likely to gather pace over the next 12 months.
“The villa market witnessed the addition of roughly 3,000 new units during 2014 which has to an extent helped to balance rental inflation. Rental rates for six and seven bedroom units remained unchanged due to more limited supply availability. The most significant rental declines were noted in Jumeirah Village and The Villa developments, which registered a drop of 3% and 4% respectively quarter-on-quarter,” added Green.
Commenting on the outlook of the residential and office market, Green concluded, “The delivery of a significant number of new units during 2015, will add further pressure to the residential market over the course of the year. The leasing market which has remained stable over the past three quarters is expected to witness increased landlord incentives in the form of rent-free period and other allowances, whilst rental declines are also likely in some areas. The average sale rate for residential properties dipped by 2% quarter-on-quarter and is expected see further drop during the course of the year.”
“The commercial office market is anticipated to see continued strong demand across major freezone locations. However, the current global economic situation could lead to an elongation of negotiation and deal periods, as head offices in Europe and the US take longer to sanction moves amidst on-going uncertainty, low oil prices and rising regional unrest.”