Dubai residential transactions leap 49%

Sales and prices rise in promising second quarter for property sector.

Dubai's residential sector has shown promise in the second quarter of this year with the number of residential transactions increasing by 49 per cent over the last quarter. Similarly, achieved prices have risen by one per cent in the second quarter as against the first three months of the year, according to a recent Jones Lang LaSalle (JLL) report.

The JLL report titled 'Dubai Real Estate Market Overview for the second quarter of 2010', shared exclusively with Emirates Business, said: "Although asking prices have marginally declined since the first quarter of 2010, achieved prices increased by one per cent to around Dh867 per square foot. While apartment prices remained stable, villa prices on the other hand, increased marginally during the quarter."

The report also said that unlike the office sector, no major delays or cancellations are foreseen in the residential market for the remainder of this year.

The JLL report also went on to say that only 25 per cent of the expected new office supply in Dubai will be completed.  Further, JLL estimates 12 million sq feet space (against a previous estimate of 15 million sq ft of office area to be added in 2010) of additional office space to be added in Dubai from 2011 to 2012.

No delays in residential

A total of 26,000 units are expected to be completed this year, followed by about 25,000 units in 2011, bringing the total residential stock to approximately 320,000 by the end of 2011.

As at the end of the second quarter of 2010, around 54 per cent of the units expected in 2010 are complete, bringing the current residential stock to approximately 287,000.  Unlike the office sector, no major delays or cancellations are foreseen in the residential market for the remainder of 2010. "The value of residential transactions increased by 50 per cent over the last quarter, although this still represents a decrease of seven per cent over a one-year period," said the JLL report. The number of residential transactions increased by 49 per cent over the last quarter but this has decreased by 35 per cent over a one-year period.

Average apartment rents (year-on-year) decreased by 10 per cent and four per cent (quarter-on-quarter) with the greatest decline in the high-end sector. Average villa rents decreased 23 per cent (y-on-y) and 11 per cent (q-on-q) with the greatest decline in the high-end sector. Although asking prices have declined marginally since the first quarter of 2010, achieved prices increased by one per cent to around Dh867 per square foot. While apartment prices remained stable, villa prices on the other hand increased marginally during the quarter.

Dubai recorded a y-on-y increase of nine per cent in asking prices and decline in achieved prices by one per cent from the second quarter of 2009 to the second quarter of this year. Asking prices declined by an average of four per cent between the first quarter and the second quarter of this year, to around Dh967 per sq foot.

Residential rents decline

The q-on-q of residential rents decreased by four per cent from the first quarter of 2010 to the second quarter. Rents decreased y-on-y by 10 per cent from the second quarter of 2009 to the second quarter of 2010.

In the second quarter of 2010, rents for higher-end apartments in Burj Khalifa, Downtown fell the most whereas rents in Dubai Marina and International City decreased marginally.

Villa rents are still declining as new supply enters the market, leaving more options for tenants to choose from. Rents declined y-on-y by 23 per cent and also recorded a q-on-q decrease of 11 per cent from the second quarter of 2009 to the second quarter of 2010. Rents for high-end villas such as those on Palm Jumeirah decreased more significantly than those in other areas.

Office demand consistent

Only 25 per cent of the expected new supply of 20 million sq ft of office area in Dubai is currently complete. Further, JLL estimates only 12 million sq ft space (against a previous estimate of 15 million sq ft of office area to be added in 2010) of additional office space to be added in Dubai during 2011-2012.

"While around 15 million sq ft is currently scheduled to be completed by the end of 2010, further delays in construction and handover are expected to result in much of this space not being available for occupation this year," said the report. According to JLL, in the second quarter of 2010 alone, more than two million sq ft of office space was completed with new projects added.

Currently, the total office stock as at the end of the second quarter of 2010, stands at approximately 48 million sq ft area. Areas in Dubai where new supply has been completed, are Business Bay, Jumeirah Lakes Towers (JLT) and Sheikh Zayed Road.  Further delays are expected to result in more of the space currently scheduled for 2010 being postponed.

Meanwhile, with respect to demand for office space in Dubai, JLL said, according to its inquiries only, total tenant demand in Dubai as at the end of the second quarter of 2010 remained consistent at 2.5 million sq ft of office space.

"Demand remains strongest from financial and professional services sectors. Tenant demand remains focused on single ownership space within the Central Business District (CBD) area which is from the World Trade Centre (WTC) to Downtown Burj Khalifa with very little demand for strata-titled space or for that in less established locations."

City-wide vacancy rates increased to around 38 per cent  and are expected to exceed 50 per cent over the next year as new supply continues to be released. CBD vacancy rates are significantly lower than those elsewhere, with just 12 per cent of the single ownership stock in the CBD being currently vacant.

With respect to office rents, the CBD rents decreased by eight per cent to around Dh200 per sq foot in the second quarter of 2010, while average city-wide rents decreased by two per cent to around Dh135 per sq foot. Office capital values have declined more than 40 per cent y-on-y, with a q-on-q decrease of two per cent to around Dh1,240 per sq foot.

"Although Dubai's office market is likely to experience a supply overhang, there is still a shortage of good quality supply from a location, specification and a legal title perspective, as evidenced by lower vacancies in CBD areas as compared to the rest of the city," said the report.

Average rentals declined between 45 per cent and 60 per cent since peaking in the middle of 2008.

Increase in mall vacancies

As of the second quarter of 2010, total retail supply across Dubai stood approximately at 26 million sq ft gross leaseable area (GLA) with no significant additions to stock being recorded in the second quarter.

No new major mall supply is expected to be released until 2013 with the opening of the first phase of Mall of Arabia in Dubailand. Expansion plans by retailers are either being revised downwards or cancelled altogether. Dubai has seen rapid growth in retail supply in recent years, with GLA per capita growing from 10.5 sq ft in 2006 to 14 sq ft in 2010. The super and regional malls currently account for 75 per cent of total mall-based retail space.

"Sales revenues are expected to increase by around three to five per cent in 2010, primarily driven by retail goods sold in department stores and mid-market value chains rather than luxury brands," said the JLL report.

Demand for grade B locations fell as competition intensified for premium locations. Consumer spending by visitors has been negatively affected by the decline in the value of the euro.

The average estimated rental value (ERV) declined by approximately 39 per cent to approximately Dh209 per sq foot from second quarter 2009 to second quarter 2010.

Average ERVs declined by 10 per cent from the first quarter of 2010 to the second quarter of the year. Average vacancies across regional malls have increased to between eight per cent and 10 per cent reflecting the greater choice available to tenants.

Despite the slow growth projected in consumer spending, annual footfall in major super regional malls (such as Dubai Mall) is expected to rise in 2010, owing to tourist attractions and entertainment anchors within malls. Enlightened centre managers are proactively engaging with tenants to offer more attractive and flexible terms.

As of the second quarter of 2010, total mall supply across Dubai remains approximately 26 million sq ft (GLA) as there were no major mall completions in that period.

Total retail supply is expected to reach 27 million sq ft at the end of 2010 with the completion of a number of small centres and additions to existing malls. No new major mall supply is projected until 2013 with the expected opening of the first phase of Mall of Arabia. Total mall stock as at the end of 2013 is expected to reach approximately 31 million sq ft GLA.

Residential projects on track

Average retail estimated rental value declined by 39 per cent to approximately Dh209 per sq foot from Q2 2009 to the second quarter of this year. Average ERVs declined by 10 per cent from the first quarter of this year to the second quarter.

Despite the recent stabilisation in pricing levels, Dubai's residential market will experience a situation of oversupply and prices are not expected to recover before 2011 at the earliest.

Finance is a key factor in the market recovery. The residential market has shown signs of improved lending in 2010 as more banks are injecting liquidity into the mortgage market.

As at the end of Q2 of this year, around 54 per cent of the units expected in 2010 are complete, bringing the current residential stock to approximately 287,000 units. Approximately 14,000 units have been completed in the first two quarters of 2010. Most residential projects seem to be on track, with no major additional delays experienced in the second quarter.

A further 12,000 units are expected to be completed this year, followed by 25,000 units in 2011, bringing the total residential stock to 324,000 as at the end of 2011. Apartments will constitute 77 per cent of total residential stock by the end of 2011.

The report said both the number and value of transactions peaked in Q2 2009 and dipped in Q3 2009, rising once again towards the end of 2009. In Q2 2010, the value and number of transactions rose by 50 per cent, indicating an improving market condition.

KEY TAKEAWAYS: OFFICE

SUPPLY

-Total office stock as at the end of Q2 2010 is approximately 48 million square feet

- Only 25% of the 20 million sq ft that is expected to be released in 2010 is currently complete, including new completions in Business Bay, JLT and Sheikh Zayed Road in Q2. Further delays are expected to result in more of the space currently scheduled for 2010 being postponed

- 2010 represents the peak in new supply, with just 12 million sq ft of additional office space scheduled to be released over 2011-2012

DEMAND 

- Total tenant demand (Jones Lang LaSalle inquiries only) as at the end of Q2 2010 has remained consistent at 2.5 million sq ft of office space

- Demand remains strongest from financial and professional services sectors

- Tenant demand remains focused on single ownership space within the CBD area (from the World Trade Centre to Downtown Burj Khalifa), with very little demand for strata titled space or for that in less established locations

PERFORMANCE 

- City-wide vacancy rates have increased to around 38% and are expected to exceed 50% over the next year as new supply continues to be released

- CBD vacancy rates are significantly lower than those elsewhere, with just 12% of the single less established locations. Ownership stock in the CBD currently vacant

- Office rents: CBD rents decreased by 8% to around Dh200 per sq ft in Q2, while average city-wide rents decreased by 2% to around Dh135 per sq ft

- Office capital values have declined more than 40% y-on-y with a q-on-q decrease of 2% to around Dh1,240 per sq ft

OUTLOOK

- Although Dubai's office market is likely to experience a supply overhang, there is still a shortage of good quality supply in terms of location, specification and legal title, as evidenced by lower vacancies in CBD areas as compared to the rest of the city

KEY TAKEAWAYS: RESIDENTIAL

SUPPLY 

- A total of 26,000 units are expected to be completed in 2010, followed by around 25,000 units in 2011, bringing the total residential stock to approximately 320,000 by the end of 2011

- As at the end of Q2 2010, 54% of the expected units in 2010 are complete, bringing the current residential stock to approximately 287,000

- Unlike the office sector, no major delays or cancellations are foreseen in the residential market over the remainder of 2010

TRANSACTIONAL 

- The value of residential transactions increased by 50% over the last quarter, although this still represents a decrease of 7% over a levels one-year period

- The number of residential transactions decreased by 35% over a one-year period

PERFORMANCE

- Average apartment rents: y-on-y decrease of 10% and 4% q-on-q with the greatest decline in the high-end sector

- Average villa rents: y-on-y decrease of 23% and 11% q-o-q with the greatest decline in the high-end sector

- Although asking prices have marginally declined since Q1 2010, achieved prices increased by 1% to around Dh867 per sq ft

- Apartment prices remained stable whereas villa prices increased marginally over the quarter

OUTLOOK

- Despite the recent stabilisation in pricing levels, Dubai's residential market will experience a situation of oversupply and prices are not expected to recover before 2011 at the earliest

- Finance is a key factor in market recovery. The residential market has shown signs of improved lending in 2010 as more banks are injecting liquidity into the mortgage market

 

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