Residential prices in Dubai to recover by 2011

Dubai's residential market prices are likely to recover by 2011 with the sector experiencing an over-supply of residential properties in the emirate, a recent report said.

The Jones Lang LaSalle report titled 'Dubai Real Estate Market Overview' for the first quarter of 2010 said Dubai will deliver a total of 22,000 residential units in 2010 and 25,000 in 2011.

By end of the first quarter of 2010, Dubai has completed 22 per cent of the 22,000 units to be delivered in 2010, taking the total residential stock currently to 278,000 residential units and 320,000 units at the end of 2011.

Apartments comprised of 77 per cent total residential stock by the end of 2011.

Project delays and cancellations are likely to continue into 2010, thereby reducing future supply estimates, said the report. Between the third quarter of 2009 and the fourth quarter of 2009, Dubai saw an increase of both the number of transactions and value of transactions, which rose by 12 per cent and 31 per cent respectively. This, however, decreased in the first quarter 2010, due to a time lag in registered transactions. Both the number and value of transactions peaked in the second quarter of 2009 and dipped in the third quarter of 2009, rising once again towards the end of 2009.

Meanwhile, apartment rents continued to decrease while villa rents stabilised.

Residential asking prices marginally increased since the fourth quarter of 2009 with the "achieved prices" declining by -5 per cent to touch around Dh860 per square foot. Apartment rents have seen a year-on-year (Y-o-Y) decrease of -21 per cent and quarter-onquarter (Q-o-Q) decrease of -4 per cent with affordable areas seeing larger declines than high-end residential communities.

With regards to villa rents, the year-on-year (Y-o-Y) decrease of -32 per cent and Q-o-Q change of -1 per cent.

JLL said lending would be a key factor in market recovery. The residential market saw signs of improved lending throughout 2009, which was reflected in an increase in sales transactions. "This trend is likely to continue into 2010," said the report.

The value of mortgages as a percentage of sales value increased throughout 2009 from 33 per cent in the first quarter of 2009 to 46 per cent in the fourth quarter of 2009 and is expected to increase further in 2010 as more mortgage funding becomes available.

Project delays and cancellations are likely to continue into 2010, reducing future supply estimates, it said.

Office

Certain locations within the office sector are facing further downward pressure on rentals with the overall vacancy rate in Dubai increasing to around 35 per cent and likely to exceed 45 per cent by the end of the year.

The Central Business District (CBD) vacancy increased from 10 per cent to 15 per cent over the last quarter as buildings in Business Bay start to complete.

The report said that vacancies in the office sector continued to increase with the addition of 1.8 million square feet of new stock being completed in the first quarter of 2010, which include office buildings such as Business Bay (One Business Bay and O-14).

Some of the reasons for this have been the fact that a number of completed office projects in Dubai have not yet been handed over for occupation due to contractual and infrastructure delays.

Meanwhile, the total office stock at the end of the first quarter of 2010 stands at about 46 million square feet consisting of office buildings in Business Bay, Dubai International Financial Centre (DIFC), Jumeirah Lake Tower (JLT) and Tecom.

An additional 30 million square foot of office space is scheduled to be released in the next two years across 2010 and 2011.

Total tenant demand as per JLL inquiries at the end of the first quarter of 2010, amounted to 2.5 million square foot of office space.

Existing tenants are still looking to dispose off surplus space with the total of 300,000 square foot of previously fitted out tenant disposable space available. The financial and professional services sector consists of 50 per cent of total current occupier demand.

JLL said that falling rents have encouraged more businesses to implement strategies for their future growth.

Demand in 2010 will fall short of additional supply causing vacancies to increase across the market and rents to fall further.

Although Dubai's office market is likely to experience a supply overhang, there is still a shortage of good quality future supply (location, specification, legal title), which is likely to cause vacancies in the CBD to increase at a much slower pace than the rest of the city throughout 2010

Average rents peaked at the fourth 2008 and have declined to around Dh200 per square foot.

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