- Over 20,000 units expected to enter market in 2015 to affect deflation in rents
Dubai: With over 20,000 new units expected to enter the market in the next 12 months, Dubai’s residential segment could face a deflationary impact on sales and rental rates, global property consulting firm CBRE said on Tuesday.
With strong fundamentals, the sector is expected to see further growth with addition of new retail brands waiting to enter the market. — KT photo by Rahul Gajjar
Dubai’s residential segment has experienced a period of relative stability during the second half of 2014, with rental rates remaining broadly flat. Over the course of the year, modest growth of around seven per cent was recorded, compared with 24 per cent during 2013, CBRE said in its year-end market update.“Over the past 12 months the sales segment has comprehensively outperformed the rental market, recording an 18 per cent growth year-on-year as compared to 30 per cent in 2013.
This disconnect is highlighted as a potential area of concern for the market, with mounting pressures on rental yields as a result.
However, despite the slowdown, the market continues to see strong occupier and investment demand for well-located, good-quality residential apartment buildings, a fact backed up by recent transaction numbers in the established community locations,” said Mat Green, head of research and consultancy at CBRE Middle East.
“Over the course of the year, the residential market has progressively slowed with transaction volumes well down on 2013 performance. Whilst values have grown steadily during the period, the growth is just a fraction of the 30 per cent growth achieved last year. A similar story has also been evident in the residential leasing market, wherein rentals suffered a first quarterly decline since the last downturn in 2008.”
According to a report by Global Property Guide, Dubai’s real estate market is the only one in the world that has seen over 140 nationalities investing in it and the emirate remains on top of the chart of the world’s best performing markets for seven consecutive quarters. Property price increases have, however, decelerated to an average of 23.73 per cent during the year to third quarter 2014, down from annual increases of 33.26 per cent in second quarter 2014 and 31.57 per cent in first quarter 2014.
The CBRE market update pointed out that despite a rise in new stock and high vacancy ratios, office lease rates have surged across the prime and secondary locations. Solid economic growth and improved business confidence has paved the way for the entry of new SMEs while existing firms are solidifying by way of expansion/consolidation culminating in a strengthening of lease rates. Single-held quality office assets across prime and secondary areas have benefitted the most, recording rising lease and occupancy rates.
“Overall, we expect the scheduled pipeline of offices to help constrain rental inflation and add more balance to the market in the coming quarters. As of end of 2014, the total office stock stands at close to 8.1 million sqm rising from 7.7 million sqm as of the end of 2013. This reflects an addition of 0.4 million sqm and an increase of six per cent year-on-year,” said Green.
“With a solid economic outlook, Dubai’s position as the headquarter city of choice for global corporates in the Middle Eastern region looks set to continue. However, with limited good quality and efficient office properties available in the market, it is likely that this segment of the market could see a growing demand and supply imbalance in the coming quarters,” said Green.
Dubai’s retail sector remained buoyant during the year, with major retail centres recording occupancy rates of over 95 per cent and with strengthening lease rates, said the market update.
“While all sectors have performed well, perhaps two of the most promising have been the retail and hospitality sectors which have seen rising demand amidst increasing visitors to the emirate,” said Green.
A positive economic outlook and an increase in tourist numbers, combined with a rise in per capita income and changing consumer behaviour are currently acting as a growth catalyst for the sector. Dubai remains the principal regional draw as an established “retail tourism market” which is further reflected by the continuous rise in new brands and in footfall figures reported by the malls.
“Total retail stock in Dubai has now reached nearly 2.3 million sqm, rising three per cent from the same period last year. Recent growth has been a result of a number of factors, including rising visitor numbers, an increasing population, and a strong brand affiliation. This has been underpinned by the development of mega-sized destination malls, which are anchored with large-scale leisure attractions, with entertainment forming an increasingly important part of the retail mix,” said Green.
Rising tourist numbers along with planned festive activities should see another strong year for the retail sector. However, with no new major retail space expected to enter in 2015, the quandary of retailers is likely to continue. With strong fundamentals, the sector is expected to see further growth with addition of new retail brands waiting to enter the market.
By the end of 2017, over 27,000 new hotel keys and hotel apartments could be delivered, adding capacity for close to 10 million room nights a year to Dubai’s annual room inventory.
While 2015 is set to see significant new supply with over 5,500 new hotel keys, 2016 and 2017 are the real growth years with close to 15,000 new hotel keys in these two years alone.
Over the next 12 months there will also be 1,500 new hotels keys delivered in the Dubai Marina, JBR, Jumeirah Beach and Palm Jumeirah sub-markets, although the main focus of supply in the short term is very much business focused.
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