Monday, February 06, 2012

Dubai Real Estate Market Overview 2011-12


The Consumer Confidence Index (CCI) from the Department of Economic Development (DED) reveals that the year 2011 ends with mixed signals for Dubai real estate market.  The CCI from the DED grew 15 points, touching 125 in the final quarter.

Residential sector

The residential sector in the emirate grew over the last quarter and was highlighted in the Dubai Land Department data.  The total number of residential sales during the last quarter of 2011, touched 2,605 in number, in comparison to just 1,589 transactions recorded in the third quarter. This marks a solid 64percent growth quarter-on-quarter.  

On the whole, the residential sector continued to show signs of stability. Average lease rates fell by 2percent during the quarter, although villa rates remained unaltered, indicative of the strength in that segment.  The 2percent drop in apartment rents has been largely attributed to deflationary pressures in secondary locations such as Dubai Silicon Oasis, International City, and Dubailand Residences.

There has been increasing interest from investors on established community projects offering superior amenities. A similar situation is also seen in occupational markets, and there is high demand and growing occupancy rates in areas in Downtown, Emirates Living, Palm Jumeirah and Dubai Marina.

Townhouses and villas have managed to outperform apartments during the year. A limited supply of units and stronger demand fundamentals saw rental decline just 6percent over the period, which was less than half of the fall registered in 2010.

Office Market

Office rents in Dubai have remained unaffected for four consecutive quarters last year. The lease rates during the fourth quarter were in the range Dh.1080 to Dh.1940 per square meters, per annum, inclusive of service charges. The tenants have been looking for quality accommodation, which resulted in Prime CBD offices outperforming wider markets in 2011.

Nearly 58,000 square meters of new office space entered CBD last year, which has added pressure to vacancy rates, although it was not sufficient to have an impact on rentals. However, despite the lease rates being static, landlords no seem to be more open to offering incentives, aiming to minimize vacancy rates. Therefore, extended rent-free periods can be negotiated on long-lease tenures.

As for the secondary office market, the lease rates in secondary locations dropped by 11percent, in comparison to 30percent decline the previous year (in 2010).

In majority of secondary office locations, the ongoing construction activity and ownership status bears a negative impact on lease and occupancy rates. Although lease rates have not changed over the past six months, the vacancy rates have continued owing to new office space entering the market. This trend is likely to continue further, as new office towers are likely to enter the market in 2012, further increasing vacancy rates.

General Outlook for 2012

With huge pipeline scheduled for completion over the next 12 months, commercial offices remain pressurized throughout 2012. Nearly 750,000 sqm of fresh stock enter the supply during this period, provided, construction delays are kept to minimum. New supplies will largely be from secondary and tertiary locations including Dubai Investment Park, Jumeirah Lakes Towers and Business Bay. The lease rates, however, will remain stable in 2012.

The residential sector, though, will continue to outperform office sector, with stronger demand fundamentals being sustained by solid population growth. Developments that are fully complete will attract majority of interest, particularly within the more popular ‘lifestyle’ projects.

The report was prepared by CBRE Dubai Research Team, which forms a part of CBRE Global Research and Consulting, a network of researchers and consultants, who join together to offer real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers across the globe.

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