2019 and 2020 are critical years in Dubai’s growth trajectory.
Office Market
- Dubai’s office market saw an increase in relocation and consolidation activity over 2018, with many international occupiers consolidating their portfolio either into purpose-built facilities or more competitively priced office premises, exerting downward pressure on prime office occupancy levels and net absorption.
- According to the Emirates NBD Dubai Economy Tracker, private firms reported an increase in output for the year as a whole in 2018, however, this has come on the back of consistent and continued price discounting in a very competitive environment, despite rising input costs.
- Going into 2019, we foresee an uptick in market sentiment, backed by sustained oil prices, government accelerator plans, with a focus on infrastructure and smart government initiatives.
- Despite job growth gradually gathering momentum, we anticipate a pause on spatial expansion for most firms, as near-term resource growth is expected to be managed within existing portfolios, or by consolidating multiple offices into a central location.
- Supply growth continued to visibly outpace demand, led by the completion of a number of large commercial developments including Innovation Hub Phase One (Tecom), The Opus (Business Bay), The Exchange (DIFC), Dubai Science Park Headquarters, Motorsport Business Park and Zayed 2 (Sheikh Zayed Road), adding 1.3 million sq. ft. to the market and bringing total existing stock to 101 million sq. ft.
- With retention an ongoing concern for landlords, the supply of secondary units to the market is expected to mechanically increase over 2019.
- New additions to Dubai’s office market supply this year are largely concentrated in the Grade A segment.
- Prominent deliveries in 2019 include ICD Brookfield Place (DIFC), The Court (Business Bay), Dubai Hills Estate Business Park, Mashreq Bank Headquarters (Downtown Dubai), remainder offices in One Central (DWTC), AW Rostamani Mankhool Offices (Mankhool) and Zayed 1 (Sheikh Zayed Road).
- Over 2017 - 2019, nearly 6.3 million sq. ft. of new office stock is anticipated.
- Tenants continue to prefer fitted, ‘plug & play’ options, citing that reduction in capital expenditure allows for agility and flexibility.
- Landlords are now addressing the shift in occupier preferences by adding flexible solutions to their portfolios.
- Although VAT implementation had a marginal impact on the office market, the effect was mostly absorbed, as landlords and tenants adjusted to the administrative requirements of tax.
Residential Market
- To date, Dubai has over 512,000 residential units across villas and apartments.
- Over 8,500 (40% of the total annual stock for 2018) was delivered in Q4 2018.
- Prominent handovers in 2018 include multiple project deliveries in Damac Hills Master Development, Hayat Townhouses, Bluewaters Residences and Oia Residences in Motor City.
- With over 25% of the total stock, Dubailand continues to see the highest number of deliveries, followed by Jumeirah Village Circle and Triangle (13%).
- We expect a similar number of total handovers in 2020 as developers try to align deliveries in the run-up to Expo 2020.
- Off-plan transactions increased significantly between 2016 and 2017, reflecting a large number of developments that were launched and absorbed over the years, off-plan transaction volumes witnessed 30% reduction from 2017 to 2018.
- The highest rental reductions in the villa communities were witnessed in Emirates Hills (14%), Jumeirah Park (13%) and Jumeirah Village Circle and Triangle (11%).
- Dubailand saw the lowest level of drop (4%) due to the already low barriers of entry, which also led to higher occupancies as occupiers shifted from other villa communities for newer and larger villa options now becoming available in Dubailand.
- The weakest performing apartment districts in terms of rental reductions were Discovery Gardens (17%), Jumeirah Village (14%) and Dubai Sports City (14%), as competition intensifies in the lower end of the market with more options becoming available, either within the community or in nearby communities.
- On the other hand, centrally located districts such as Dubai Marina, Downtown, JLT, The Greens and The Views have observed relatively lower levels of rental falls when compared to outer areas.
- We expect rental prices to remain under pressure in 2019 and the rental market to continue being tenant friendly, with landlords reducing rents during renewals to retain tenants and maintain occupancies, with many open to multiple cheque payments.
- The positive offset of the ongoing softening of the sales market is that it is definitely a buyers’ market with both individual property owners and developers being very flexible and in line with market conditions.
- The secondary sales market, mainly the mortgage market has seen a robust uptick over the last three years.
- Going forward, we expect transaction volumes to remain resilient, particularly in the secondary market as demand drivers such as steady oil prices, continued government spending and investor/occupier-friendly regulations help absorption.
