Dubai’s residential and hospitality markets have rebalanced towards a “new normal” in the first six months of 2016, according the Deloitte Real Estate Predictions 2016 – H1 Review published today.
The report predicts that residential sale prices will decline further in Dubai for the balance of 2016, but that this rate of decline will slow, as value and affordability returns to the market.
“Our real estate advisory team issued a Real Estate Predictions Report in January 2016, which looked at trends and prospects for Dubai’s real estate market,” said Robin Williamson, Managing Director, Deloitte Corporate Finance Limited, Middle East. “Now that we have moved into the second half of 2016, we have compared the predictions that we made for Dubai’s residential, hospitality, office and retail markets with actual trends in the first half of 2016.”
Data for the first six months of 2016 shows that residential sale prices have continued to decline in Dubai. Prices for Palm Jumeirah apartments declined by 3.8 per cent between January 2016 and June 2016, while prices for Downtown apartments declined by 1.8 per cent over the same period. Year on year data indicates that overall, residential sales prices in Dubai declined by 3.8 per cent between June 2015 and June 2016.
In the first half of 2016, data from the Dubai Department of Tourism and Commerce Marketing shows that serviced apartments experienced the highest occupancy of any hospitality category in Dubai, at 83 per cent.
“Average hotel occupancy in Dubai in the first six months of 2016 was 77 per cent, slightly ahead of our forecasts,” said Williamson. “Looking at the data in more detail, it is clear that hotel operators in Dubai continued to discount Average Daily Rates in an effort to maintain occupancy, with a decline in Average Daily Rates noted in the first six months 2016. We anticipate that this trend is set to continue in the second half of 2016.”
In the first half of 2016, there were two significant completions in Business Bay: B2B Office Tower (with a GLA of approximately 242,000 square feet) and Westbury Square (with a GLA of approximately 323,000 square feet). During this time, average rents for offices in Business Bay fell by approximately 4 per cent.
Average office rents in the Internet City and Media City Free Zones were slightly up in Q2 2016. Core locations in DIFC also continue to perform well; there are waiting lists for space in most institutionally owned buildings, while Gate Village 11 (which is currently under construction) is reported to be 100 per cent pre-leased.
“We anticipate that these trends are likely to continue in H2 2016, with further completions in secondary locations giving tenants greater negotiating power,” explains Williamson. “In Free Zones, we anticipate that factors such as high quality infrastructure and more accessible public amenity provision will continue to drive demand from corporate occupiers.”
In the first half of 2016, data indicates that the majority of people expect to have either the same or less disposable income (69.8 per cent) in 2016 than the previous year. Retail sales are unlikely to return to growth until disposable incomes rise.
Emaar Malls PJSC reported a 13 per cent increase in rental income versus the first quarter of 2015 in their June 2016 results, with reported increases of 25 per cent on base rents for units within super prime malls such as the Dubai Mall.
“We predict that a return to higher oil prices combined with robust tourism and population growth, are likely to support a return to growth in retail sales from 2017 onwards,” concluded Williamson. “We also anticipate that new retail concepts, such as Boxpark and Citywalk, are likely to perform well as retailers seek to diversify from traditional mall offerings.”