dubai real estate market overview report - q1 2015

Q1 2015

Dubai Real Estate Market Overview

Rental

Growth

Slowing

Rents

Falling

Rental

Growth

Accelerating

Rents

Bottoming

Out

Office

Retail Residential

Hotel*

The first quarter of the year continued to see subdued activity in Dubais real estate market. While

residential rents remained relatively flat, sale prices saw a marginal decline across both apartments and

villas. The retail market continues to be constrained by the slowdown in spending, restricting overall

growth levels, while the delivery of more Grade A office space has limited rental growth in the office

sector. The hospitality market saw RevPARs drop on an annual basis. While occupancy rates remain

strong at 86%, the increase in supply continues to outstrip demand, placing downward pressure on

average daily room rates.

* Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These

positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets

move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise

direction, they might move backwards or remain at the same point in their cycle for extended periods.

Source: JLL

Dubai Market Summary

Q1 2015

Dubai Prime Rental Clock

Rents

Falling

Rental

Growth

Accelerating

Rents

Bottoming

Out

Retail

Residential

Hotel*

Rental

Growth

Slowing

Office

Q1 2014

Dubai Office Market Overview

Future Supply (20152017) Current Supply (20122015)

Office Supply

Office Performance

Market Summary

Dubais office market remained relatively stable over the first quarter, with average rents across the CBD registering AED

1,880 per sq m and vacancies recording 23%. Demand for

Grade A quality stock continues to be robust, particularly in the

DIFC and its surrounding precinct (e.g. Daman Tower), evident by the rate of leasing activity. In turn, demand for Grade B office

space remains weak, exerting downward pressure on asking

rents. The first quarter saw the handover of Central Park in

DIFC, adding approximately 130,000 sq m of office space to the

market. This brings the total GLA to 7.7 million sq m as of Q1

2015.

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Hot Topic

Future supply to constrain rents. The next couple of years are

expected to see more Grade A office space enter the market, as

the flight to quality remains the trend in Dubais office sector. In addition to the handover of Central Park, an additional 900,000

sq m of office GLA is expected to enter the market over the next

9 months. In addition, the DIFC have announced a AED 200

million expansion plan which includes a commercial tower & new

retail space; Building 11 of Gate Village is expected to complete

in 2017. In 2018, ICD Brookfield are expected to deliver a USD 1

billion development, which includes a 50-storey office tower in

the DIFC. While this increases the number of Grade A offerings,

the excess supply is expected to exert downward pressure on

office rents, leaving the office market situated at the bottom of

the property cycle in the short-to-medium term.

2015 / 2016 Outlook

7.1M sq m (GLA)

7.4M sq m (GLA)

7.6M sq m (GLA)

7.7M sq m (GLA)

900K sq m (GLA)

332K sq m (GLA)

200K sq m (GLA)

CBD Vacancy Rate Prime CBD Rents (per sq m) / Annual Change

2015 / 2016 Outlook

26% 23%

Q1 2014

Q1 2015

1,860 1,880 1%

Q1 2014 Q1 2015 Y-o-Y AED

9M 2015 2016 2017 2012 2013 Q1 2015 2014

Rentals

0% Sales

-2% Apartment

residential

Rentals

9% Sales

7%

Q-o-Q

Y-o-Y Source : REIDIN

Market Summary

Q1 saw the delivery of approximately 730 residential units

across Dubai. An additional 22,000 are expected to enter the

market by the end of 2015, however we remain cautious of the

delivery of some projects within the specified timeframe. While

Dubais rental market has maintained its overall stability during the first quarter, the REIDIN sales index depicts a marginal

decline in prices across both apartments & villas. This comes as

the REIDIN rental index shows growth levels dropping to 8% Y-

o-Y in February 2015 (from 23% Y-o-Y in Q1 2014). Similarly,

the REIDIN sale price index shows a decline in growth levels

from 30% to 6% over the same period. This downward trend is

expected to continue throughout 2015, as we foresee prices

dropping up to 10% by year end.

Hot Topic

Increased focus on affordable housing. As Dubais residential market moves towards a period of correction, the next driving

force is predicted to be end-users or middle-income earners, as

opposed to speculative buyers. The first quarter of the year saw

developer and government initiatives target the affordable

housing sector. On the development side, Nshama launched 2

phases of its Town Square project, Zahra & Hayat, consisting of townhouses & apartments below AED 600 per sq ft, located

close to the Arabian Ranches. The Dubai Municipality has

proposed to introduce mandatory affordable housing quotas for

all new residential developments. In addition, it allocated over

100 hectares of land for affordable housing across various

locations in Dubai, targeting buyers and tenants with monthly

salaries of AED 3,000 AED 10,000.

Rentals

0% Sales

-1% Villa

residential

Rentals

2% Sales

6%

Q-o-Q

Y-o-Y Source : REIDIN

Residential Performance

Dubai Residential Property Rent and Sale Indices

22K units

13K units

10K units

379K units

377K units

366K units

356K units


Residential Supply


Residential Performance

2016 2017 2012 2013 2014 Q1 2015 9M 2015

Dubai Residential Market Overview

2.8M sq m (GLA)

2.9M sq m (GLA)

2.9M sq m (GLA)

2.9M sq m (GLA)

194K sq m (GLA)

373K sq m (GLA)

219K sq m (GLA)

Market Summary

The first quarter saw Dubais retail market remain largely stable. Despite recording strong annual growth levels, average retail

rents registered no quarterly increases. Similarly, vacancy levels

remained at 8% as no major deliveries took place, except for the

handover of Box Park by Meraas. The subdued nature of the retail market comes as the industry copes with a drop in the

number of visitors from Russia, while the weak euro threatens

visitors from the Eurozone. Performance of the retail market is

expected to remain stagnant throughout 2015, following

estimates of a slowdown in retail sales growth figures. The latter

is likely to put pressure on retailers and squeeze out some of the

small & mid sized tenants as they become burdened with

achieving targets to meet high rents.

Dubai Retail Market Overview


Retail Supply

Retail Performance

2015 / 2016 Outlook


2015 / 2016 Outlook

Hot Topic

Importance of Shopping Festival. According to statistics

issued by Visa, the total Visa card spend in the first 2 weeks of

Dubais Shopping Festival (DSF) 2015 increased 12% Y-o-Y to reach USD 54 million. In terms of spending growth patterns,

restaurants witnessed the largest annual increase; 31%

compared to 2014 figures. Predictably, visitors from Saudi

Arabia emerged as the top spenders, contributing USD 35

million to the UAEs economy, and representing a 29% Y-o-Y increase. Given the general stability in the sector, these figures

portray the significant impact the event has on Dubais retail market.

Vacancy Rate Average Retail Rents (per sq m) / Annual Change

AED 10% 8%

Q1 2014

Q1 2015

Primary 4,230

Q1 2014

4,890 Q1 2015

16% Y-o-Y

Secondary 1,885

Q1 2014

2,180 Q1 2015

16% Y-o-Y

2016 2017 2012 2013 2014 Q1 2015 9M 2015

286 YT Feb

2014

273 YT Feb

2015

-5%

Y-o-Y USD

Source : STR Global

Market Summary

The hotel sector continued to face downward pressure in the first

quarter of the year. While occupancy rates only dipped marginally

(2% Y-o-Y), ADRs saw a 5% decrease to reach USD 273 in the YT February. This negatively impacted RevPars, which saw a 7% decline to USD 235 over the same period. While occupancy

levels remain healthy and above the MENA average, downside

risk remains that ADRs will soften further in response to the additional 3,600 keys scheduled for delivery over the next 9

months.

Dubai Hotel Market Overview

Hotel Performance


Hotel Supply

2018 2017 2016 2014 2013 2012

Source : STR Global

Hot Topic

Demand increasing at a slower rate. Dubais hotel market welcomed 11.6 million guests in 2014, according to figures

released by the Dubai Tourism & Commerce Marketing. While

this represents a 6% Y-o-Y increase, the rate of growth has

declined from the 11% registered in 2013. The slowdown can be

attributed to a decline in the number of tourists from Russia and

the Eurozone. By contrast, tourist numbers from emerging

markets have increased significantly. Guests from South Asia,

Far East Asia and Africa increased 14%, 13% and 11%

respectively. This comes on the back of rising wealth and

changing consumer habits in emerging markets, in addition to

increased efforts to diversify Dubais inbound markets.


2015/2016 Outlook

2015/2016 Outlook

57,000 keys

60,200 keys

64,400 keys

64,900 keys

3,600 keys

8,400 keys

9,200 keys

6,800 keys

Average Daily Rate / Annual Change Occupancy Rate

88% 86%

YT Feb

2014

YT Feb

2015

Q1 2015 9M 2015

Definitions and methodology

The supply data is based on our quarterly survey of 32 sub-markets, starting from 2009.

Completed buildings refer to those handed over for immediate occupation. Future supply is based on projects under

construction.

Central Business District includes DIFC, DTCD, Sheikh Zayed Road, Burj Khalifa Downtown.

Prime Office Rent represents the top open-market net rent (exclusive of service charge) for a new lease that could be

expected for a notional office unit of the highest quality and specification in the best location in a

market, as at the survey date. Data relates to headline rents, exclusive of incentives.

Vacancy rate is based on estimates from the JLL Agency team. It represents the average rate across a basket of buildings

in the CBD that make up around 80% of the CBD supply and 15% of the total current supply.

Classification of Retail Centers is based upon the ULI definition and based on their GLA:

Super Regional Malls have a GLA of above 90,000 sq m Regional Malls have a GLA of 30,000 - 90,000 sq m Community Malls have a GLA of 10,000 - 30,000 sq m Neighborhood Malls have a GLA of 3,000 - 10,000 sq m Convenience Malls have a GLA of less than 3,000 sq m

The supply data is based on our quarterly survey of 45 sub-markets, starting from 2009. Future supply is based on projects

under construction.

Malls are categorized based on their turnover levels. Primary Malls are the good performing malls with high levels of

turnover. Secondary Malls are the average performing malls with lower levels of turnover.

Average rents represent the top open market net rent expected for a standard in line unit shop of 100 sq m in a basket of

regional and super regional centers.

Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit

shops at super regional malls.

Hotel room supply is based on existing supply figures provided by DTCM as well as future hotel development data tracked

by JLL Hotels. Room supply includes all graded supply and excludes serviced apartments.

STR performance data is based on a monthly survey conducted by STR Global on a sample of more than 32,000 rooms

across Dubai.

The supply and stock data is based on our quarterly survey of 53 sub markets, starting from 2009. This data

excludes labour accommodation and local Emirati housing supply.

Completed buildings refer to those handed over for immediate occupation. Future supply is based on projects under

construction.

Residential performance data is based on the REIDIN monthly index. REIDIN Dubai Residential Property Price Indices

(RPPIs) use monthly sample of offered/asked listing price data and land registry price data (trans- action data). Index

series are set at 100 starting at the beginning of each data set.

Interpretation of market positions:

6 oclock indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards.

9 oclock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation.

12 oclock Indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards.

3 o clock Indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation.

jll-mena.com


This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any

means, either in whole or in part, without the prior written consent of JLL IP, Inc. The information contained in this publication has been obtained

from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this

information. We would like to be informed of any inaccuracies so that we may correct them. JLL does not accept any liability in negligence or

otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

Dana Williamson

Head of Agency

MENA

[email protected]

Andrew Williamson

Head of Retail

MENA

[email protected]

Craig Plumb

Head of Research

MENA

[email protected]

Chiheb Ben-Mahmoud

Head of Hotels & Hospitality

MEA

[email protected]

Dana Salbak

Senior Research Analyst

MENA

[email protected]

@JLLMENA youtube.com/joneslanglasalle linkedin.com/companies/jll joneslanglasalleblog.com/EMEAResearch

Dubai

Emaar Square

Building 1, Office 403

Sheikh Zayed Road

PO Box 214029

Dubai, UAE

Tel: +971 4 426 6999

Fax: +971 4 365 3260

For questions and inquires about the Dubai real estate market, please contact:

dubai real estate market overview report - q1 2015

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