Dubai residential sector 'on positive growth track'
Dubai, April 28, 2013
The residential sector in Dubai remains buoyant with rental rates rising by four per cent quarter-on-quarter amidst solid market fundamentals and steady economic growth, said a report.
However, there is a modicum of concern that the recent escalation of sales and leasing rates could actually be a little ahead of reality, said leading real estate consultancy CBRE in its latest Dubai MarketView for Q1 2013.
One of the key drivers of this disconnect during the past 18 months, has been the substantial return of foreign investment and speculator/investor activity. This is a trend that has been particularly evident at recent off-plan sales launches.
As per data sourced from the Dubai Land Department, the first quarter saw a total of 3,547 residential transactions worth Dh4.7 billion. This compared with 2,726 transactions in Q1 2012 and a value of Dh3.1 billion. In volume terms, this represents a 30 per cent increase year-on-year.
Despite increasing pricing levels virtually across the entire residential market, sales numbers have actually fallen quarter-on-quarter, with transactions dropping by 24 per cent and 17 per cent in volume and value terms respectively.
Established residential locations, such as Dubai Marina, Emirates Living, Palm Jumeirah and Downtown Dubai, continue to dominate activity in the sales market, with 60 per cent of all transactions in volume terms, said the property expert in its report.
The highest number of transactions were registered in Dubai Marina, with sales comprising 25 per cent of the total share.
Dubai’s established residential locations also remain incredibly popular amongst the emirate’s expatriate workforce, with rents and occupancy rates continuing to grow at a rapid rate amidst strong investor and occupier demand, it added.
On average, a two-bedroom unit in these locations has witnessed a 27 per cent increase year-on-year, with the largest single jump being noted in The Greens, where rental rates have risen by over 40 per cent during the past year.
With significant demand prevailing for premium apartment properties, average residential rents in Dubai Marina have surged by around 4 per cent quarter-on-quarter and 19 per cent year-on-year.
According to CBRE, the villa properties continue to see solid upward movement in both rents and sales pricing, with five consecutive quarters of growth now recorded.
Average villa rents have risen by nearly five per cent during the quarter. However, smaller unit sizes of two and three bedrooms have registered substantially higher growth of nine per cent and seven per cent respectively.
In location terms, townhouse projects such as the Springs have been performing exceptionally well, with impressive growth of over 25 per cent recorded year-on-year.
Rental rates for a three bedroom property in Emaar’s community focused development are currently averaging Dh165,000/unit/annum, as compared to just Dh125,000/unit/annum at the same point last year. This represents an increase of around 32 per cent, the report stated.
CBRE pointed out that the Dubai market was witnessing an upturn in business and consumer confidence, with stable economic conditions and a real estate recovery helping to boost sentiment
The Business Confidence Survey for Q4 2012 conducted by the Dubai Economic Department, revealed a 10.8 per cent index increase quarter-on-quarter, with 27 per cent of respondents looking to expand their workforce in the short term.
According to CBRE, this year's Dubai budget includes approved expenditures of Dh34.1 billion, 6 per cent higher than the previous year. Total revenues are expected to reach Dh32.6 billion, resulting in a Dh1.5 billion annual deficit.
The economic, infrastructure and transport sectors are the principal recipients of the budget with a 35 per cent share of the total, followed by the social sectors of healthcare, education, housing and community development, which receive a 26 per cent share.
Positive sentiment was also evident in CBRE’s quarterly survey of Dubai’s construction pipeline, with renewed activity for some previously stalled developments and a number of new projects launched during the quarter.
Another emerging trend that has been gaining some traction, is the number of use changes for incomplete buildings, primarily residential and hospitality conversions from commercial office use, revealed the property expert.
The majority of these cases have been in Business Bay, which is experiencing high office vacancy rates as a result of over-development of strata product during the market peak.
The Dubai market is experiencing growing demand for office space, evidenced by rising numbers of leasing enquiries logged during the quarter, said the CBRE report.
The majority of enquiries have been generated by firms seeking expansion/consolidation space, or an upgrade to better quality accommodation.
For the first time since the financial crisis, the decision making process amongst major corporates is starting to shorten, as companies abandon their ‘wait and see’ approach in favour or more direct and decisive action.
With an improving economic outlook, decision makers are now confronted with the reality of looming rental growth, with affordability for top quality accommodation soon likely to be a thing of the past, said the property expert in its report.
The average prime rents in the CBD have risen by around 4 per cent during the quarter to reach Dh1,500/sq m/annum. With landlords becoming increasing bullish on the market outlook, we may expect to see further growth in prime rents over the remainder of the year, particularly as occupancy rates in the CBD slowly edge up.
Ongoing infrastructure works in Business Bay continue to hamper its leasing performance. However, those towers that benefit from a Sheikh Zayed Road frontage or those which are in close proximity to the Metro station, are now starting to see an improvement in occupancy levels.
Office stock continues to swell at a steady rate with an addition of around 110,000 sq m of space during the quarter. The majority of this accommodation was delivered in Business Bay, a trend that will continue in the short term.
On the 2013 outlook, CBRE said the residential market should maintain its forward momentum with a growing number of companies committed to expanding their headcount as they look to capitalise on positive economic conditions and new opportunities that are arising within the wider Middle East region.
However, the current rate of growth will have to be monitored quite closely and with a certain degree of caution, with some residents already starting to feel the pinch of the rising cost of living, stated the expert in its report.
This is a factor that if not mitigated through new supply and further regulation and intervention, could eventually impact upon Dubai’s competitiveness as a burgeoning global business environment, it added.
On the office sector outlook, CBRE said with increasing activity from international occupiers, well managed, good quality office accommodation is fast becoming scarce in the Dubai market, prompting an imminent return to speculative office development starts.
We expect to see office take-up levels increase over the course of this year, with premium assets around the CBD and other popular free zone locations, being the main respondents of this demand, it added.-TradeArabia News Service