The residential market in Dubai continued to soften in 2016, albeit at a slower rate, according to leading real estate industry expert Knight Frank.

Sale prices in the mainstream market dropped five per cent in 2016 compared to seven per cent the previous year, whilst prices in the prime residential market declined four per cent versus five per cent in 2015, stated Knight Frank in its UAE Real Estate year-end market review and outlook report.

Despite the annual dip in prices however, the general and Prime Reidin sale price indices remained flat on a monthly basis since August 2016. This leads us to believe the residential market is reaching its cyclical trough, said the report.

Over the next five years and as Dubai prepares to host the Expo 2020, further government spending is expected to boost the market and thus provide positive sentiment to investors.

In addition, international corporates are expected to expand their commercial activity, utilising Dubai as a regional hub, thus prompting demand for office space and more residential properties.

In Abu Dhabi the general Reidin sale price index registered no increase in 2016.

While there has been a slowdown in demand on the back of job cuts and corporate restructuring, sale prices remained flat given the limited availability of investment grade quality product. Similarly, rental values remained flat throughout the year following a one per cent increase in 2015, stated the Knight Frank in its review.

"We expect the residential property market in Dubai to gradually recover in 2017 with a potential uptick in sale prices and rents from mid-2017 onwards. Government commitment to spending on infrastructure and facilities, along with the realisation among developers for the need to phase out projects in line with demand, lead us to believe the real estate market in Dubai has become more mature and resilient" it added.

On Abu Dhabi, Knight Frank said the reinstatement of a five per cent rental cap was unlikely to impact the market, given rents are expected to decline further in the UAE capital.

Similarly, sale prices are likely to drop amid continued cost cutting and corporate restructuring. Meanwhile, the introduction of a three per cent housing fee on annual rent is expected to increase cost pressures on households, which would further aggravate demand for property, it added.
        
Regarding the office market, Knight Frank said the slowdown in the UAE economy and subsequent cutbacks in the job market weighed in on the performance of the office market in 2016.

In Dubai, while international occupiers remain committed to the region, they have chosen to restructure rather than expand their operations.

As a result, office rents across Grade A spaces in Dubai remained relatively stable. They continue to enjoy high occupancy rates given the limited availability of good quality stock in Freezones and around developed amenities and infrastructure. Meanwhile Grade B rents in secondary locations have dipped as landlords struggle to attract and retain tenants, it stated.

In Abu Dhabi, however, the drop in oil prices squeezed tenants in the oil and gas industry and the public sector who make up the bulk of corporate occupiers, said the property expert in its review.

This had a knock-on effect on some professional services companies such as law firms and consultancies, who rely on work from government and related entities. Consequently rental rates across the emirate declined as vacancies increased. However, the impact has been less profound than expected, given the limited delivery of office space in 2016, it stated.-TradeArabia News Service