New supply places downward pressure on Dubai real estate

According to a report from real estate consultancy Asteco, new supply in the apartment, villa and commercial segments continued to place downward pressure on Dubai rental rates and sales prices.

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Asteco’s Q2, 2017 Dubai data show average quarterly sales price declines for apartments, villas and offices of approximately 3%, 2% and 2%, respectively. Asteco anticipates that this trend will continue as the market absorbs the expected delivery of 15,000 apartments, 2,900 villas and 2.5 million sq. ft of leasable office space over the second half of the year. Some of this supply may slip into 2018.

“Market conditions have served to strengthen the negotiating position of many residential and commercial tenants. Many existing tenants have taken this opportunity to renegotiate their lease terms (on expiry of contracts), or when faced with intransigent landlords, opted to relocate in search of more attractive terms,” said John Stevens, managing director, Asteco.

He added: “This has resulted in an increased churn of tenants. The second half of 2017 will see the delivery of a significant number of new units/floor space and we anticipate that this new supply will amplify current trends.”

Apartments

Apartment sales prices recorded an average Q-on-Q decline of 3%, in part due to the rising number of affordable project launches and completions with developers offering smaller units at lower price points, together with a greater choice of post-completion payment options. The variation between the high and mid-market segment was minimal, with the former falling, 3% and the latter, 2%.

DIFC, Jumeirah Beach Residence, Palm Jumeirah, Business Bay and the Greens remained flat while International City and Dubai Marina posted the highest sales price declines at 7%. Further declines were also seen in Jumeirah Village (6%), Discovery Gardens (6%) and Downtown (5%).

Apartment rental rates softened 2% q-on-q. However, the quarterly fall extended previous declines, resulting in a Y-on-Y dip of 7%. Total supply for 2017 is anticipated to reach approximately 17,700 units. This compares to 8,750 in 2016. Asteco anticipate that a number of these units will be offered to the market on ‘discounted’ rates to encourage take-up.

Downtown Dubai recorded the largest y-on-y rental decline at 6%, while Jumeriah Beach Residence and the Greens both softened by 4%. Annually, rental rates within Business Bay, Downtown Dubai, Deira and International City fell by 14%, 12%, 11% and 9%, respectively.

Villas

Villa sales prices recorded a minimal change between Q1 – Q2 2017, falling 2% on average. Interestingly, whilst a number of established communities, such as the Meadows and Springs (with limited supply potential) followed a similar quarterly pattern, annual growth, however, was positive at 9% and 5% respectively.

Villa sales prices were down 2% on average in Q2 2017. Whilst Dubai Sports City, Jumeirah Park and Palm Jumeirah recorded no change, prices in Arabian Ranches increased by 2%. Jumeirah Village (6%), the Meadows (4%) and the Springs (9%). all witnessed varying degrees of softening.

Y-on-Y, demand for villas in established communities, such as the Meadows and Springs, generated annual growth of 9% and 5%. respectively.

Villa rental rates declined marginally in the second quarter across all communities except Mirdif and Al Barsha where prices remained stable. Palm Jumeirah and Springs posted the greatest decline at 4% with the highest y-on-y drop occurring in Springs (16%), Jumeirah (14%), Arabian Ranches (13%), Palm Jumeirah (13%), Al Barsha (12%), Mirdif (11%) and Umm Suqeim (10%).

Competitive price points

Stevens commented: “Whilst recent off-plan sales launches have been underpinned by competitive price points and increasingly flexible payment plans, the secondary market, unsurprisingly, remained generally correlated to demand and supply fundamentals.”

In the commercial market, sales prices and rental rates softened by 2% on Q1, pushing the average annual decline to 3%. Demand remained for small, fully-fitted and serviced office space at competitive rates. Another 2.5 million sq ft of leasable space is scheduled to enter the market in H2, significantly lower than the supply introduced in 2016, which totaled four million sq ft.

“We do not expect the market to recover until economic sentiment improves with increased government spending, further implementation of diversification strategies and  anticipated gradual rise in oil prices. In the meantime, tenants will be able to take advantage of additional supply across apartments, villas and offices,” he said.

 

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