Dubai real estate stabilising

KUALA LUMPUR: Dubai’s real estate market is showing signs of stabilising, according to the Dubai Real Estate Market Overview for 2Q11 report by real estate investment advisory Jones Lang LaSalle. While residential and office property markets are still on the decline, the hospitality and retail sectors are recovering, which could signal that the overall property market in Dubai is stabilising, said Craig Plumb, Jones Lang LaSalle Mena  head of research.

“Performance was mixed this quarter with some sectors — such as hospitality and retail — on the way to recovery while others continue to decline. With GDP forecasts at 5% for 2011 versus 2.2% in 2010, Dubai’s economy is already recovering. General market confidence remains buoyant, illustrated by the oversubscription of Dubai government’s new US$500 million (RM1.49 billion) bond issue. Supported by improving investor confidence and increased liquidity, we anticipate progressive stability for most asset types,” Plumb said in a recent statement.

Jesse Downs, Jones Lang LaSalle’s head of management consulting, added: “While recovery will be gradual, the bottoming out of two main sectors, hospitality and retail malls, is positive and reflects buoyant tourism and economic trends.”

Although the office sector has the furthest to fall to reach the end of the market cycle, the softening of rents is positive news for occupiers. “They will have a select but finite window of opportunity to leverage on the favourable conditions to upgrade space and manage costs,” said Downs.

He added that the residential sector is approaching the cycle trough and select pockets of stability are emerging.

“On average, however, sale prices and rents will continue to decline. The announcement of a three-year resident visa will assuage investor and homeowner concerns as well as improve overall market confidence, but it will take time to directly and significantly impact residential demand,” he said.

In the investment market, much interest is coming from private rather than institutional investors. Jones Lang LaSalle’s recent Investors Sentiment Survey (ISS) confirmed there were more buyers than sellers active in the Dubai market.

Activity levels remained minimal due to the lack of good quality product with strong tenant covenant, thus there have been few significant sales in the Dubai market in 2Q.

The following are some market highlights in 2Q.

Hospitality
The hotel market continued to perform well after reaching the bottom of the market cycle in 1Q. Occupancy rates rose to 81% and average daily rates (ADR) stabilised. Beach hotels registered the strongest improvement, evidenced by a 3% growth in ADRs and 11% growth in revenue per available room (RevPAR) compared with the same period last year. Although supply is still expanding, the upward trend in tourist arrivals is expected to sustain the recovery.

Hotels continued to experience improved performance as tourist arrivals increased in the first four months of the year. All three performance indicators, (ADR, RevPAR and occupancy) improved compared with the same period in 2010, marking the bottom of the cycle and indicating that the hotel sector is now in the process of a cyclical upswing.

Retail
The retail mall sector has reached the bottom of the current cycle. Since there is no new major mall supply entering the market until 2014 and supported by the increase in tourist arrivals, rent levels, currently at 1,885 dirham (RM1,529) per sq m, are expected to remain stable in the coming months.  

Retail mall rentals have remained unchanged over the past quarter, with the increase in tourist arrivals and the lack of new supply contributing to stability. Since many retailers expect better business in 3Q, rental levels will remain roughly stable over coming months.

Office
For the office market, rents and occupancy levels stabilised in 2Q, but this is only temporary as anticipated supply deliveries will put downward pressure in the short term. In 2011 alone, 600,000 sq m of new space is expected to be added to the current office stock of 5.6 million sq m. Over the next three years, office supply is anticipated to grow by over 30%.

Vacancies remained unchanged compared with previous levels (44% city-wide and 27% in the central business district (CBD). Prime office rents also remained stable over the past two quarters at 1,615 dirham per sq m, but this is likely to be temporary as further declines are expected once new supply deliveries occur later this year.

This article appeared on the Property page, The Edge Financial Daily, August 5, 2011.