Dubai Real Estate Market Overview Dubai
Dubai Market Summary Cityscape Global reflects improved market sentiment Cityscape remains a good barometer of sentiment towards the Dubai real estate market. The 2017 edition saw increased market activity on the back of stronger sentiment, with a number of developers reporting strong sales within newly launched projects. The dangers of a potential over-supply on the back of sales achieved from more attractive payment terms is however increasing. Generous payment terms and guaranteed rent periods, although attractive to investors, could result in a future real estate bubble. One of the most significant announcements at Cityscape 2017 was District 2020, a master planned development of residential and commercial space on the site of Expo 2020. This project forms an important component of the planned long-term legacy from Dubai hosting Expo 2020. Alternative real estate asset classes was another area of focus at Cityscape, with specific emphasis on the healthcare sector. With the MENA region lagging behind other developed economies in terms of spending per capita on healthcare and the provision of hospital beds, there are significant opportunities for real estate players to tap into this sector over the next five years. Dubai is investing heavily in the infrastructure needed to host multiple healthcare institutions, most notably through Dubai Healthcare City, a healthcare free zone offering benefits to both local and international operators. The Dubai Health Authority (DHA) is also striving to ensure the city has the medical infrastructure required to attract an increased share of the growing global market in medical tourism. Dubai Prime Rental Clock * 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 3
Office Hot Topic Accessibility will remain a key differentiator in the office sector. The experience of other global cities (such as New York, London and Singapore) emphasises that accessibility to the transport network is a key factor in determining the attraction of different sub markets. The same applies to Dubai, with the preferred office locations benefiting from access to the metro network. Connectivity is a key factor in the emergence of new commercial districts and will dictate the timing with which Dubai South will mature from its present focus as a middle-income residential market to a new commercial district, as envisaged in the newly announced plans for District 2020. The road and metro links required to support this precinct are currently underway, and the continued expansion of Al Maktoum airport will further enhance the future attraction of District 2020 to office occupiers. Supply The third quarter saw the delivery of approximately 35,000 sq m of office GLA across Dubai, with the largest completion being The Offices 3 tower in DTCD. There is more than 110,000 sq m of GLA currently under construction and due for completion by the end of the year, which should bring the total office stock to about 8.9 million sq m of GLA. However, we believe there is some risk with the materialisation of certain projects owing to volatile global markets and geopolitical conditions, which may result in corporates delaying or scaling back future growth plans. Another trend noticed recently is the increase in sublease space in Dubai, with tenants seeking to sublease surplus space resulting from previous ambitious expansion plans. 136K Current Supply (2014 ) Future Supply (2017 2019) 55K 113K 4 7.8M 8.6M 8.7M 8.8M 2014 2015 2016 8.8M 8.9M 9.0M 2017 2018 2019
Office Performance Office rents have generally softened across Grade A quality buildings. Landlords are responding to the subdued demand by offering lower face rentals and increased incentives. For example, third party landlords within the DIFC are offering extremely attractive rents and incentives (eg. Central Park have reduced their shell & core rates with offers from AED 125 sq ft + service charge now being made for large transactions on Q3 2016 low floors). Favourable renewal terms are being presented to retain tenants throughout the CBD, in the face of increased competition from the next generation of best in class projects such as ICD Brookfield Place, which is attracting a lot of positive interest. coupled with the considerable new supply that is coming on line in projects such as One Central. We believe these soft market conditions will continue into Q4, as landlords compete for fewer requirements, particularly when Where supply remains low, in areas such as the Tecom free-zone, rents have remained stable. 11 % Office vacancies within the CBD have remained largely stable over the past quarter at around 8%. 8% Vacancy Rate* *We have changed the methodology for calculating office vacancies, to represent the weighted average rate across a basket of buildings in the CBD. Rents / AED per sq m Q3 2016 1,922 AED -1.6% 1,892 AED 5
Residential Hot Topic Momentum for residential developments is strong, leading to dangers of potential over supply. A number of developers launched new mega residential projects at Cityscape Global that was held in Dubai during September 2017. Large-scale developers such as Nakheel and Deyaar announced projects worth AED 3.2 billion and AED 1.0 billion respectively. Direct sales of UAE properties were allowed at Cityscape for the first time in ten years and this peaked the interest of potential buyers by allowing them to compare between the various launch offers across a variety of properties. This renewed sentiment does however raise the prospect of a potential over-supply on the back of sales achieved through more attractive payment terms. Supply The majority of completions during the third quarter were apartments (with a further 3,300 units delivered). Villas and townhouses contributed 660 and 75 units respectively. The largest completions were Duja Tower in Trade Centre First, adding 679 units and The Polo Residence in Meydan with 598 units. District 1 and Lila in Arabian Ranches 2 contributed 267 and 219 units respectively. According to Business News for Construction, construction activity across Dubai will increase further over the next 2 years, with approximately AED 350 billion worth of contracts likely to be awarded prior to Expo 2020. Developers in Dubai have been particularly active in the residential sector with JLL data suggesting that up to 80,000 units could be delivered before the end of 2019, although actual deliveries are likely to be below this level. Current Supply (2014 ) While more of these projects are being marketed as middle-income, the majority remain above the price range that JLL deems affordable (below AED 800,000 for a 2 bedroom unit). Future Supply (2017 2019) 28K 34K 18K 6 450K 460K 475K 487K 2014 2015 2016 487K 505K 539K 2018 2019 2017
Residential Performance Sale prices for both villas and apartments remained stable over Q3, while rents continued their low single-digit declines. Anecdotal evidence suggests that numerous residential buildings (even within prime areas) are seeing increased vacancies, thus, tenants have been able to renegotiate their rents downwards by 5% - 7% on average. In terms of sales, Azizi development was particularly active during Cityscape, reporting headline sales of AED 1.3 billion, reflecting the attractive payment terms on offer. The company reported that the first phase of its Riviera waterfront project in Meydan was completely sold out during the exhibition, with handover currently scheduled for late 2018. The total value of transactions of existing residential properties (excluding land) also increased over 2017, with sales at YT August exceeding AED 13.7 billion, up 28%. A total of AED 2.7 billion of unit sales was recorded in August alone, with 20% of this total occurring in Dubai Marina and another 20% in Downtown. Although numerous developments have been launched throughout the city, these prime areas will continue to attract investors, given their better accessibility and more extensive range of supporting facilities. Apartments Sales Sales Rents Rents Q-o-Q Q-o-Q -0.9% -1.6% -1.7% -6.2% Villas Sales Sales Rents Rents Q-o-Q Q-o-Q -0.9% -1.1% -2.1% -7.4% 7
Retail Hot Topic Majid Al Futtaim (MAF) acquires Geant franchise. Geant, which has approximately 30 outlets in the MENA region will now be rebranded as Carrefour, resulting in the Carrefour store count increasing from 67 to 80 across the UAE. The latter also strengthens the position of MAF as a lead player in the retail domain. A number of the previous Geant stores are located in Super-Regional malls, such as Ibn Batutta Mall and Yas Mall, which is beneficial to the brand given the high footfall in these outlets. Given the increased competition in the market, a number of the smaller retail malls in Dubai are revisiting their strategies and revising their tenant offering in an attempt to increase footfall. Supply The third quarter of 2017 saw the completion of the Dubai Festival City expansion, adding approximately 20,000 sq m of GLA, as well as the completion of a Neighbourhood and a Community retail outlet in AlHebiah First and Wadi Al Safa 2, adding 18,600 sq m of GLA collectively. The remainder of 2017 is anticipating the completion of an additional 101,000 sq m of GLA, with notable projects scheduled for handover in Q4 including Phase 2 of the Dubai Mall and the Souq in Culture Village. Current Supply (2014 ) Future Supply (2017 2019) 361K 536K 101K 8 2.9M 3.1M 3.4M 3.4M 2014 2015 2016 3.4M 3.5M 4.1M 2017 2018 2019
Retail Performance Property owners have been more willing to negotiate rents with existing tenants and we have therefore seen a further decline in average rental levels during Q3. Super-Regional and Regional malls have recorded declines of between 3% - 5% in headline rents on a quarterly basis, which may understate the extent of effective pressure over the next 12 months given the large volume of potential new supply due to enter the market. Vacancy levels have generally increased over the past year and this trend has continued during Q3, placing further pressure on rentals. Rents are expected to remain under 8% 12% Vacancy Rate Q3 2016 declines. Smaller Neighbourhood and Community malls have generally recorded greater declines than in the larger centres. Change in Average Rents Regional -5% Super Regional -8% Q-o-Q -3% -7% Q-o-Q 9
Hotel Hot Topic Are mid-scale hotels disrupting the Dubai market? The supply of mid-market hotels has increased by almost three fold in Dubai over the last ten years. JLL data suggests there are currently more than 80 hotels operating in the midscale (3*) segment, with approximately 15 others currently under construction and due for completion in the next three years. The growth of this sector has been a positive reflection of the maturation of the Dubai market, which is opening to a wider range of source markets, but is also likely to result in further declines in average financial returns going forward. Supply A further 1,800 keys were added to the market in Q3, bringing the total stock of quality hotel rooms in Dubai to almost 82,200 keys. Notable completions include the Rixos JBR (414 keys), and DoubleTree by Hilton (238 keys) located in Bay Square, Business Bay. Another trend in the market is the refurbishment of existing rooms, for example the renovation of the Atlantis (Palm Jumeirah), where 1,539 keys were released back into the market this quarter. Despite the recent push towards mid-scale hotels, the supply remains primarily focused on 4 and 5 star properties. A potential 4,100 keys could enter the market over the last quarter of the year. Several properties are nearing completion in Business Bay including the Renaissance Dubai Downtown by Marriott (312 keys), Current Supply (2014 ) and Bay Central by Central Hotels (284 keys). Over the next two years, a number of mid-scale hotels are also expected to open, which will lead to the diversification of the hotel market and will result in the city becoming a more attractive place to visit to a broader range of visitors. Future Supply (2017 2019) 15,100 12,100 4,100 10 67,500 72,400 77,900 82,200 2014 2015 2016 82,200 86,300 98,400 2017 2018 2019
Hotel Performance Hotel performance remains under pressure, with the YT August RevPAR (AED 503) being the lowest level seen in the last decade. Occupancies on the other hand have hovered at a healthy 75% since the beginning of the year. Although the strategy of many hotels across the city is currently focused on maintaining high occupancy levels at the expense of daily rates, it is important to note that Dubai remains one of the The decrease in the Dubai hospitality market performance is perceived as an adjustment of the market rather than an indication of distress. 75% 0.4% YT August 2016 YT August 2017 189 USD 181 USD Source: STR Global Source: STR Global ADR (USD) The outlook for Dubai remains positive, especially as the city continues to invest heavily in tourism infrastructure and as it diversifies towards new source markets such as South East Asia. Dubai has seen a 55% growth in arrivals from China, following the relaxation of visa regulations at the end of 2016. YT August 2017 75% Occupancy (%) YT August 2016 strongest performing hotel markets globally in terms of RevPAR and other financial indicators. The pace of decrease in ADRs has slowed compared to previous quarters and the market will eventually achieve a price floor in the short to mid-term. -4.0% 11
Definitions 12 O clock 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. 9 O clock 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. 10 9 8 11 12 1 7 6 5 2 3 4 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. 6 O clock 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. 12
Office Supply data is based on our quarterly survey of 32 sub-markets. 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 weighted 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. Residential The supply and stock data has been updated based on data from the Dubai Government. Our quarterly survey now covers 158 sub markets (the entire Dubai market) starting from 2010. 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. Retail Classification of Retail centres 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 Supply data is based on our quarterly survey of 45 sub-markets. Malls are categorized based on turnover levels. Primary Malls are good performing with high levels of turnover. Secondary Malls are average performing 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 centres. Given the variation in rentals, we quote % change for retail rents rather than actual figures. 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 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 55,000 rooms across Dubai. 13
Dubai Office 403, Building 1, Emaar Square, Sheikh Zayed Rd PO Box 214029, Dubai, UAE Tel: +971 4 426 6999 Fax: +971 4 365 3260 Jll Valuation L.l.c. Office 603, Building 1, Emaar Square, Sheikh Zayed Rd 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: Dana Williamson Head of Offices & Business Space MENA dana.williamson@eu.jll.com Craig Plumb Head of Research MENA craig.plumb@eu.jll.com Andrew Williamson Head of Retail MENA andrew.williamson@eu.jll.com Asma Dakkak Research Manager MENA asma.dakkak@eu.jll.com Marko Vucinic Senior Vice President, Acting Head of Hotels & Hospitality Group MEA marko.vucinic@eu.jll.com With other regional offices in: Abu Dhabi, Cairo, Riyadh, Jeddah, Al Khobar, Johannesburg, Nairobi, Lagos and Casablanca.