Q1 2019 witnessed multiple projects commencing in Dubai's commercial sector
Posted on 14th May 2019
According to *ME Construction News report, as the market gears up for Expo 2020, Q1 2019 saw multiple projects recommencing in the commercial sector and the highest number of deliveries in a single quarter for a number of years in the residential sector. The performance of the office market remained soft, with average rental rates continuing to face downward pressure. The residential market softened further, with declines in both sale prices and rents.
The retail market remains the most challenged sector due to the growth of e-commerce and the high level of future supply, which continues to exert downward pressure on rental rates across all mall types. While occupancy rates across Dubai’s hotels remained relatively stable at 85% in the year to February 2019, average daily room rates and revenue per available room continued to decrease on the back of increased supply.
Residential Supply & Performance
Around 9,800 units were completed in the Q1 2019, the highest number handed over in a single quarter for the last few years. Major projects completed include Al Khail Heights, Bluewaters Island and Arabella villas in Mudon, bringing total residential stock to 530,000.
There are more than 50,000 units currently under construction and expected to be delivered by the end of 2019. Looking ahead, residential supply is expected to reach 652,000 by the end of 2021. Major future projects include Seven City in JLT, Azizi Riviera in Meydan and Al Habtoor City.
We remain cautious that all of these projects will be delivered on time, with delays expected on some big developments. Responding to signs of increasing over-supply, many developers have slowed their launches and changed their focus to selling unsold product and completing construction of existing inventory.
Sale prices and rentals continued to decrease over the quarter for both apartments and villas. Sale prices for apartments declined by 10% and rents by 12%, compared to the same period last year. Similarly, sale prices for villas declined by 9% and rents by 5%, compared to the same period last year. With supply exceeding demand, we expect sale prices and rents to continue to face downward pressure in 2019.
New technologies are being introduced in the real estate sector, in response to the government’s call to switch to paperless transactions. Dubai Asset Management is one of the first major developers to respond by rolling out Phase I of its “fully digital and paperless property programme”. Undertaken in partnership with Smart Dubai, this initiative allows potential tenants to complete most (but not all) steps involved in a new lease online.
Office Supply & Performance
Only one office building was completed in Q1 2019 in Dubai Internet City, bringing total office stock to around 8.56m sqm of GLA at the end of the quarter. Currently, there is more than 500,000sqm of office space under construction and expected to enter the market by the end of 2019, including ICD Brookfield Place in the DIFC (96,000sqm).
Looking ahead, office supply is expected to reach 9.24m sqm by the end of 2021, with notable projects including Dubai Hills Square. Multiple projects were revived during the quarter, mainly in Jumeirah Lake Towers, but we remain cautious on the delivery of these projects ahead of Expo 2020 as scheduled.
Average vacancy rates in the Central Business District (CBD) increased to 12%. Average grade A rents declined by almost 9% y-o-y, to $420 per sqm. With ample choices available for tenants, landlords continue to offer attractive terms and the market is expected to move further in favour of tenants over the next 12 months.
The full effect of the new regulations allowing 100% foreign ownership of companies in the UAE is yet to be seen, but these are expected to have a positive impact in the long run. Demand is also expected to increase with announcements of lower charges by free zones, with Dubai Healthcare City (DHCC) the latest to reduce fees to improve business competitiveness.
Retail Supply & Performance
The Souq at Culture Village was the only retail project to be delivered in Q1 2019, bringing total mall-based retail supply to approximately 3.8m sqm. There is around 666,000 sqm of retail supply currently under construction and expected to be delivered by the end of 2019, including Nakheel Mall on Palm Jumeirah and Night Souk on Deira Islands.
Retail supply is expected to increase by around 53% and reach 5.8m sqm by the end of 2021. Notable new projects will include Deira Mall, Dubai Hills Estate Mall and Meydan One Mall. Further delays and downsizing can be expected in future projects, as supply increases faster than demand.
Retail rents declined by around 15% and 22% y-o-y in primary and secondary malls respectively. Landlords continue to offer favorable lease terms in order to attract new tenants or retain existing ones.
Average market-wide vacancies are estimated to have increased from 12% in Q1 2018 to 16% in Q1 2019. Rents and vacancies are expected to remain under pressure due to large supply expected to enter the market during the rest of 2019.
As a response to softening market conditions, mall owners are investing in new technologies to increase retail sales. One such example is a partnership between Majid Al Futtaim (MAF) and I.AM+ to deploy an AI platform that will support customers for MAF retail operations. MAF will deploy the AI platform as part of its digital transformation process, to provide physical and virtual experiences across omnichannel offerings.Back to all Construction News
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