Declining sentiment stresses need for ‘affordability’ across all real estate sectors
The major theme for Q1 across the office, residential, retail and hotel sectors has been that of ‘affordability’, according to JLL’s Q1 2018 Dubai Real Estate Market Overview report released today.
Dubai has successfully managed to build globally competitive economic sectors from finance to tourism to logistics, placing it on the global radar and establishing the city as the preferred business hub for the region. Despite this success, toughening economic conditions have hindered performance in the office sector in Q1, with tenants remaining cautious and cost conscious and continuing to seek smaller office units.
“Dubai’s real estate market has adjusted to more negative market sentiment in Q1 2018, resulting in developers focusing more on affordable options across all segments of real estate. With rents continuing to fall across the office and residential sectors, building owners and landlords are increasingly looking to incentivise in order to retain current tenants and have done so by setting more competitive prices and more attractive lease terms ,” said Craig Plumb, Head of Research, JLL MENA.
Residential developers have offered smaller units at competitive prices in areas known for more affordable housing, such as Dubai South, Dubailand and Jumeirah Village Circle (JVC). With high volumes of new supply resulting in a continued decline in rents and sale prices, Dubai’s Real Estate Regulatory Agency (RERA) floated the idea of tightening the regulations on off plan sales by requiring developers to own the land and contribute 50% of the total construction cost into an Escrow account before launching pre-sales.
The retail market continues to experience a downturn in performance. F&B, which was previously seen as the strongest sector of the market and something of a ‘haven’ to shopping malls, is also now undergoing challenges and reduced performance. Retail rents across the board declined in Q1 2018, and with a number of retail brands vacating underperforming stores, landlords are offering further incentives to retain existing tenants.
Hotel operators have remained committed to expanding the price sensitive midscale segment to meet growing demand. The opening of hotels in both the midscale and upscale segments continued across the city with the market set to see more openings from major international operators as well as local players. While ADRs continue to decline, it is expected that hotels in the upper segments will start to show signs of rate stabilisation.