Dubai Real Estate Market Q2 Overview and Forecast


JLL, the world’s leading real estate investment and advisory firm, today has released its Q2 2016 Dubai Real Estate Q2 Overview report that evaluates the impact of Britain’s exit from the European Union on the Dubai Real Estate Market across office, residential, retail and hotel sectors. Dubai caters to the most open real estate market within the region and as a result is more susceptible to external factors. As Brexit brings slight uncertainty into the market, it was noted that in Q2 2016 rent values continue to face a downward slope in the office and residential sectors.

With diverse nationalities residing in Dubai currently, data from Dubai Land Department suggests that British Nationals are the third largest investors in real estate. Mr. Craig Plumb, Head of Research, JLL MENA, commented saying: “Even though it is too early to predict the long-term implications, overall there is a slight probability of British investors being negatively impacted by the devaluation of the British Pound following Britain’s decision to exit the European Union. However, we believe the effect of the decision will have temporary repercussions as a substantial number of British investors who work and reside in the UAE avoid sourcing their income in sterling. If we dissect the market further, particularly for residential, we notice that expats in Dubai are most likely to continue renting their homes instead of switching to ownership, resulting in sales being more negatively affected than the rental sector. If external factors stabilize over the rest of the year, we expect the Dubai residential market to easily recover in early 2017.

In Q2 2016, it has been interesting to see the office vacancy rates throughout Dubai showing a general downward trend. However, although this could be attributed to lack of quality office space, Dubai still remains the largest and most active office market in MENA as many businesses still prefer Dubai as the regional hub.

Meanwhile, the Brexit decision has seen an adverse effect on the retail and hotel sector. Due to the devaluation of the pound, Dubai and the MENA region as a whole has become an increasingly expensive destination for European visitors.”

Sector summary highlights – Dubai

Office: The second quarter of 2016 saw the handover of only one office tower; Westbury Square in Business Bay, which added 30,000 square meters of office Gross Leasable Area (GLA), taking the total stock to 8.5 million square meters, broadly in line with the figure recorded during the first quarter of 2016. The forecasts of future supply levels for 2017 / 2018 have been revised downwards over the quarter owing to a number of factors: (1) A number of projects which were scheduled for completion in 2017 have been delayed to 2018; (2) Al Duja Tower which was previously included as a mix-use building has now been confirmed as largely residential (with only one floor of office space) reducing potential 2017 office supply by 167K square meters (3) The handover of ICD Brookfield has been confirmed for Q1 2019.

Looking at some of the more popular areas for office vacancy, Dubai Design District (d3) is becoming a more desirable destination. Asking rents in d3 have increased by approximately 40% over Q2 2016 primarily due to the achievement of an occupancy milestone. Having attracted the headquarters of top retail names such as Chalhoub Group, the bargaining power is now with the landlord (TECOM). The design industry in the region is expected to grow at an annual rate of 6% over the next 5 years which will result in more office demand for space in developments like d3.

Residential Overview

Around 1,500 villas for the Emirate staff were delivered in District 11 of the MBR City project in Q2 2016. This marks the first project which has been delivered in this major development. A further 1,680 units were added across Dubai including both apartment and villa units, and taking the total stock to 462K units.

Danube Properties launched its 418 unit Glamz residential project in Q2 2016, located in the Al Furjan area of Jebel Ali adjacent to its existing Starz project. Construction should commence in Q3 2016 and is due for completion in September 2018. This takes Danube’s portfolio to 1,700 units with an addition of two projects expected to be launched before the end of the year. Dubai Land Department (DLD) introduces a new building classification system which aims to create a more transparent market (in line with the 2021 vision) by providing a complete database for every single unit in Dubai along with a star rating system.

Retail Overview

Three new shopping malls were added over the quarter, a Community Centre in International City, Ibn Battuta Mall Phase II, and The Ribbon in Motor City. Collectively, they added almost 30,000 square metres of GLA. The remainder of 2016 is expected to witness the delivery of further 150,000 square meters .Our supply pipeline for 2017 has been increased with construction having resumed on two projects, the Dubai Art Centre in Barsha and Sustainable City Mall, which increases the 2017 supply to 159,000 square meters.

The reality of VAT being introduced in 2018 is setting a worrisome tone across the market. It will lead to higher inflation rates and reduce discretionary spending. Although food and other necessity goods may be exempted, this is likely to impact the ‘luxury’ sector as consumers become more cautious over their spending patterns.

While negative for the retail sector, this new tax will be positive for the overall economy, marking a further diversification of government revenue away from the oil sector. Another positive of the VAT will be greater transparency and the ability for mall owners to have greater visibility of sales patterns.

Hotel Overview

The second quarter of the year saw the opening of the landmark W Al Habtoor on the banks of the Dubai Canal, following its sister property St Regis in November 2015. Paired with other additions to the supply such as Rove Downtown Dubai & Wyndham Marina, this brought the Dubai supply to around 72,500 rooms.

Several properties announced for 2016 can be expected to see their opening postponed to 2017 which is reflected in our adjusted pipeline shown below. Among the causes are delays in construction and funding and the overly ambitious timelines initially set by some developers.


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