Rise Of e-Commerce Continues To Shape The Dubai Retail Market
JLL, the world’s leading real estate investment and advisory firm, today released its Q2 2017 Dubai Real Estate Market Overview report which assesses the latest trends in the office, residential, retail and hotel sectors.
The retail sector continues to evolve and adjust in the light of the fast pace of technological advancements, with retail brands and centres merging both online and offline experiences the lines between bricks and mortar and online retailers continue to blur.
The second quarter witnessed Dubai Chamber of Commerce and Industry signing a memorandum with Souq.com to help more SMEs and entrepreneurships in the region to gain exposure to online platforms. The move sees Dubai continuing to contribute to the rising trend of e-commerce, with the Dubai Chamber of Commerce and Industry expecting the industry to account for 10% of Dubai’s total retail trade in the near future.
Amazon’s recent purchase of Souk.com represents a major advance for e-commerce in the region. Responding to this trend, Emaar Malls (Dubai’s largest retail landlord) has acquired a majority stake in Namshi (a Dubai based online retailer) during Q2.
“The Dubai real estate market largely remained relatively subdued in Q2, market sentiment is however expected to become more positive in the second half of the year,” says Craig Plumb, head of research, MENA, JLL.
The office sector witnessed a relaxation in regulations resulting in offshore activities being permitted within the DIFC, and dual licenses to allow firms to undertake both onshore and offshore activities from a single location. These new regulations will be able to expand potential demand within the DIFC, paving way for overall economic growth of the city.
The fast growth of Dubai’s tourism over the last decade following the government’s strategy to diversify the economy in the run up to Expo 2020 has opened doors to the hospitality market becoming more complex. Investors are now becoming more creative in their approach and the first hospitality focused REIT (FIVE Holding REIT) has been announced in Q2. Traditional players are now reconsidering their strategies rigorously through re-branding or de-branding properties, the report added.
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The residential sector witnessed 5,400 completed properties being sold in the first give month of 2017, an increase from the 4,500 units that were sold during the same period of 2016. With little change in either sale prices or rentals recorded over the quarter, the residential market remains relatively stable as the recent down cycle nears an end.
The Dubai office market saw the delivery of around 33,000 sq m in Q2 2017 with the completion of the Tamani Art building in Business Bay, bringing the total stock to around 8,788,000 sq m. A further 190,000 sq m is currently scheduled to complete in the second half of 2017, although some projects may be delayed into 2018. Most of this space is in suburban locations such as JLT, Business Bay and Silicon Oasis, with the only completion in the CBD in 2017 being building C4 in One Central (33,000 sq m.) 2018 will see a further 90,000 sq m delivered in the CBD (buildings C2 and C3 in One Central and Gate Village 11 in the DIFC).
The commercial office sector continues to operate as a two-tiered market, with healthy demand for single owned buildings in the free zones and those offering joint licenses. This has resulted in vacancies remaining stable in the CBD at 14% in Q2 2017. Average rents in the CBD increased marginally (by 1.3% Year-on-Year to AED1,947 per sq m during Q2). The secondary market remains weaker, with a 37% decline in rental values over the past year, due to a sustained oversupply of strata office product and a general softening of demand. Although the performance of the prime office market has remained relatively unchanged over the past year in terms of vacancies and rental levels, demand has generally softened, with more occupiers delaying decisions or prioritizing lower cost options.
The second quarter of 2017 saw the addition of 3,600 units to the market. Notable completions included 584 townhouses in Al Warsan Village in International City, as well as 250 villas in Al Furjan. Apartments accounted for 60% of completions being spread across a range of locations including Dubai Marina, Meydan, and Al Wasl. A further 25,000 units are currently under construction and scheduled for delivery by the end of 2017, but only half of these are considered likely to be handed over to purchasers by year-end.
The Dubai residential market has around 78,000 units under construction and scheduled for delivery by 2020, indicating a 15% growth from current supply levels. With a forecast population growth of 3.5% per annum, this potential supply is in excess of the underlying level of demand and could therefore result in increased vacancy levels if it were all to be developed on schedule. Although many units are targeting international and local investors, the key challenge then becomes one of securing tenants and therefore achieving a satisfactory return on investment.