Dubai’s real estate sector will remain under stress in 2011 with occupancy levels dropping further across all asset classes “due to massive new supply,” leading property analysts said on Sunday.
Oversupply will continue to impact residential, office, and retail space markets in Dubai in 2011, they said.
“Although there are recent pockets of stabilisation for Dubai’s higher-end residential product, housing market will continue to experience a situation of oversupply and prices are not expected to recover before 2012,” said analysts at Jones Lang Lasalle, or JLL, property consultancy firm.
This year, an addition of a 25,000 new units will boost Dubai’s total residential stock to around 335,000. Apartments will constitute of 79 per cent of total residential stock by the end of 2011, JLL analysts said in their report. In 2010 36,000 housing units were completed in Dubai.
Most residential projects scheduled for 2011 seem to be on track, and some projects that were on hold, such as Nakheel’s projects in Jumeirah Park, Dubai Waterfront, Jumeirah Heights and Jumeirah Village are scheduled to restart sometime in 2011, the property consultancy said.
However, a general easing of lending conditions is likely to result in an increase in sales activity in 2011, said the report. “The residential market will likely see improved lending during 2011 as more banks are injecting liquidity into the mortgage market.”
CB Richard Ellis, or CBRE, also forecast Dubai property market trends in the same line. In its market view, CBRE said that 2011 would see a mix of positive and negative sentiment entering the property market. “Oversupply will remain a fixture for the foreseeable future in both the office and residential sectors but some of the negativity may be offset by forecasts of a significant economic recovery over the next two years. Economic expansion is set to drive growth in real estate demand both locally and internationally, although it is unlikely to result in a return to positive sales or rental rate growth in the short term,” analysts at CBRE said. However, despite current market challenges, Dubai continues to offer attractive mid to long-term investment opportunities with well-laid infrastructure, an investor-friendly business environment and well-structured real estate laws, CBRE said.
In the Dubai’s office market, the current oversupply situation is likely to continue with vacancy rates expected to increase through the year across the city, which will assert further downward pressure on rent, JLL said.
“Relocation to better grade properties in better localities is expected with older and inferior properties facing higher vacancy rate and rental decline. Rentals are close to the bottom in the less popular area such as in JLT but CBD rental are expected to dropped further in 2011,” JLL report said.
According to JLL, Dubai’s total office stock as at the end of fourth quarter 2010 was around 55.6 million square feet.
Only 60 per cent of the 20 million square feet that was expected to be released in 2010 was completed in the fourth quarter. “We expect 2011 new supplies to be around 12 million square feet, broadly similar with 2010 figure. Further postponement and cancellation of projects are expected, which might reduce 2011 completion figure.”
JLL said Dubai retail malls continue to experience vacancies of 15 per cent to 30 per cent as retailers have taken advantage of more competition among centres to close poorer performing stores. This has resulted in landlords becoming increasingly realistic in rent negotiations, with many offering tenants more attractive and flexible terms, based on sales turnovers.
“Retailers can now negotiate more financially attractive deals — reduced base rents, sales-related rents, break clauses and rent free periods. Landlords continue to offer more incentives to attract new retailers such as rent-free periods. Many landlords are now adopting a more rational approach towards lease rates, based on sales and consumption numbers,” it said.
As of fourth quarter 2010, total retail supply across Dubai was around 26 million square feet, with no significant additions to stock being recorded.
Dubai’s hotel market is the closest to the bottom of the cycle, as visitor levels to Dubai increased throughout 2010. Occupancy rates in Dubai have stabilised at around 70 per cent year to November 2010, which compares favourably with other major cities across Europe and the Middle East, JLL said.