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Dubai Residential and Hotel Markets Peak, According to New Q4 2014 JLL Report

​​​​JLL, the world's leading real estate investment and advisory firm, has released its fourth quarter (Q4 2014) Dubai Real Estate Market Overview report, which provides the consultancy's perspective on the latest trends in the office, residential, retail and hotel sectors.

Commenting on the report, Craig Plumb, Head of Research at JLL MENA, said:

"Dubai's real estate sector ended the year on a quiet note as nearly all segments of the market witnessed subdued growth levels in Q4. Average prices and rentals in the residential sector appear to have stabilized over recent months, with some locations registering marginal declines.

While cheaper oil prices are likely to dampen investment sentiment in the short term, Dubai's success at diversifying its economy and expanding its global reach makes it less vulnerable to oil price fluctuations. With the government's 2015 budget announcement, which saw planned spending and revenues increase 9% and 11% respectively, the next 12 months are expected to see a boost in business activity. We will unveil our 2015 market forecast at our Annual Top Trends event next week."

Sector summary highlights, Dubai Market Overview, Q4 2014:

  • Office: Q4 saw the addition of 8,200 sq m of office space in Business Bay. An additional 1.2 million sq m of office space is expected to enter the market in 2015, however we remain cautious of the delivery of some of these projects within the projected timeframe. As demand remains strong for single owned buildings in established locations, rental rates and vacancy levels are expected to remain stable in the short term. However as new space enters the market, average rents are likely to face further downward pressure as tenants seek to optimize or rationalize their space requirements, and consolidate their operations in one location. Vacancy levels across the CBD are expected to increase as more Grade A stock enters the market by the end of 2015 (Dubai Trade Center District, Dubai Design District).
  • ​​Residential: The second half of 2014 saw Dubai's residential market stabilize as average rents and sale prices remained relatively flat, with marginal declines over the last quarter. On an annual basis, the REIDIN rental index shows growth levels dropping from 18% in 2013 to 15% in 2014. Similarly, the sales market saw some cooling down as the REIDIN sales index points to a decline in growth levels from 23% in 2013 to 20% in 2014. This comes as the number & value of transactions dropped 30% & 14% respectively in 2014, as data from the Land Department reveals. The residential sector is likely to remain subdued over the next 12 months as the market is expected to absorb 25,000 additional units in 2015. In reality, we remain cautious of the delivery of some of these projects within the timeframe.
  • Retail: The Dubai retail market is expected to witness the delivery of approximately 267,000 sq m of retail space over the next 12 months, of which 118,000 sq m is due for completion in Q1. This largely includes Phase II of Dragon Mart and three neighborhood centers including The Box Park by Meraas. While average rents continued to be high on an annual basis, they remained stable over the last quarter. No rental growth is forecast over the next 12 months as the retail supply expands significantly. Vacancy rates are expected to remain stable as demand from retailers and new brands entering the market continues to be strong. 
  • Hotel: Q4 saw the delivery of major properties such as the Four Seasons, Sheraton on Sheikh Zayed Road and Pullman JLT, increasing the total supply to 64,200 keys by year end. Partly as a result of this increase in supply, hotel occupancy in Dubai dipped marginally in the year to November to register 79%. This decrease, coupled with a 1% decline in ADR's for the same period resulted in a marginal drop in RevPar to reach USD 187 YT November. With an additional 4,700 keys due for completion in 2015, the sector is expected to witness subdued growth rates as operators face strong competition.

Dubai prime rental clock

This diagram illustrates where JLL estimate each prime market is within its individual rental cycle as at the end of the relevant quarter.