The UAE remains on solid tracks in its economic recovery
as the economy grew by around 4 percent during 2011. This followed growth of
1.4 percent in 2010 and the 1.6 percent contraction in 2009. During 2012 the
UAE is again expected to reach 4.0 percent growth, with Dubai likely to post
similar performance, according to a report prepared by the CBRE Dubai Research
Team.
A more positive mood was also reflected in the Consumer
Confidence Index (CCI) from the Department of Economic Development (DED) which
rose 15 points to 125 during the final quarter. Respondents were most
optimistic about the economic recovery, personal finances and job creation,
although escalating food prices were still highlighted as a concern.
The Business Confidence Index (BCI) from the DED also
suggested a recovery of fortunes. The index rose 16 percent during the final
three months of the year as a positive outlook on trade and SME's helped to
lift expectations for future performance.
The Dubai government announced the introduction of
"Law No. 13 of 2011" in an effort to boost business confidence and
attract new investment. The amended commercial law aims to create a more
transparent, efficient and competitive environment by streamlining the process
for business licenses and permits through the DED. The new legislation will
also look to strengthen intellectual property rights and regulations, and
intensify the fight against commercial fraud.
More life was evident within the emirate's residential
sector as increased activity over the quarter was highlighted in Dubai Land
Department data.
The total number of residential sales during Q4, 2011
reached 2,605 as compared to just 1,589 transactions in Q3. This represented a
64 percent increase quarter on quarter. During the same period, around 300,000
square meters of residential accommodation was sold at an average rate of
AED9,500/sqm. This represents 5
percent growth year on year.
In value terms, the overall increase was less striking at
just 6 percent growth, with total transactions increased from AED2.7 billion in
Q3 to AED2.85 billion in Q4. Compared to Q4, 2010, the increased value of transactions
was significant, rising 67 percent from AED1.7 billion to AED2.85 billion.
OFFICE MARKET
Prime (CBD) office rents have now remained unchanged for
four straight quarters. Lease rates during Q4 ranged between AED1,080 to
1,940/sqm/pa inclusive of service charges (office service charges typically
range between AED160 to 270/sqm/pa depending on the development).
Occupiers continue to seek a flight to quality, which has
resulted in prime CBD offices outperforming the wider market over the past year.
Office accommodation in the CBD currently represents 13
percent of total Dubai stock, with vacancy rates hovering around 15 percent, a
figure significantly lower than the market average. During the year, close to
58,000 square meters of new office space entered the CBD, which has added a
little more pressure to vacancy rates but was not sufficient to impact rents.
Despite static lease rate movement, landlords do now
appear more open to incentivizing deals as they seek to avoid rising vacancy
rates and maintain their headline rents. Extended rent-free periods of between
three and six months, and in a few cases even up to twelve months, can now be
achieved when negotiating on longer lease tenures.
The majority of office activity over the past year may be
categorized largely as churn, with relocations, expansions and consolidations
of space, rather than demand generated from new market entrants.
RESIDENTIAL MARKET
The residential market continued to show signs of
increased stability, although average lease rates were dragged down by
apartments which fell 2 percent during the quarter. However, villa rates
remained unchanged reflecting the relative strength of that segment.
The 2 percent fall in apartment rents was primarily
attributed to continued deflationary pressures within secondary locations such
as International City, Dubai Silicon Oasis and Dubailand Residences. The
majority of other areas experienced little movement, although some prime
locations posted modest growth.
Investor interest in residential property continues to
increase, with concentration on established community projects that offer
superior facilities and amenities.
A similar situation is apparent in the occupational
market as tenants seek out lifestyle developments aligned with their aspirations.
This has resulted in high demand and rising occupancy rates for some areas in
Emirates Living, Downtown, Dubai Marina and Palm Jumeirah.
The Dubai market has become very fractional with end user
focus now becoming project - and even building - specific within any given
area. The quality of facilities, accessibility, property management and
maintenance, are all factors together with traditional drivers of quality,
price and location. Less attention is being directed toward masterplanned
schemes such as Business Bay and Dubailand which remain hindered by
infrastructure issues.
Average apartment lease rates fell by 8 percent during
2011, compared to 17 percent in 2010. Much of the decline during the year was
actually for studio units which fell by 11 percent year on year. The smallest
fall was the 5 percent recorded for three bedroom units. Lease rates in older
residential districts remained unchanged during the quarter as the opening of
The Green Line helped to stabilize rents.
Properties within 500 meters of operational metro stations have
experienced improved occupancy levels as tenants target accommodation with
strong transport links.
Villas and townhouses have significantly outperformed
apartments during the year. A more limited supply of units and stronger demand
fundamentals saw rents decline just 6 percent over the period, less than half
of the fall registered during 2010. The biggest fall was for two bedroom units
which registered a 17 percent decline due to more abundant availability and the
end users heightened ability to upsize. The average annual lease rate for a two
bedroom unit in Q4, 2010 was AED96,000/unit. This has since dropped to
AED80,000/unit as of the end Q4, 2011.
OUTLOOK
With a vast development pipeline scheduled for completion
over the next 12 months, Dubai's commercial offices to remain under duress
throughout 2012. Around 750,000 sq m of new stock could enter the supply during
the period, provided that construction delays are kept to a minimum. The
majority of this space is strata owned. New supply will emanate predominantly
from secondary and tertiary locations including Business Bay, Jumeirah Lakes
Towers and Dubai Investment Park, which are already experiencing very low lease
and occupancy rates.
Lease rates in the CBD are expected to remain quite
stable during 2012. However, the market will see landlord incentives increase
as new supply is completed and competition to secure tenancies
intensifies. Secondary and
tertiary markets will see further elevation of vacancy rates and some modest
declines in rents.
The residential sector will continue to outperform
offices as stronger demand fundamentals are sustained by solid population
growth. Developments with completed infrastructure and community facilities
will again attract the majority of interest, particularly within the emirate's
more popular "lifestyle" projects.
