JLL: Dubai Real Estate Market Overview Q1 2011
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The road to home finance has been a long one for the Kingdom, but with its highly anticipated mortgage law edging ever closer to ratification, would-be homeowners and financial institutions are gearing up for a new era of opportunity.
With the announcement this year of a US$66.7 billion initiative to address the demand-supply imbalance in the Kingdom’s housing market, social infrastructure spend is topping the Government agenda as it focuses on building affordable homes for the future.
The South-East Asian island has seen a number of distinctive developments come to fruition over the past few years as the country further establishes itself.
The investment market is polarising between private and institutional investors. Previously, transactions were limited by a lack of suitably priced investment grade products.
Although the supply has not changed, owners are starting to adjust their price expectations. Concurrently, private investors are adopting a more aggressive risk profile, which, combined with more realistic sales prices, is closing bid-ask spreads. Thus, private investors will drive the investment market in 2011.
Regional funds are focused on a select number of high quality, securely leased, institutional grade assets. The office market continues to see new supply entering the market pushing citywide vacancy rates to 44%. Prime rent declines abated, with average prime rents remaining stable in Q1 2011 after a hefty 21% decline in Q4 2010. Unrest in other MENA countries could increase demand for Dubai office space over the medium term as companies relocate to more stable markets. This demand is, however, unlikely to offset additional supply levels, resulting in a further decline in average rentals during 2011.
Retail malls continue to experience vacancies of 15% to 30% as retailers have take advantage of greater competition among the centres to closse poor performing stores. Thus, landlords are becoming increasingly realistic in rent negotiations, with many offering tenants more attractive and flexible terms based on sales turnovers.
In Q1 2011, average rental rates continued to decline in the residential sector, but the rate of decline has slowed. Q4 2010 data indicates that transaction values and volumes have however increased compared to Q4 2009. Provided mortgage availability improves, lending rates remain low or fall further, and the government improves residency visa rules for property purchasers, we believe 2011 will see the build up of this buying momentum and selective price stabilisation.
Hotels have experienced improved occupancy due to increased tourist arrivals in the first two months of the year. Project delays and cancellations will contribute to smoother absorption of new supply. While the wider hotel sector is in the process of stabilising and ADRs will remain depressed over the year, established beach hotels have reached the bottom and will outperform city hotels in 2011.
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