JLL: Dubai Real Estate Market Overview Q2 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 continues to polarize, with most interest coming from private rather than institutional investors.
Jones Lang LaSalles's recent Investors Sentiment Survey (ISS) confirms there are more buyers than sellers active in the Dubai market. Activity levels remain minimal due to the lack of good quality product with strong tenant covenant, thus there have been few significant sales in the Dubai market during Q2.
Despite minimal new supply handovers in the office market in Q2, conditions remain heavily in favour of tenants. Vacancies remained unchanged compared to previous levels (44% Citywide and 26% in the CBD), providing a wide range of choice for occupiers and strengthening their position in lease negotiations with landlords.
Prime office rents also remained stable over the past two quarters at AED 1,615 per square metre, but this is likely to be a temporary position as further declines are expected once new supply deliveries occur late in 2011.
The Arab Spring has not yet spurred significant new demand for office space in Dubai. However, the regional turmoil has already had a positive impact on Dubai's hotel, retail and residential sectors.
Residential sector performance diverges as some assets experience selective stability. In Q2, sale prices and rents increased marginally in select upper end established villa communities such as Palm Jumeirah and Arabian Ranches.
The majority of the residential market (apartments and mid market villas) continued to see price and rent declines. Landlords are becoming increasingly flexible, with the more widespread use of free rent periods (13 or 14 months for the price of 12) and other inducements including payment of tenant's air conditioning charges and flexibility on the number of rent cheques required.
Retail mall rentals have remained unchanged over the past quarter, with the increase in tourist arrivals and the lack of new supply contributing to stability. Since many retailers expect better business in the third quarter we anticipate that rental levels will remain roughly stable over the coming months, marking the bottom of the current retail mall rental cycle.
Hotels continue to experience improved performance as tourist arrivals increased in the first four months of the year. All three performance indicators, (ADR, RevPAR and occupancy) improved compared to the same period of 2010, marking the bottom of the cycle and indicating that the hotel sector is now in the process of a cyclical upswing.
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