Dubai witnesses strong rental growth in emerging masterplan locations as cost sensitive occupiers drive demand
Total value of residential transactions reached AED28.8 billion in the first half of 2013
The Dubai office market continued to experience rising demand with new leasing enquiries and live requirements, reflecting the improving state of the sector according to the latest Dubai MarketView by CBRE, the leading international real estate consultancy.
According to Mat Green, Head of Research & Consultancy UAE, CBRE Middle East:
“The majority of these enquiries have been generated by firms seeking expansion or consolidation space, with a number of major international corporates seeking new headquarters in prime locations. Despite the high headline vacancy rates, the availability of good quality office accommodation on contiguous floors is limited and this is encouraging developers to push ahead with developments.”
“There has been an improving picture in some secondary nodes. We have seen further evidence of rental growth for good quality office accommodation in JLT, Business Bay and Tecom, resulting in a 6% increase in rents during the quarter.”
Office rentals in the CBD remained flat during Q2 2013 at AED 1,500/m²/annum. The MarketView, however, expects the office market to witness a growth of prime rental rates during the second half of the year as the most attractive buildings near full occupancy. Average secondary office rents are now AED 1,050/m²/annum, with inferior quality strata accommodation in less desirable locations still around.
The residential sector is experiencing widespread growth, with some secondary locations actually outperforming prime areas during the quarter, as a noticeable spill over effect was felt across the market. According to the Dubai Land Department figures, the total value of residential transactions reached AED28.8 billion during the first half of 2013, with AED23.2 billion being transacted in cash (around 80% of the total market) and the balance through mortgages.
“Dubai Marina once again recorded the largest number of transactions with 3,748 transactions amounting to over AED6.6 billion. The established residential locations, such as Dubai Marina, Emirates Living, Palm Jumeirah and Downtown Dubai, continued to dominate the sales market, with the majority of all transactions both in volume and sales terms,” commented Green.
Average residential rentals grew by over 30% over the past 12 months, with half-yearly figures rose close to 14%. After a solid second quarter, the new masterplanned communities emerged as the best performing locations, which is a market shift from performance trends during 2012. Although prime locations continued to see growth, the comparative affordability of projects such as Jumeirah Village and Dubai Sports City have made them popular cost-sensitive options for tenants, and that has subsequently driven up rents.
Villa properties maintained solid upward movement in both rents and sales pricing, with six consecutive quarters of growth. Average villa rents rose by nearly 6% during the quarter, with smaller two bedroom units registered the highest rate of growth, rising 36% year-on year.
“The rising cost of residential rentals in Dubai is now being noticed, with some residents downsizing or relocating to more affordable communities. Over the past 12 months landlords have become increasingly bullish, leading to an increasing number of rental disputes being raised at the Rent Committee,” concluded Mat Green.
Locations such as International Media Production Zone (IMPZ), Dubai Sports City and Jumeirah Village have all seen very strong rental growth during the quarter, albeit from a low base. This has been driven by improvements to infrastructure and the completion of complementary facilities and retail in the area.
Dubai economy gaining momentum
Dubai continues to see strong economic performance from its core sectors such as services, trade and tourism, with a GDP growth forecast of close to 4% for 2013.
This sentiment is mirrored in the positive performance of Dubai International Airport (DXB), now the world’s second busiest airport by passenger numbers. Year on year passenger arrivals rose by 18.7% with over 5.4 million travellers passing through DXB during the month of April alone.
This follows the successful opening of Concourse A in January, with the airport’s total capacity now increased to around 75 million passengers per annum.
The airport’s performance has also been aided by Emirates Airlines’ recent tie-up with Qantas which has increased the total number of routes through their codeshare agreement.
With the year on year figures to April up over 15% there is now a very realistic chance of breaking the 65 million passenger barrier during the course of 2013.
Dubai’s construction pipeline is once again starting to show signs of increased activity, with new off-plan launches from the emirate’s principle developers, combined with the reactivation of previously stalled developments and mothballed masterplanned projects.
The residential sector is currently leading the recovery in development activity, although there have also been a number of new commercial projects launched, despite the high headline vacancy in the office sector.