Key Dubai Real Estate Performance Indicators Continue to Soften, but Investment Options Remain, according to dubai-based real estate investment company Phidar Advisory.
Phidar Advisory in their Q4 research notes for the residential and office markets in Dubai has said that the residential prices in the last quarter of 2014 have decreased compared to the previous quarter, while office lease rates remained relatively unchanged.
“The low yields for residential and office real estate are not sustainable in the short to medium term”, said Jesse Downs, Managing Director of Phidar Advisory. “Recently, transaction volumes have slowed and investors active in the market are looking for higher returns,” she added.
Apartment lease rates remained stable with a nominal increase of 0.4%, while sale prices decreased 3.6%, pushing yields up slightly. Lease rates for single family homes, also referred to as villas, decreased 3.1% and sale prices decreased 1.7%.
“The most significant residential opportunities for private developers is in affordable housing” – Phidar Advisory report.
The most significant residential opportunities for private developers is in affordable housing for the demographic with the equivalent monthly housing spend of AED 3,000 – AED 5,500 per month, based on a 30-35% housing spend.
“In some areas, especially affordable communities, yields are starting to increase on the back of stable rents and softening sale prices,” said Ms. Downs. “Considering these assets have some of the most stable supply-demand dynamics, this is an illustration that yields are adjusting to meet investor demand,” she said.
Office lease rates decreased a marginal 0.5% and office rents increased a marginal 0.2%, pushing yields down to 6.8%. Phidar predicts new supply will likely keep average rents stable for 2015, but an increase in new supply combined with unsustainable yields will lead to average sale price attrition. The distribution of Free Zones and Investment Zones creates micromarkets with unique and divergent supply-demand dynamics, so actual area performance will vary.
Over the next 5 years, however, Dubai’s office supply will expand by almost 25%, which will slow average lease rate growth for the next 2-3 years. Supply expansion combined with low, unsustainable yields will lead to average sale price attirition, likely starting in 2015 and continuing through 2017.
“From an investment perspective, the performance of an office asset in Dubai is more sensitive to location than most markets,” said Ms. Downs. “Even though the average trends and projections may seem muted, there are interesting investment options in Dubai,” she concluded.