CBRE: Dubai residential rates witness decline
Prices within the mid-market segment in Dubai have proven to be far more resilient to this downward rate trend
Average residential rental and sales rates continue to descend across Dubai, but performances are highly fragmented by location, according to global real estate consultancy firm CBRE.
In its Q2 2016 Dubai MarketView, it said that while Dubai’s economy has continued to outperform its neighbours buoyed by its diversified economic base, the devaluation of major currencies ‘against the US dollar, spurred by global economic uncertainty, has impacted investor sentiment in the Emirate’s real estate market.
Residential sales and rental see downward pressure, while mid-market segment remains resilient.
Dubai’s residential prices fell for the sixth consecutive quarter during Q2 2016, with average sales rates falling by 2% Q-o-Q, resulting in a 12% decline Y-o-Y, as higher-end and luxury residences witnessed the most significant drops during this time.
Prices within the mid-market segment have proven to be far more resilient to this downward rate trend, reflecting the current demand for affordable accommodation in freehold communities.
That said, the mid-market segment has also witnessed some downward rental pressures in affordable leasehold locations, including Al Barsha, Oud Metha and Bur Dubai, whist freehold sub-markets such as International City have also suffered more marked downturns in performance quarter-on-quarter, reflecting the higher availability of units on the market at this time.
Sales rates have been predicted to drop further by an additional 3-5% in the coming quarters although some locations may vary. During the quarter, average residential rental rates have declined by around 1% and 2% Y-o-Y.
Matt Green, head of research & consulting UAE, CBRE Middle East, said: “It is estimated that around 48,000 new residential units (apartments and villas) could enter the Dubai market during the period 2016-18, provided that construction delays are at a minimal,” commented Green.
Prime office rentals are expected to remain firm throughout the remainder of the year, with the market currently offering limited availability of existing and upcoming high-quality Grade A supply, which is encouraging a new wave of commercial development.
According to the Dubai MarketView, the prime office rentals market has witnessed a strong pick-up in pre-leasing activity over the past two years reflecting demand for high quality single owned office accommodation.
“The prime office rental market has potential for growth in well located buildings around the CBD and popular locations such as TECOM Freezone, with its most recent extensions, the Edge and the Butterfly, almost fully leased out even before their expected completions later in Q3,” commented Green.
Dubai’s average occupancy rate dropped around 3.5% during H1 2016 versus the same period last year, whilst average daily room rates (ADRs) dropped by around 10.0%. This culminated in a 13.1% dip in RevPAR figures.
Despite the declining performance, Dubai remains one of the best performing markets in the GCC, with various cities in Saudi Arabia, Qatar and Oman experiencing far more severe declines, as a result of lower prices, the US dollar strength and the negative impacts of a subdued economy and lower corporate demand.
“Hotel operators in Dubai have made widespread cuts to their ADRs throughout Q2, as they strive to remain competitive during a period affected by lower spending capacities and seasonal demand drops,” commented Green.