Dubai’s residential and hospitality markets have rebalanced towards a “new normal” in the first six months of 2016, according to Deloitte’s new report “Deloitte Real Estate Predictions 2016 – H1 Review.” The report predicts that residential sale prices will decline further in Dubai for the balance of 2016, but that this rate of decline will slow, as value and affordability returns to the market.

“Our real estate advisory team issued a Real Estate Predictions Report in January 2016, which looked at trends and prospects for Dubai’s real estate market,” said Robin Williamson, Managing Director, Deloitte Corporate Finance Limited, Middle East. “Now that we have moved into the second half of 2016, we have compared the predictions that we made for Dubai’s residential, hospitality, office and retail markets with actual trends in the first half of 2016.”

  • Review of Deloitte’s predictions on Dubai’s residential market performance for 2016

One of the key macroeconomic factors shaping Dubai’s residential market in January 2016 was low oil prices. Deloitte predicted that average residential sale prices in Dubai would continue to fall in 2016, reflecting a transition to a more mature market, as well as an increase in more affordable stock and discounting in emerging locations.

Data for the first six months of 2016 shows that residential sale prices have continued to decline in Dubai. Prices for Palm Jumeirah apartments declined by 3.8% between January 2016 and June 2016, while prices for Downtown apartments declined by 1.8% over the same period. Year on year data indicates that overall, residential sales prices in Dubai declined by 3.8% between June 2015 and June 2016.

  • Review of Deloitte’s predictions on Dubai’s hospitality market performance for 2016

Deloitte predicted strong levels of demand for serviced apartments in Dubai driven by increasing visitor numbers from key source markets, growing visitor demand for longer average lengths of stay and better value accommodation. In the first half of 2016, data from the Dubai Department of Tourism and Commerce Marketing (“DTCM”) shows that serviced apartments experienced the highest occupancy of any hospitality category in Dubai, at 83%.

“Average hotel occupancy in Dubai in the first six months of 2016 was 77%, slightly ahead of our forecasts,” said Williamson. “Looking at the data in more detail, it is clear that hotel operators in Dubai continued to discount Average Daily Rates in an effort to maintain occupancy, with a decline in Average Daily Rates noted in the first six months 2016. We anticipate that this trend is set to continue in the second half of 2016,” he added. 

  • Review of Deloitte’s predictions on Dubai’s office market performance for 2016

In January 2016, Deloitte predicted that completions of a number of new office schemes could lead to a slowdown in rental growth in some submarkets, with the power of negotiation shifting from landlords to tenants. In H1 2016, there were two significant completions in Business Bay: B2B Office Tower (with a GLA of approximately 242,000 sq. ft.) and Westbury Square (with a GLA of approximately 323,000 sq. ft.). During this time, average rents for offices in Business Bay fell by approximately 4%.

Moreover, in line with Deloitte predictions, data from REIDIN shows that average office rents in the Internet City and Media City Free Zones were slightly up in Q2 2016. Core locations in DIFC also continue to perform well; there are waiting lists for space in most institutionally owned buildings, while Gate Village 11 (which is currently under construction) is reported to be 100% pre-leased.

“We anticipate that these trends are likely to continue in H2 2016, with further completions in secondary locations giving tenants greater negotiating power,” explains Williamson. “In Free Zones, we anticipate that factors such as high quality infrastructure and more accessible public amenity provision will continue to drive demand from corporate occupiers.”

  • Review of Deloitte’s predictions on Dubai’s retail market performance for 2016

Deloitte predicted moderation in sales growth would continue through 2016 against a strong dollar and economic uncertainty in key source markets. In the first half of 2016, data from grmc indicates that the majority of people expect to have either the same or less disposable income (69.8%) in 2016 than the previous year. Retail sales are unlikely to return to growth until disposable incomes rise.

Also, in line with Deloitte’s predictions on prime malls’ rental growth, Emaar Malls PJSC reported a 13% increase in rental income vs. Q1 2015 in their June 2016 results, with reported increases of 25% on base rents for units within super prime malls such as the Dubai Mall.

“We predict that a return to higher oil prices combined with robust tourism and population growth, are likely to support a return to growth in retail sales from 2017 onwards,” concluded Williamson. “We also anticipate that new retail concepts, such as Boxpark and Citywalk, are likely to perform well as retailers seek to diversify from traditional mall offerings.”

Download the full report here:

RE predictions infographic flyer
RE predictions infographic flyer
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