- Dubai’s 2012 Budget allocates 41% of total value towards the infrastructure, transportation and economic development sectors.
- Prime office lease rates remained unchanged for the fifth straight quarter, while secondary and tertiary locations experienced drops of up to 9% year-on-year.
- The first signs of upward lease movement for villa properties was identified during the quarter, with lease rates growing by around 3%.
- The Emirate of Dubai has set a total budget of AED 32.26 billion for 2012, whilst revenues are estimated at AED 30.43 billion – a deficit of AED 1.83 billion.
- Despite this, infrastructure and the non-oil economy continue to strengthen, with these sectors receiving the largest share of the Emirate’s development budget in recent years.
- In 2012, 41% of the total budget value is allocated towards infrastructure, transportation and economic development which includes roads, transport, civil aviation, airports and tourism.
- The second highest recipient in the budget was the ‘social development’ sector, which includes healthcare, education, housing and culture, receiving 29% of the total budget.
- In the economy itself, the real estate sector continues to see some localised growth with an increase in the number of transactions for residential properties.
- As per data provided by Dubai Land Department, residential unit transactions during the first quarter of 2012 totalled AED 3.1 billion, a nine percent increase compared to the previous quarter.
- The total number of transactions increased from 2,605 in Q4,2011 to 2,745 transactions in Q1,2012 an increase of five percent quarter on quarter.
- In terms of the volume of land sales by area transacted, the total during the quarter amounted to 339,000 square metres, compared to 301,000 square metres in Q4,2011 – an increase of 12%. The average value of land transactions was AED 9,177/sqm.
Residential Transactions – Q1,2008 to Q1,2012
- Office lease rates within the CBD area were again largely unchanged, a trend now spanning five straight quarters. Lease rates currently range between AED1,080 to 1,940/sqm/pa inclusive of service charges.
- Prime commercial areas around the CBD and DIFC continue to see increasing occupancy levels compared to secondary and tertiary locations, a trend that will force further declines in lease rates and rising vacancies in the less desirable office areas.
- The majority of recorded demand during the quarter emanated from existing tenants looking for relocation, consolidation or expansion with only limited demand from incoming occupiers.
Prime Office Lease Rate & Total Dubai Office Stock – Q1,07 to Q1,12
Dubai office space supply remains on a sharp upward track as projects launched during the peak of the market have added to the levels of stock. Total office space inventory has now reached close to seven million square metres, an annual growth rate of 18% since Q1,2008.
A significant portion of new accommodation is being completed in secondary and tertiary locations, and these properties are consequently struggling to maintain lease rates amidst rising vacancy levels. Although absorption levels in these areas have improved during the last few years, a rapid and sustained increase in stock is having a negative impact on occupancy levels.
Around 171,500 square metres of new office space entered the market during the quarter, of which 76% is held on a strata title basis. The significant increase in stock, together with uncertainties regarding the management of strata title properties, is causing very low absorption rates for these types of properties.
Lease rates within the emirate’s secondary and tertiary areas vary widely; between AED 320 to 1,600/sqm/annum, with the lowest rates being achieved for strata owned properties and the highest for single title buildings in locations with established facilities and amenities. Only a marginal dip in these rates was noted during Q1 2012, although rates are down 9% year-on-year.
The low lease rates in non-prime locations has led to growing interest from occupiers in the older commercial districts of Dubai (Bur Dubai, Garhoud and Deira). An increasing number of tenants are now moving from these areas to locations offering better quality space and facilities. Traffic congestion and a lack of parking are some of the major reasons cited for the relocation decision.
In aggregate, the villa market experienced positive rental rate growth for the first time since 2008/2009, with average lease rates increasing by 3% quarter-on-quarter. However, rates remained down by around 1% year-on-year.
Rental rate levels for freehold villa properties grew by around 3% in Q1,2012, whilst growth in units in leasehold areas was significantly less, at around 1%.
The highest increase in lease rates took place in the two bedroom sector at 5%, followed by five and six bedroom units which both increased by around 3%.
Areas offering an established community environment, combined with quality amenities and facilities continue to see the most impressive levels of growth and also remain in relatively short supply.
Villa Lease Rates – Q1,2010 to Q1,2012
Developments such as Emirates Living and the Palm Jumeirah have shown positive growth over the last three quarters. Overall lease rates in Emirates Living have increased by 6% year-on-year, with a two bedroom villa in the Springs which was achieving a lease rate of AED70,000 to 85,000/unit/annum in Q1,2011, currently being offered in the range of AED85,000 to 100,000/unit/annum – depending on the location and quality of the villa.
For apartments, the highest increase in Q1,2012, was for one bedroom units, which grew by 2% during the quarter, whilst three bedroom units grew by 1%. Within the emirate’s freehold areas, the highest increase in lease rates took place in the Greens at 7%, followed by Downtown Dubai where rates grew by 6% .
Emerging Residential Locations
Emerging residential locations such as International Media Production Zone, Dubai Sports City, Dubai Silicon Oasis, Dubai Investment Park and Jumeirah Village continue to see deflationary pressures on lease and occupancy rates due to the current lack of facilities, amenities and developed infrastructure.
By the end of Q1,2012, 1,000 residential apartments had been completed at Dubai Sports City (DSC) in both strata title and single owned towers. Of these units, 25% are single owned while 75% are owned on a strata title basis.
Lease rates in DSC range between AED 30,000-36,000/pa and AED 40,000-55,000/pa for one and two bedroom units respectively, unchanged from the previous quarter.
On a year on year basis, apartment lease rates in emerging locations have fallen by around 7%, with low high vacancy rates prevailing.
It is hoped that the positive economic growth forecast for 2012 will provide a stimulus for an improvement in the overall business environment which could have a knock on impact for the commercial office sector in particular. However, with new stock entering the market, lease rates are likely to remain broadly unchanged, with current rents below 2005 levels.
Dubai’s CBD is expected to see further improvement in occupancy levels due to limited new stock, the availability of fitted office space, increasingly competitive lease rates and landlord incentives. Stock in the CBD is expected to grow by around 66,000 square metre during the year, of which around 30% is already committed for occupation.
Secondary and tertiary locations will again struggle in terms of occupancy and lease rates as supply is comfortably exceeding demand in these areas.
The residential sector will see area-specific strengthening of lease, sales and occupancy rates as pipeline supply in developed locations has become increasingly scarce. The market for established villa locations such as Emirates Living, Arabian Ranches and Palm Jumeirah will remain strong during 2012 with limited new inventory expected in these locations. However, new supply will enter from emerging areas such as Jumeirah Park, Al Furjan and Jumeirah Golf Estates, which will result in an expanding villa inventory over the next 12 to 15 months.
CBRE GLOBAL RESEARCH AND CONSULTING
This report was prepared by the CBRE Dubai Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.