Where Is The Dubai Property Market Heading?
Dubai property marketWhile the Dubai property market has seen a softening in prices and, to a lesser extent rents, over the past two years; in recent months prices have been flatlining.
Year on Year (YoY) residential prices (comparing Q1 2016 with Q1 2015) dropped 10% while rents are down 5%. It appears now that the Dubai residential market is approaching the bottom of its cycle. Rental yields are now at level which is making the market really attractive for investors. Average yields for apartments are now 8% while for smaller units yields can be as high as 10%.
New residential projects will add to the number of properties available in the years to come. The Dubai Canal Project has shown strong interest. A good example is the project of Dubai Holding called Marasj Business Bay with planned homes and shops along the under-construction Dubai canal. The project is planned to be completed by 2023. Projects in the affordable residential sector are announced as well such as Dubai Properties’ new Serana Project. And, Emaar announced this month that it aims to build another tallest tower in the world re-taking the title for Dubai from Saudi Arabia, which is expected to complete Jeddah Tower in 2018.
Dubai office space increased with approximately 138K sq m in 2015. Office space in prime areas such as Dubai’s central business district has seen strong demand and hence the vacancy rate has dropped from 23% to 17% YoY, while rents have shown a slight increase with 3% in these areas. An additional 270K and 370K sq m of offices space is scheduled to be delivered in 2016 and 2017 respectively. Clearly investors are expecting that Dubai will remain an attractive hub in the years to come to set up office. Aside from the well-known, constant, factors that make Dubai attractive for companies to operate out of, the opening of the Iranian market is expected to be a reasons for multinational companies to set up in Dubai as the seeking to do business in Iran use Dubai as a hub for operations.
Vacancies of retail space have stayed at 8% YoY and rents have remained stable. Tourism is an important pillar of Dubai’s economy. Dubai attracted 14.2 million tourists during 2015. This is expected to rise further, with the government targeting 20 million tourists by the year 2020. Obviously if the growth materializes this is positive for the retail market.
Hotel occupancy has remained high. Occupancy dropped just 2% to 84% YoY. Increasing competition between hotels and the strong USD, to which the UAE dirham is tied, has resulted in hotel room rates which are down 13% YoY.
All in all the Dubai property market is becoming a more mature market, with reasonable price fluctuations. However yields are currently much better then one would be able to expect in more mature markets. Continued development in all sectors shows that investors are confident that Dubai will for the years to come be an attractive place to do business out of and live.
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