Up, Up, & Away

Up, Up, & Away

Over the past year, the Dubai real estate market has shown real signs of real recovery. Figures for 2Q2013 marked the first time since the 2008 crisis that the sector had experienced growth for four consecutive quarters. Investors are beginning to have confidence in the Emirate again, evidenced by the fact that new projects are being announced, while ones that had been put on hold are making fresh progress. The most significant project to be announced is Sheikh Mohammed Bin Rashid (MBR) City. It is reported that the city will host over 100 hotels when complete, with an open green space area 30% larger than that of London’s Hyde Park. Emaar Properties was one of the first companies to get on board the project, and announced that it will build Dubai Hills within MBR City. The new development by Emaar will cover 11 million sqm of land and consist of luxury villas attached to an 18-hole golf course. Emaar Properties also experienced an impressive start to the year by posting a total revenue take of $1.42 billion for the first six months of 2013, which represented a 33% increase on the same period for the year before. Despite this large increase, net profit only slightly rose by $3 million to $334 million. During the same time frame, Emaar Properties handed over 36,000 residential units, including 20,900 apartments and 15,700 villas, globally. It also completed 1.3 million sqm of commercial space, of which 690,000 sqm was in international markets.

RESIDENTIAL

At the end of the 1Q2013, Dubai had a total residential stock of 357,000 units. Within the next two years, a further 42,000 units are planned for completion, which will represent roughly an 11% increase on current stock levels. The majority of those units planned, some 28,000 dwellings, are likely to be finished by the end of 2013; however, demand will dictate over the next couple of years if all the units are finished on time. The Dubai residential property sales index indicated an increase of 4.1 points in June 2013 from 212.5 to 216.6 compared to the month before. When comparing this figure to the year before, Dubai has witnessed a 16.3% increase. Apartment sales prices have also registered a rise of 18.31% compared to 2012, while villa sale prices increased 9.86%. It is not just sale prices that have been on the up, residential rental prices have also shown an improvement. In June 2013, the price index had reached 82.4, a 13.3% increase on the same period the of year before. Apartments registered an increase of 12.96%, moving up to 78.1 points, while villas increased 14.46% to 109.8 points. The main area of growth has been in luxury and first-class residential units, most notably in areas such as Burj Downtown, Dubai Marina, and Palm Jumeirah. Prices for secondary and less-developed or incomplete areas have remained steady.

COMMERCIAL

As of the end of 1Q2013, Dubai had around 7 million sqm of office space available. Demand for space remains high, and, by the end of 2013, a further 1 million sqm could enter the market. In 1Q2013, a large percentage of this new offering will be located in the Business Bay area of Dubai, while the Dubai International Financial Centre (DIFC) and Dubai World Central (DWC) will also play host to a significant amount of new offerings. As confidence slowly returns to the market, once abandoned projects have started to experience a new lease on life, such as the Central Park project in the DIFC and the Dubai World Trade Centre District. However, in locations such as Business Bay, there is the potential for oversupply, meaning prospective new stock may be converted into residential units instead to avert this issue. There is also a movement toward the various free zones situated around the Emirate. Currently, 47% of all office space is located in free zones. This is largely due to the tax incentives businesses can take advantage of when situated in these areas. The vast majority of activity for office space remains focused on A-Class buildings in the top-quality locations, as businesses continue to move from the old areas of Dubai to the new, known as a “flight for quality.” This means that the older areas of the city are becoming increasingly more vacant, while places such as Jebel Ali are beginning to fill up. Demand for office space remains high, with Jones Lang LaSalle predicting a further 190,000 sqm is required to meet current demand. Vacancy rates, however, remained at 31% in 1Q2013, as new supply and the “flight for quality” cancelled each other out. In the coming years, it is expected that the vacancy rate will fall as demand continues to increase but new supply slows. Although it may appear as if some buildings are empty in the newer areas, many spaces have been committed to but remain physically empty for the time being. A good example of this is the Boulevard Plaza by Emaar in the Downtown area, which has 30% of its office space physically empty; however, it is not available on the market, as it has already been spoken for.

There is also a shift in the type of office space companies are demanding. More and more businesses are aiming for optimization after the lessons learned during the crisis. Generally, global corporations aim for 7-to-8 sqm per person, yet, in Dubai, often the best that can be achieved is 9-or-10 sqm per person. More cash-rich corporations are now considering either a new fit out of existing office space or a complete refurbishment instead. In 1Q2013, the average rental price for A-Class office space has remained largely unchanged for the last couple of years at AED2,370 per sqm in places such as the DIFC and AED1,690 elsewhere. This represents a 4% increase on 4Q2012.

INDUSTRIAL

The growth of the transport and logistics sectors in Dubai has really helped boost the industrial sector. The sector has been historically much less likely to suffer from the oversupply issue that the commercial and residential segments have faced in Dubai. This leads experts to believe that industrial real estate will be one of the best performing sectors in the medium term. As of 1Q2013, the total industrial stock stood at 66 million sqm of built space, which represents 20% of total industrial land. At the moment, Jebel Ali Free Zone Area (JAFZA) North is the largest stock with 45 million sqm, but Dubai Industrial City (DI) will be the largest once it is completed, at 55 million sqm. It is likely that in the future, as the volume of goods passing through Jebel Ali Port and the new Al Maktoum Airport continues to rise, demand for warehousing and logistical space will increase dramatically. At the moment, the majority of purchases and enquiries are from current players in the market looking to expand; however, as the global economy continues to improve, new entrants to the market will drive demand. Largely, the market remains located in the older traditional industrial areas of the city; however, as more modern and well-connected industrial parks and cities come online, a geographic shift will be seen. These new developments have quality infrastructure and are close to major transport links such as ports and roads, in addition to better quality buildings and facilities. The free zones are capitalizing on their proximity to major ports, such as the JAFZA North and Jebel Ali Port, while non-free zones still experiencing increased demand, such as DI and Dubai Industrial Park (DIP). DI experienced an 80% growth in registered companies over 2012, bringing the number of companies it hosts to 471, up from 259 in 2011. JAFZA also experienced 26% growth over the same period, bringing its total to 6,900 companies. The Dubai Airport Free Zone Area (DAFZA) registered a 26% increase in revenues, 37% growth in the number of construction and engineering companies in the area, and a 25% increase in the number of UK-registered companies entering the zone. These increases bring the total number of companies registered in DAFZA to 1,600.