JLL, the world's leading real estate investment and advisory firm, today released its annual review of the UAE Real Estate Market for 2016, assessing the latest trends in the office, residential, retail and hotel sectors.
2016 saw a general softening in the UAE real estate sector.
While the Dubai residential market is now close to bottom of its cycle, 2017 is likely to bring additional challenges in other sectors of the market.
The year 2016 will be remembered for the short-term challenges of adjusting to the "new normal" of lower oil revenues which impacted the United Arab Emirates' (UAE) economy and its real estate sector, according to JLL's '2016 Year in Review' report.
The UAE's GDP growth declined from 4.5% in 2015 to just 2.3% in 2016 and employment growth levels remained relatively unchanged at 1.5%, as companies consolidated their operations, particularly in the oil and banking sectors.
However, according to the report which looks at the UAE's real estate market, the medium-term picture for the UAE economy is more positive.
"The real estate market in the two largest emirates of Dubai and Abu Dhabi reflect their relative economic strengths," said Craig Plumb, Head of Research at JLL MENA.
"The greater diversification of the Dubai economy and the earlier downturn of real estate prices from mid-2014 means the Dubai residential market is now poised closer to its cyclical trough, while prices may fall further in Abu Dhabi".
" As the regional economic situation improves, an increase in GCC tourism is expected to contribute to the recovery of the hospitality and retail sectors, reflecting positively on the UAE real estate market as a whole".
The report also highlights that Dubai is benefiting from increased spending on real estate projects in the lead up to the Expo 2020. Data from MEED projects suggests new construction tenders across the UAE could increase by more than 95 percent Y-o-Y in 2017, with the majority of this additional spending on projects in Dubai. While not all of these projects are likely to materialise, spending levels are likely to increase on their 2016 levels, which were themselves higher than 2015.
UAE Office Market Summary
UAE Office Market Summary
The Dubai office market saw the delivery of 129,000 sq m of GLA in 2016, bringing the total stock to 8.55 million sq m. The majority of these completions were in Business Bay (56%) and TECOM A & B (32%). Notable completions were Westbury Square and B2B Office Tower in Business Bay, as well as The Butterfly in Dubai Media City. Approximately 10,300 sq m of office space was completed in Q4 2016, including The Edge in Dubai Internet City. 2017 is expected to witness the completion of approximately 300,000 sq m of office space, with 30% of the expected supply in Business Bay, 22% in the Greens (Onyx Towers) and 20% in JLT (Amesco Tower), highlighting a shift away from the CBD to other areas in the city.
The Abu Dhabi office market saw the completion of 214,000 sq m of GLA in 2016, bringing the total stock to 3.5 million sq m. Most of the completions occurred in the first half of the year, on Abu Dhabi Island, such as Bloom Central and the ADNOC HQ. Maryah Tower and the new FGB HQ were also completed in 2016. A further 210,000 sq m of GLA is expected to enter the market in 2017, dominated by the delivery of ADIB on Airport Road, as well as Leaf and Omega towers on Reem Island.
Craig Plumb, Head of Research at JLL MENA, said: "While rents have been upheld, this is partly due to limited level of new supply, as demand and net absorption levels have declined in comparison to previous years, partly due to consolidations in the oil sector. In Dubai, vacancy levels in the CBD have fallen, ending the year at 15%, but once again this reflects low levels of completions rather than strong tenant demand. There is increased construction in areas such as Business Bay and Silicon Oasis, historically seen as secondary locations."
UAE Residential Market Summary
A total of 14,600 residential units entered the Dubai residential market in 2016, the highest level since 2012 (of 16,000 units). Contributing to the volume of completions were 1,500 villas for Emirates staff in Meydan and 690 units in Wasl Oasis II in Muhaisnah. The last quarter witnessed the completion of more than 1,000 Mira townhouses in Reem Community by Emaar and 1,200 apartment units in City Walk Phase 1 by Meraas. There are 31,000 units scheduled for completion in 2017. Dubai South is gaining prominence, with 550 units slated for completion in 2017 and another 10,000 units announced and in the pipeline.
Abu Dhabi saw fewer completions than its neighbouring emirate, with 3,100 residential units completed during 2016, bringing the total stock to 248,000 units. In Q4 2016, 700 units entered the market (mainly the Marina Bay One and Marina Bay Two towers on Reem Island). Looking ahead, we expect completions in 2017 along the Corniche, Al Raha Beach, Al Reem and Saadiyat Islands, adding approximately 5,000 units. While other projects are currently scheduled, these are not all considered likely to complete in 2017
Prices and rentals have been declining for longer in Dubai than in Abu Dhabi, where the market tends to lag that in Dubai by 12 – 18 months. While the Dubai is now positioned close to the bottom of its current cycle, further declines in performance could be experienced in Abu Dhabi during 2017.
UAE Retail Market Summary
About 260,000 sq m of retail space was completed in Dubai in 2016, the highest volume since 2010. Q4 saw the completion of about 20,000 sq m of retail space in the Dubai Festival City expansion. Other notable completions throughout the year were Phase 2 of The Avenue in City Walk (130,000 sq m), and the Ibn Battuta Mall Phase II (17,000 sq m).
In Abu Dhabi, no major completions occurred throughout 2016, with total stock remaining at about 2.6 million sq m. Approximately 85,000 sq m of retail space is scheduled for completion in 2017, mostly within residential communities or towers.
Craig Plumb, Head of Research at JLL MENA, said: "Despite a number of retailers reporting a decline of sales during 2016, average retail rents remained unchanged in the primary malls of Dubai and Abu Dhabi."
"As no major malls are scheduled for completion in Abu Dhabi during 2017, rental performance is unlikely to change significantly, although retail sales performance will remain under pressure. In Dubai, retail rents are expected to remain stable in prime malls, but could soften in secondary locations as new supply enters the market."
UAE Hotel Market Summary
Dubai's hotel market witnessed the completion of approximately 7,000 rooms in 2016, bringing the total hotel stock to 79,000 keys. Q4 saw the delivery of Jumeirah al Naseem, with 430 rooms, the Premier Inn Ibn Battuta, with 372 rooms, and Nikki Beach Resort with 117 keys. Other major completions in Dubai in 2016 were the W in Al Habtoor City, the Four Seasons DIFC, and the Hilton Garden Inn Dubai near the Mall of the Emirates. About 14,000 keys are currently scheduled to be handed over in 2017, but these are unlikely to all materialize in time.
Abu Dhabi saw the introduction of about 1,000 hotel keys throughout 2016, bringing total hotel supply to 21,400 keys. Q4 saw the completion of 422 rooms in Millennium Bab el Qasr, adjacent to Etihad Towers. Other significant completions in 2016 were the Four Seasons, with 190 rooms and 125 serviced apartments, the Marriott Downtown, with 315 rooms, and the Marriott Executive apartments Downtown, with 64 units. About 2,000 hotel keys are expected to be handed over in 2017. Abu Dhabi's hospitality sector has suffered from a reduction in corporate demand, driven by the decline in oil prices, reduced government spending and corporate consolidation. This has, however, partly been offset by increased leisure demand, driven by the government's major initiatives to diversify towards leisure tourism.
2017 and Beyond – opportunities and risks
JLL's annual review of the UAE real estate market also addresses key opportunities and risks which could impact the future performance of the market.
Opportunities in alternative real estate asset classes such as education could lead the way with an increased number of real estate investors, developers and builders seeking to diversify their portfolios.
The continued appreciation of the USD, increases in the overall cost of living in the UAE and further mergers and consolidations in the government sector are among the major risks and challenges identified for 2017.
UAE Construction Costs.
In a new addition to its annual review, JLL provides estimates of average construction costs for different sectors of the real estate market. Tender price inflation in 2017, is expected to be relatively limited (at around 2.0%), which is below the forecast increase in inflation (CPI).
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