Despite headwinds, opportunities exist in Dubai’s real estate market in 2016

20 January 2016 - Deloitte Corporate Finance Limited has published its second annual Real Estate Predictions Report for Dubai, which provides an economic overview and review of Dubai’s residential, hospitality, office and retail markets in 2015.  The report also examines the latest trends and developments and what lies ahead for 2016.  The report reveals that despite headwinds, Dubai’s real estate market offers some potentially good prospects in 2016.

“Over the past 13 years Dubai has experienced development on a scale and to a standard like no other real estate market globally. Along with other regional and international markets it has suffered the effects of the global financial crisis,” explains Robin Williamson, managing director, Deloitte Corporate Finance Limited (regulated by the Dubai Financial Services Authority). “Today, it is now maturing and feeling the effects of various market drivers whilst demonstrating strong resilience in certain sectors.”

Deloitte’s predictions on Dubai’s residential market performance for 2016:

• Whilst published pipeline forecasts estimate that some 40,000 units will get delivered in 2016, consultations with key developers suggest that a more realistic number will be approximately 10,000 units
• 2015 saw average residential sales prices across Dubai decline by approximately 10% and in 2016,  so it is predicted that average residential prices will decrease further, reflecting a transition to a more mature market
• Whilst there may be a softening in residential rental prices in some submarkets, this softening won’t be to the same degree of recent declines in residential sales prices

Deloitte’s predictions on Dubai’s hospitality market performance for 2016:

• Occupancy levels at around 70% to 75% are likely to represent the “new norm” in Dubai’s hospitality market in 2016, compared to 77.5% in 2015
• As operators compete for occupancy, it is expected that Average Daily Rates will soften further, which should encourage growth in visitor volumes required to support the investment in tourism infrastructure
•  Serviced apartments are likely to be an area of focus in 2016, driven by key source market trends, growing visitor demand for longer average lengths of stay and better value accommodation
• Planned capacity increase at Dubai’s Airports to approximately 97 million in 2016 will present more opportunities to capitalize on hospitality demand from transit and destination visitor growth

Deloitte’s predictions on Dubai’s office market performance for 2016:

• Office rental growth will be slow in some submarkets as a result of supply growth and the power of negotiation will, in general, shift from landlords to tenants in 2016
• There will be a trend towards more mixed use office led developments and a greater allocation of space to amenities, which will enable schemes to differentiate against competition as well as a strategy for developers to diversify risk and generate more robust cash flows
• Given the shortage of high quality office space in Dubai, some companies will be more amenable to leasing additional space than is required at present in order to  accommodate future expansion, with a view to subletting surplus space in the short term

Deloitte’s predictions on Dubai’s retail market performance for 2016:

• There will be a further moderation in retail sales growth in 2016 against a strong dollar and slowing demand from international source markets such as Russia, China and parts of Europe
• Retail rental growth will be relatively flat in 2016, with the exception of super prime malls, and some secondary malls will need to incentivize the major retail groups to retain brands
• The Food and Beverage (“F&B”) retail will go from strength to strength in 2016 driven by greater brand penetration and expansion, and it is envisaged that there will be good prospects for fashion retail following the successful completion of the initial phase of D3 Design District

“Despite the decline in average residential sales prices in Dubai during 2015, price growth over the last four years reflects a compound annual growth rate of 11.6%, which outperforms other leading global cities such as London, Paris and Singapore,” concludes Williamson.

Download the full report here: http://bit.ly/1PdJRDD

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About Deloitte & Touche (M.E.):

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Deloitte provides audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with more than 3,300 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International Tax Review World Tax Rankings). It has also received numerous awards in the last few years which include best employer in the Middle East, best consulting firm, the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW), as well as the best CSR integrated organization.