Tuesday 11, April 2017 by Georgina Enzer

Real estate market conditions remain soft in Q1 2017

Real estate investment and advisory firm, JLL, has released its Q1 2017 Dubai Real Estate Market Overview report which indicates that while the first quarter of 2017 has seen a further softening in the hotel and retail sectors of the market, there has been little change in the office and residential sectors.

According to the report, there are encouraging signs that the residential sector is currently close to the bottom of its current cycle.

The launch of the new REIT by Emirates NBD, is likely to improve liquidity and enhance flexibility in the real estate market. The report states other REITs are expected to follow this trend over time and with such positive ventures, investors will continue to show interest in a broader portfolio of properties.

In the office sector, vacancy rates currently stand at 14 per cent, highlighting the continued strength of demand for high quality and ‘smart’ buildings. Technological and organisational change are on the rise and are altering workplaces as offices are measured and analysed in more detail. In the last global report ‘workspace reworked’, JLL identified how these changes are giving occupiers, developers and investors strong insight into revaluating their approach in investing in the office sector in the future.

“While we recognise that the MENA region is perhaps not directly at the forefront of revolutionising the workplace, the young, dynamic, innovative nature of the region, especially Dubai, means its real estate markets are likely to implement and adjust to these changes rapidly over the next 20 years,” says Craig Plumb, head of research, MENA, JLL.

“With Dubai’s real estate market showing signs of maturity and the subsequent REITs entering the market, changes are already taking place in other sectors of real estate. The residential market remains a favourite destination of investment among Indian investors and according to recent data released by Dubai Land Department (DLD), there has been AED 12 billion ($3.3 billion) worth of property transactions that have incurred among investors from India. Although the residential market continues to slow down, this figure highlights the potential the sector has in terms of growth in the future,” he added.

F&B is an important sector of the Dubai market Q1 saw the opening of the second ‘Last Exit’ at Al Qudra lakes, a popular weekend hub for residents. This venture is testament to the fact that the retail sector is gearing towards the F&B market and with such initiatives, these food hubs have increased diversity to residents and tourists visiting the city.

The government in Dubai has eased visa requirements, to help achieve its 20 million target by 2020. With visas now being granted upon arrival for Chinese visitors, a surge in visitors from China is expected to be experienced during 2017.

Office: Supply

The Greens area dominated new supply, with the two Onyx towers adding 66,000 square metres of Gross Leasable Area (GLA) to the market during the first quarter of 2017. These strata titled buildings are the first completions of new office space in this location since 2006. The pipeline for the remainder of the year remains relatively active, with approximately 235,000 square metres of GLA expected to enter the market.  JLT contributes the largest share of this total, adding 60,000 square metres of GLA during the second quarter of the year, with only 15 per cent of completions in the CBD (where the major addition in 2017 will be further space in the One Central project).


With more tenants looking to consolidate to cheaper locations, the outlook for the office sector in Dubai remains muted. Despite the limited new demand, vacancy rates in the CBD started to decline in Q4 2014, and have continuously marked downfalls since then (currently standing at 14 per cent). This highlights the strength of demand for high quality buildings, in line with the global demand for ‘smart’ buildings identified in JLL’s recently released report ‘Workspace Reworked’. Dubai has long been characterised as a city, which follows trends of innovation, with the office sector being no exception. As the demand for ‘smart’ offices increases, tenants will increasingly seek space in these buildings (ICD Brookfield being an example, which will enter the market in 2019) and thus, we believe it’s the quality buildings which will continue to do well.

Retail: Supply

There were no retail completions in Dubai during the first quarter of 2017, with Q2 2015 being the last time the market witnessed additions. The total retail supply currently stands at 3.4 million square metres of GLA.  Future supply is expected to grow by more than 20 per cent by 2020, which is slightly ahead of the growth over the past three years (17 per cent). There are also a number of ‘Super Regional’ malls, such as Deira Mall and Meydan One Mall currently scheduled to complete in 2020. As the retail market slows, some of these major projects may however be scaled back or delayed.  


Despite anecdotal evidence, which suggests that the retail market is currently under pressure in Dubai, rents have remained largely unchanged on both a quarter-on-quarter and on year-on-year basis. From discussions with industry players, we understand that most renewals and new leases did not achieve any increase in retail rents, although developers were asking for these. This suggests that the market is currently in favour of tenants.  The number of units able to achieve the same level of rentals has also declined over the past six months, further disguising the effective softening in rentals.

The slowdown in the rate of economic growth and the strength of the USD are the major drivers behind weakening retail sentiment. We believe that the long-term picture is more positive. Dubai currently stands at the forefront of entertainment offerings by global comparisons, from shopping malls, to entertainment parks, and cultural as well as theatrical amusements.  

Hotel: Supply

The first quarter added 1,100 keys to the market, taking the total to 79,000 keys. Lapita (503 keys) and Rove Healthcare City (286 keys) contributed to the additional supply which entered the market during the quarter. Further expected completions this year include the renovation of The Address Downtown (196 rooms and 625 branded residences units) and the Viceroy on the Palm (477 rooms). The five star segment is expected to dominate the completions during this year, contributing more than 50 per cent of total completions, with three star hotels still lagging at just 12 per cent. This suggests that although Dubai is diversifying its product mix, it remains largely concentrated towards higher tier market offerings. 


Q1 saw a continuation of the same trends seen last year, with strong occupancies but falling ADR’s.  The first two months are usually among the strongest of the year (supported by Dubai’s annual shopping festival and the pleasant weather conditions) and Dubai hotels have again benefited from strong occupancies in the Year to Feb (up from 83 per cent in 2016 to 86 per cent this year). Occupancies have however been achieved at the cost of a marginal fall in ADRs  (that fell almost five per cent from $233 in 2016 to $221 for the first two months of 2017) increased slightly to USD 221. Increased competition with the opening of several properties in the last few months and pressure on companies’ travel budgets are among the factors driving down ADR levels.

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