Looking for the right opportunities

Martin CooperMartin Cooper

The Economist Intelligence Unit (EIU) forecasts real gross domestic product (GDP) growth in the UAE to average 3.6 per cent per year between 2015 and 2019, a decline from 4.6 per cent in 2014. This forecast is largely due to the significant fall in global oil prices, along with wider global economic factors, such as a slowing Chinese economy.

The lifting of sanctions on Iran presents potential opportunities for Dubai this year. The release of capital currently locked in Iran is likely to prompt an influx of investment to safe haven markets, as well as the opportunity for Dubai to act as a gateway for businesses and investors considering Iran.

Market predictions

Following a significant number of project launches last year, the focus this year will be project delivery. While published pipeline forecasts estimate some 40,000 unit deliveries, consultations with key developers suggest that a more realistic number will be approximately 10,000 units.

Last year saw average residential sales prices decline by about 10 per cent, which can be attributed to a number of factors, including exceptional growth in 2013-14, ongoing decline in global oil prices, which has negatively influenced sentiment and demand from the Middle East North Africa, and the relative strength of the US dollar (to which the UAE dirham is pegged) against currencies from key international source markets such as India, the UK and Russia, making Dubai a comparatively more expensive market. Average residential prices are likely to fall further this year reflecting a transition to a more mature market.

While there may be a softening in residential rental prices in some submarkets, this is not likely to the degree of recent declines in residential sales prices. Rental price decline, however, could be exacerbated further if speculative investors, who are unable to sell product at predetermined levels, decide to release units for rent instead.

Hospitality predictions

Occupancy levels at around 70-75 per cent are likely to represent the “new norm” in Dubai’s hospitality market this year, compared with 79 per cent in 2014, largely due to new supply being delivered. This can be viewed as a positive as it will make Dubai a more affordable destination. As operators compete for occupancy, Average Daily Rates (ADRs) will soften, encouraging growth in tourism volumes required to support the investment in tourism infrastructure over the coming years.

Serviced apartments are likely to be considered this year, driven by key source market trends, growing visitor demand for longer stays and better value accommodation. Notably in 2014, Saudi Arabia was the largest hospitality source market with 1.51 million visitors to Dubai, while Iran and China experienced year-on-year growth of 42 per cent and 24 per cent respectively.

With plans to increase capacity at Al-Maktoum International Airport and Dubai International Airport to reach a combined capacity of about 97 million passengers in 2016, there will be opportunities to capitalise on hospitality demand from transit and destination visitor growth and by promoting extended stay over in the emirate, provided appropriate infrastructure, policies and incentives are in place.

With a number of quality office schemes in under-supplied prime areas due for completion late last year and this year, rental growth will probably slow in some submarkets and the power of negotiation will shift from landlords to tenants. Free zones will continue to perform well and maintain high occupancy in the most prime office buildings in Dubai, especially those located close to key transport infrastructure.

Given the shortage of high-quality office space in Dubai, expanding companies will be more amenable to leasing additional space than presently required to accommodate future expansion, with a view to subletting surplus space in the short term. Linked to this, there will be more opportunities for investors and property managers to utilise data analytics and real-time information to optimise lease management, occupancy, revenue and costs across their portfolio.

Retail market predictions

Despite a strong start to the year with 56 million visitors to the Dubai Shopping Festival spending around Dh145 billion, some retailers reported a fall in sales last year. There will likely be a further moderation in retail sales this year against a strong dollar and slowing demand from global source markets such as Russia, China and parts of Europe.

Retail rental growth will be relatively flat this year, with the exception of super prime malls, which will continue to experience strong demand as they benefit from both tourist and resident spending. During the first nine months last year, Emaar Malls Group reported 90 million visitors, equating to 11 per cent growth year-to-date and a 2 per cent increase in tenant sales, compared with the same period in 2014. 


Source: Martin Cooper, Special to Property Weekly PW

The author is Director of Real Estate Advisory at Deloitte


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