Office Market
- ICD Brookfield Place was the most prominent handover of the year, adding nearly 1 million sq. ft. of Grade A office space and bringing the total Dubai office stock to 104.9 million sq. ft as of Q3 2020.
- First-phase expansion is almost entirely limited with most demand coming from downsizing or consolidation activity where tenants are looking for economical options for possible and immediate occupation.
- Most transaction activity is focused in the sub 2,000 sq. ft. size.
- We continue to see a strong trend of old Dubai occupiers migrating to properties located in Business Bay and Sheikh Zayed Road
- A few tenants are looking to upsize, mostly in media, healthcare, IT and technology sectors which have been relatively resistant to the impact of COVID-19 -albeit exploring upsizing options only if there are significant discounts on offer.
- Of the multinational clients that are looking to move, we have seen their global headquarters directing strict budget constraints on new leases.
- We have seen nearly 60% of small spatial occupiers (sub 2,000 sq. ft.) enquire and analyse the market and use this data to renegotiate with current landlords and remain in their present units. Most of these renegotiations are for a one-year term as tenants are deferring decision-making and not wanting to commit to longer terms due to business uncertainty. In other instances where landlords were unable to meet tenants’ expectations resulted in tenants moving out to more economical units.
- We have also seen tenants prefer relocating within the same building or adjoining buildings where possible as they want to minimize the impact on staff. We have seen this trend in both single-owned and strata assets within DIFC, Tecom(DIC/ DMC) and JLT.
- It is interesting to note that while landlords are becoming increasingly flexible, some are only being so if the company is financially strong. This has resulted in some landlords being cautious to offer discounts and a few have asked for credit checks or tenant qualifications on prospective tenants to safeguard themselves.
Residential Market
- Despite the rise in secondary transaction volumes, residential sales prices continue to follow a downward trajectory with almost all areas showing sharp double-digit year-on-year drops.
- Other positive measures include fractional ownership of title deeds for hotels or serviced apartments.
- The most important recent announcement is undoubtedly the retirement visa regulations which are expected to create long-term demand as more resident ex-pats and international buyers choose the UAE to settle down, thus contributing to sustained population growth.
- In the mid to long-term, we expect this regulation to open new real estate asset classes such as retirement communities with integrated healthcare that are prevalent in other mature economies while retirees can also benefit from UAE’s tax-free environment for their retirement funds.
- Sustained price drops have also piqued the interest of opportunistic buyers who are expected to take advantage of ongoing market conditions in this period of reduced liquidity.
- We are also witnessing some tenants who have a long-term view, making a shift from renting to owning as a form of savings plan due to attractive entry points and easy access to finance.
- Therefore, we forecast continued market movement and steady transaction volumes, particularly in secondary homes, as many local and international investors are actively looking for competitively priced assets in the market.
- Faced with a new financial reality, tenants are either looking to find the current (albeit corrected) rental value of their property to help them negotiate rent reductions with their landlords or relocate and reduce their rental outflow.
- While landlords may not completely agree with increasing tenant demands, most landlords are now willing to negotiate lower rents and flexible lease terms upon renewals to retain tenants.
- Rents in apartment districts in general have fallen sharper than villa districts with a higher share of apartment districts witnessing double-digit drops. The weakest performing apartment areas are Dubai Sports City (-20%), Dubailand (-18%), The Greens and The Views (-15%), and JLT (-14%). Villa communities witnessing the sharpest year-on-year declines are Reem-Mira and The Villa in Dubailand (-21%) followed by The Springs and The Meadows (-13%) and Jumeirah Village Circle (-12%).
- With household incomes expected to remain under pressure, we foresee relocations to continue with a majority of tenants remaining price sensitive.
