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October 10, 2016 | 12:20 | Dubai
JLL released its Q3 2016 Dubai Real Estate Market Overview report which reveals how demand has shifted towards smaller deals in the Dubai office market as occupiers respond to more challenging market conditions. At the same time, there were relatively few large transactions for office space agreed during Q3.
“This reflects occupiers’ caution in the face of more challenging economic conditions in both Dubai and across the broader region,” said Craig Plumb, Head of Research, JLL MENA. “While there remains strong demand for smaller units, it is taking far longer to negotiate larger deals as companies remain uncertain about their staffing and space requirements.”
SECTOR SUMMARY HIGHLIGHTS – DUBAI:
Office: The third quarter saw the delivery of 51,000 square meter of office Gross Leasable Area (GLA), 64% being single-owned projects in TECOM, with the remaining 36% being strata titled space in Business Bay, which has been the most active precinct for completions so far in 2016.
Looking ahead, an additional 152,000 square meter of Gross Leasable Area (GLA) is scheduled to be delivered in Q4, almost three times that delivered during Q3. Business Bay continues to be the focus for completions, with projects also expected to complete in Silicon Oasis, the Greens and TECOM.
The demand for small units is currently strong in the market and this trend is expected to continue.
Residential: The completion of 5,400 residential units during Q3 2016 marks the highest quarterly completion since Q4 2012 (when approximately 6,200 units came into the market).
The supply pipeline remains active, with a further 11 thousand units scheduled to enter the market in Q4 2016, although not all of these projects are likely to be delivered on schedule.
Retail: The third quarter saw the delivery of two retail projects with a total Gross Leasable Area (GLA) of 28,000 square meter, the majority (25,000 square meter) of which is the Outlet Village.
A further three projects (with a total of 20,000 square meter) are scheduled to complete in Q4. These centres will be located in Al Furjan, Al Badrah and International Media Production Zone (IMPZ).
Hotel: A total of 5,500 hotel rooms have entered the market since the beginning of the year, indicating the continued momentum in Dubai’s hospitality and tourism sector.
Hotels performance in Dubai remained under pressure over the third quarter of 2016 due to the combination of low oil prices (affecting business travel) and the strong US Dollar (reducing demand from many traditional leisure source markets). The relatively diversified spread of source markets and the growth of demand from new markets (especially in Asia), helped minimize the impact on occupancy rates which remained almost stable at around 76% over the YT August. Average daily rates were more strongly impacted, with a 11% decrease to USD 191.
While a further decline in room rates and yields can be expected over the short term, the medium term outlook for the market remains positive due to the heavy government investment in expanding the cities tourism infrastructure.