As the market gears up for Expo 2020, Q1 2019 saw multiple projects being re-commenced in the commercial sector and the highest number of deliveries in a single quarter for a number of years in the residential sector. The performance of the office market remained soft with average rental rates continuing to face downward pressure. The residential market softened further with declines registered in both sale prices and rents during Q1 2019.
The retail market remains the most challenged sector due to the growth of e-commerce and the high level of future supply, which continues to exert downward pressure on rental rates across all mall types. While occupancy rates across Dubai's hotels remained relatively stable at 85% in the year-to-February 2019, average daily room rates and revenue per available room continued to decrease on the back of increased supply.
Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL
Around 9,800 units were completed in the first quarter of 2019, which is the highest number of units handed over in a single quarter for the last few years. Major projects completed included Al Khail Heights, Bluewaters Island and Arabella Townhouses in Mudon, bringing the total residential stock to 530,000.
There are more than 50,000 units currently under construction and expected to be delivered by the end of 2019. Looking ahead, residential supply is expected to reach 652,000 by the end of 2021. Major future projects include, Seven City in JLT, Azizi Riviera in Meydan and Al Habtoor City. We remain cautious that all of these projects will be delivered on time, with delays expected in some big developments. Responding to signs of an increasing oversupply many developers have slowed down their launches and have changed their focus, to sell unsold product and complete construction of their existing inventory.
Sale prices and rentals continued to decrease over the quarter for both apartments and villas. Sale prices for apartments declined by 10% and rents by 12%, when compared to the same period last year. Similarly, sale prices for villas declined by 9% and rents by 5%, when compared to the same period last year. With supply exceeding demand, we expect sale prices and rents to continue to face downward pressure in 2019.
New technologies are being introduced in the real estate sector in response to the government’s call to switch to paperless transactions. Dubai Asset Management is one of the first major developers to respond by rolling out Phase I of its “fully digital and paperless property programme”. Undertaken in partnership with Smart Dubai, this initiative allows potential tenants to complete most (but not all) steps involved in a new lease online.