Dubai Realty: Bringing the Bang Back

by Jones Lang LaSalle | Apr 03, 2014

Market highlights – Q4 2013

The year 2013 saw the recovery of all sectors of the Dubai Real Estate market (residential, retail, hotel, industrial and offices). However, not all sectors performed similarly. While the residential, retail, hotel and industrial sectors witnessed strong and relatively broad-based growth, the recovery of the office sector remains more selective and concentrated in a few prime locations, with high vacancies and significant new supply depressing rental pressure elsewhere.

The Dubai economy ended the year 2013 on a positive note with real GDP growth estimated at 4.7 percent according to the Dubai’s Department of Economic Development (DED). This robust growth is mainly driven by the strong performance of sectors such as retail, transportation, manufacturing, tourism and real estate.

The business outlook of Dubai continues to improve as expectations of better revenues, higher sales and increased profits remain high. The Department of Economic Development’s composite Business Confidence Index (BCI) stood at 141.6 points in Q3-2013, up 17 percent Q-o-Q, with more businesses willing to invest in growth and expansion in coming months.

The real estate investment market in Dubai saw a limited number of transactions in Q4 2013, as most sellers adopted a wait-and-see approach ahead of the results of the Expo 2020 bid. The main buyers in the Dubai market continue to be the Gulf Arabs with an increased interest in land. The office leasing market witnessed more activity in Q4, boosted by seasonal factors as many corporates acted ahead of year end. Prime rents continue to improve as the flight to quality continues to increase demand for the best quality space. Elsewhere, average office rents have remained unchanged with increases in some projects being offset by declines in others.


The residential market ended 2013 on a strong note, with prices increasing 22 percent Y-o-Y on average and rents improving 17 percent Y-o-Y. The recovery has been broad based and evident in prime as well as secondary and more affordable locations. While further growth in rents and prices is anticipated, 2014 is expected to see a slowdown in the unsustainable levels of growth seen in 2013. The retail market registered growth in 2013, with turnover and rents increasing in both primary malls and community based centres. Street shops have been also increasingly popular in select locations within Dubai in 2013. The hotel sector had a very positive year with record tourist arrivals. Despite a number of notable openings, the market registered remarkable occupancy rates (Year-to-Date of 80 percent) and high Average Daily Rates (Year-to-Date reaching $ 241). Securing the Expo 2020 bid is expected to give an additional boost to the sector and lead to further hotel developments in 2014 and beyond. The industrial market registered solid growth in 2013 with a number of infrastructure projects benefiting the sector. Demand continues to shift to newer areas to the south of Dubai, and this is expected to remain the case given the proximity of these areas to the Expo 2020 site.

Talking points – Q4 2013


The Expo 2020 win for Dubai is expected to boost the Dubai economy, which is projected to have an annual average growth of 6.4 percent over the next three years. Dubai recorded real GDP growth of 4.7 percent in H1-2013, the fastest expansion in six years, with a similar rate of growth projected for the second half of the year. The strong performance was supported by the expansion of key sectors such as trade, industry and hotels. Dubai is expected to welcome around 25 million international visitors during the Expo event, while more than $ 8 billion will be spent on new infrastructure. The Expo win will lead to an acceleration of major infrastructure projects near Dubai World Central. Most notably these include the Al Maktoum International Airport and the expansion of the Dubai Metro Purple. Working for the Dubai bid committee, Oxford Economics estimate that securing the Expo will create more than 277,000 job opportunities in the UAE between 2013 and 2021. Most of the new jobs will be within the construction and tourism sectors.


Dubai Roads and Transport Authority (RTA) has awarded a AED 500 million contract to a Turkish company for the construction of Phase 1 of the Water Canal project. The Canal will link Dubai Creek with the Arabian Gulf, passing beneath Sheik Zayed Rd and entering the sea to the South of the Jumeirah Beach Park. Dubai Land Department has launched a new online portal, eMart, for the auction, sale, and rental of properties. The first on-line auction within this platform secured the sale of 17 residential and commercial properties. This initiative highlights Dubai’s commitment to greater transparency and ease of business within the real estate sector. Following the Expo 2020 win, the developers of the world’s tallest commercial tower (located in the DMCC Free Zone Business Park adjacent to the existing JLT) have changed the name of the announced project to Burj 2020. A new decree (Decree N0.41 of 2013) has been issued to expand the holiday homes market in Dubai. The Department of Tourism and Commerce Marketing (DTCM) is established as the responsible entity for licensing and controlling the rental of furnished residences on a short-term (up to 12 months) basis.


DAMAC has raised $ 348 million from its initial public offer (IPO) in London, down from an initial target of $ 500 million. The IPO is the first by a Dubai property developer since the property market crashed in 2008. Dubai Municipality has announced the construction of the AED 120 million Dubai Frame project next to Zabeel Park. The project consists of a 150 feet-high glass bridge with views of old and new Dubai. Emaar is banning the re-selling of off-plan properties until handover. This move is intended to reduce the flipping of off-plan units and hence limit speculative buying. Nakheel has launched more than 500 residential plots within the Al Furjan project. The developer also launched several new projects during Cityscape including a mixed used development in Deira, two beachfront projects on Palm Jumeirah and new hotels at Ibn Battuta, Dragon Mart and Palm Jumeirah. The second tower of the JW Marriott Marquis, the world’s tallest hotel, is set to open in Q1- 2014. The new tower will see the addition of an extra 800 rooms along with further food and beverage options.

Dubai office market overview

The total office stock within areas monitored by JLL at the end of 2013 stood at 7.3 million sq m. The last quarter of the year saw the completions of more than 32,500 sq m of office space, with the Opal Tower and the Oxford Tower, both in Business Bay, being the main completions. The total office space delivered in 2013 stood at 390,000 sq m, 34 percent less than the completions in 2012. Like in the previous years, a number of projects have been delayed at the final completion stage. While there is a total of more than 850,000 sq m of additional office space that could be completed 2014, in reality the supply pipeline is likely to be significantly lower. The CBD (DIFC, Burj Downtown and SZR) currently accounts for around 19 percent of the existing office stock. The fastest growing area is Business Bay, which accounts for almost 50 percent of the future supply expected over the next 3 years.

According to developers, around 1.4 million sq m of additional office space could enter the market by 2016. Eagerly awaited projects include Central Park in DIFC, DTCD at the Dubai World Trade Centre, Jumeirah Business Center 6 in JLT, and the Dubai Design District by TECOM. •Almost half of the proposed upcoming office supply (2014 – 2016) is located in Business Bay, with major completions including Tamani Art Offices, Bay Square by Dubai Properties, Capital Bay and Park Central by DAMAC and Bay View. Other areas proposed to witness significant completions by 2016 include DIFC, and JLT, along with two new emerging areas, the Dubai Design District and Dubai World Central.

The last quarter of the year typically sees a seasonal increase in take-up in the Dubai office market, as tenants seek to close deals ahead of their year end. 2013 was no exception with a significant increase in leasing activity recorded in the final quarter of the year. A continuing trend remains the “flight to quality”, with a number of companies relocating from older buildings and secondary locations towards prime areas and higher quality buildings. Another aspect of this trend has been for companies to consolidate their operations in one location. However there were few examples of this consolidation trend during Q4 2013. Companies continue to focus on optimizing efficiency by redesigning office layouts and accommodating more people in less space. Single ownership buildings continue to account for the majority of demand, while strata projects remain less popular, especially amongst large global companies.

Two aspects of location are becoming increasingly important to occupiers, proximity to a metro station and the availability of car parking. Most of the demand in Business Bay is concentrated on those buildings facing SZR, especially those close to the metro station. Landlords remain more bullish in the most prime locations, being less flexible on rents or willing to offer rent-free periods. Landlords in secondary locations however remain flexible as they continue to struggle to attract tenants. Vacancy rates within the CBD have decreased slightly to 29 percent by year-end with a number of deals closing in the last quarter as corporates sought new space to align with their business strategies. Securing Expo 2020 has had no immediate impact on demand for office space in Dubai. While the office sector is likely to benefit from the overall increase in economic activity generated by winning Expo 2020, it remains unlikely that Expo will generate significant additional for office space in the short term.

Rental performance

There was no significant change in office rents recorded in Q4 2013. While rents increased marginally in some prime buildings, they remained unchanged or dropped slightly elsewhere as landlords competed to attract occupiers seeking to sign deals ahead of their year-end. The positive vibe surrounding the Expo 2020 win did not impact office rents and is unlikely to affect the office market significantly in 2014. The top open-market rent* in the DIFC remained unchanged in Q4 at AED 2,610 per sq m, while it improved marginally (less than 2 percent) to AED 1,850 per sq m elsewhere in the CBD. The average quoting rent across the broader market remained unchanged at AED1,390 per sq m in Q4 2013. The office market in Dubai continues to see a “flight-to-quality”, with the best performing locations being DIFC, Burj Downtown and TECOM A&B. Rental values in secondary locations remain under downward pressure.

This two tier market is also evident within individual locations such as Business bay and JLT. Prime rents (those for the best building) in Business Bay have improved by 21 percent Y-o-Y and 5 percent Q-o-Q. However, not all the commercial buildings in the area have seen such increases. Towers overlooking SZR, in proximity to the metro station and those with single ownership seem to be more popular. Prime rents in JLT remained stable in the last quarter, having witnessed a dramatic 75 percent increase Y-o-Y rise but once again this increase has been limited to the best quality buildings that have been able to capitalise on JLT’s metro access and free zone status. 2014 is expected to see a continuation of the two-tier office market in Dubai, with prime locations improving and secondary areas remaining under downward pressure. The strong supply pipeline will continue to apply a natural break to potential rental growth.

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