Short Supply to Further Lift Prices of Office Space
A shortage in the supply of office space across Dubai will drive up speculative interest in the commercial market, says a new report.
"The practice of investors selling office floors on a piecemeal basis is increasing the speculative intent in the office market," says Colliers International in its Dubai real estate overview of the second quarter of 2008.
Demand for absolute Grade A office space continued to grow as Dubai contractors tried to catch up with the short supply.
"However the delivery delays will actually have the beneficial effect of smoothing out any softening in office market prices and rentals," says the report.
Demand for office space was particularly strong along Dubai's main commercial arteries owing to the robust economic conditions in these areas.
"Limited delivery of new office accommodation has resulted in a continued undersupply precipitating double-digit growth of rental rates year on year, supported by vacancy rates less than two per cent across the market."
Although a significant amount of supply is expected to be released into the market in the next one to two years, the delivery of stock will be uneven rather than measured, according to the report. By 2010, the total office supply is expected to increase to 5.92 million sq m.
Free zone clusters continue to attract blue-chip tenants wishing to base their regional expansion in Dubai, adds the report.
The average asking rent for Class A office space in Dubai is Dh3,230 per sq m and for Class B space it is Dh1,876 per sq m.
The average selling price for Grade A space in Dubai at the end of the quarter was Dh23,680 per sq m while the average selling price of Grade B space was Dh15,080 per sq m.
"Dubai has approximately the same amount of office space under construction as Shanghai with a population of 20 million and Moscow with a population of 10.4 million," says Colliers.
Citigroup's recent Mena equities report says: "Dubai is expanding its office real estate faster than any other larger cities in the world. In fact, Dubai could be on the verge of a looming over-supply owing to irrational build plans from developers in the city."
RESIDENTIAL
High-end residential occupancy rates stood at 98 per cent in Dubai. The asking rent for a high-end two-bedroom residential unit amounted to Dh154,476 per annum while the asking sales price for a two-bedroom high-end apartment was Dh21,000 per sq m, according to Colliers.
Rental yields ranged between 8.5 per cent and 10 per cent during the quarter. The majority of the residential supply in the quarter focused on the high-income segment. Primary tier developers continued to enjoy greater occupancy than second tier developments in select residential areas.
"Residential components within mixed-use master-planned communities tended to have lowered risk as opposed to other residential projects by sub-developers. Residential within master-planned developments spelled more phased out supply of residential units of a more stringent quality standard."
The market demand for the residential sector in the quarter came largely from the middle-income segment in Dubai.
Almost 115,000 new units were expected to be delivered by the end of 2010, says Colliers.
"We expect a stabilisation in the residential market and foresee a shortening in the period of advance rent payment terms from annual to bi-annual, as landlords become increasingly competitive."
Citigroup's report – issued last month – forecasts that residential growth in the Mena region will double in the next 20 years.
It adds: "As Mena markets mature we expect traditionally large family units to subdivide even in the larger indigenous population such as Saudi Arabia and Egypt. In Expat countries such as the UAE and Qatar small young immigrant families are expected to drive the residential growth in the region. Average household size in developed countries ranges from 2 to 3.5 inhabitants per residence and in emerging countries it is 4 to 6.5."
HISPITALITY GROWTH
In the hospitality sector, occupancy levels across the market registered at 84.4 per cent in 2007, rising to 88.7 per cent within the five star hotel segment, says Colliers.
The five-star hotel segment recorded a year-on-year market revenue per available room (RevPAR) growth of 16 per cent with the average RevPAR amounting to Dh1,058. The total number of rooms in 2007 touched 32,617. Guests in the hospitality sector spent 20.5 million nights in Dubai in 2007.
"Expected decreases in market occupancy averages will facilitate the development of mass tourism markets as hoteliers become more competitive."
The report did not see any immediate affect on the hospitality sector from the massive Bawadi hotel development next to Dubailand. The sector will see a shift towards mass tourism with the completion of Dubailand.
The hotel sector in the second quarter saw an increase in the average length of stay in resort hotels to 3.97 days, against a slight decrease in the business hotel average length per stay to 1.29 days.
On the retail front, Colliers says: "Occupancy rates ranged between 98 per cent and 100 per cent in destination shopping malls, with average occupancy levels of over 90 per cent across the market."
More than 70 per cent of the new shopping malls set to enter the Dubai market between 2008 and 2010 is already pre-let. And the report adds: "The retailers remain bullish on Dubai's growth prospects."
Average mall asking rents for line stores were Dh4,418 per sq m per annum. Premium destination malls such as Mall of the Emirates, Ibn Batuta and Burjuman commanded as much as Dh6,620 per sq m.
For new malls that have already been announced anchor tenant rents have commanded an average of Dh497 per sq m per annum. However, the report notes that with forthcoming malls competition could lower average anchor tenant rents to Dh441 per sq m.
"The Mall of the Emirates currently achieves the highest footfall at two million visitors per month followed by City Centre, which recorded 1.5 million visitors per month and Ibn Batuta Mall which recorded just under one million visitors per month."
Dubai is expected to account for 71 per cent of the total UAE gross leasable area (GLA) by 2010 and 24 per cent of the total GLA supply in the GCC region by 2010.
The report warns that small and older malls in the city need to revamp themselves to meet market requirements in order to reduce the impact of sharp vacancy increases and possible pressure on rental rates made likely by market oversupply.
"Short-term market oversupply is expected by end of next year, resulting in a stratification in the market for retail malls in favour of new generation malls."
New and larger malls with strong tenant mixes are expected to maintain current absorption rates owing to strong economic fundamentals, continued brand diversification and the evolution of the shopping resort concept towards greater incorporation of leisure amenities.
"The scale of forthcoming retail supply and increased competition is expected to bring about a softening in rental rates at market level," adds Colliers.
The numbers
98%: was the high-end residential occupancy rates in Dubai, with asking rent for a two-bedroom residential unit amounting to Dh154,476 per annum and asking sales price at Dh21,000 per sq m
115,000: new units were expected to be delivered by the end of 2010 as the market demand for the residential sector came largely from the middle-income segment in the emirate
"The practice of investors selling office floors on a piecemeal basis is increasing the speculative intent in the office market," says Colliers International in its Dubai real estate overview of the second quarter of 2008.
Demand for absolute Grade A office space continued to grow as Dubai contractors tried to catch up with the short supply.
"However the delivery delays will actually have the beneficial effect of smoothing out any softening in office market prices and rentals," says the report.
Demand for office space was particularly strong along Dubai's main commercial arteries owing to the robust economic conditions in these areas.
"Limited delivery of new office accommodation has resulted in a continued undersupply precipitating double-digit growth of rental rates year on year, supported by vacancy rates less than two per cent across the market."
Although a significant amount of supply is expected to be released into the market in the next one to two years, the delivery of stock will be uneven rather than measured, according to the report. By 2010, the total office supply is expected to increase to 5.92 million sq m.
Free zone clusters continue to attract blue-chip tenants wishing to base their regional expansion in Dubai, adds the report.
The average asking rent for Class A office space in Dubai is Dh3,230 per sq m and for Class B space it is Dh1,876 per sq m.
The average selling price for Grade A space in Dubai at the end of the quarter was Dh23,680 per sq m while the average selling price of Grade B space was Dh15,080 per sq m.
"Dubai has approximately the same amount of office space under construction as Shanghai with a population of 20 million and Moscow with a population of 10.4 million," says Colliers.
Citigroup's recent Mena equities report says: "Dubai is expanding its office real estate faster than any other larger cities in the world. In fact, Dubai could be on the verge of a looming over-supply owing to irrational build plans from developers in the city."
RESIDENTIAL
High-end residential occupancy rates stood at 98 per cent in Dubai. The asking rent for a high-end two-bedroom residential unit amounted to Dh154,476 per annum while the asking sales price for a two-bedroom high-end apartment was Dh21,000 per sq m, according to Colliers.
Rental yields ranged between 8.5 per cent and 10 per cent during the quarter. The majority of the residential supply in the quarter focused on the high-income segment. Primary tier developers continued to enjoy greater occupancy than second tier developments in select residential areas.
"Residential components within mixed-use master-planned communities tended to have lowered risk as opposed to other residential projects by sub-developers. Residential within master-planned developments spelled more phased out supply of residential units of a more stringent quality standard."
The market demand for the residential sector in the quarter came largely from the middle-income segment in Dubai.
Almost 115,000 new units were expected to be delivered by the end of 2010, says Colliers.
"We expect a stabilisation in the residential market and foresee a shortening in the period of advance rent payment terms from annual to bi-annual, as landlords become increasingly competitive."
Citigroup's report – issued last month – forecasts that residential growth in the Mena region will double in the next 20 years.
It adds: "As Mena markets mature we expect traditionally large family units to subdivide even in the larger indigenous population such as Saudi Arabia and Egypt. In Expat countries such as the UAE and Qatar small young immigrant families are expected to drive the residential growth in the region. Average household size in developed countries ranges from 2 to 3.5 inhabitants per residence and in emerging countries it is 4 to 6.5."
HISPITALITY GROWTH
In the hospitality sector, occupancy levels across the market registered at 84.4 per cent in 2007, rising to 88.7 per cent within the five star hotel segment, says Colliers.
The five-star hotel segment recorded a year-on-year market revenue per available room (RevPAR) growth of 16 per cent with the average RevPAR amounting to Dh1,058. The total number of rooms in 2007 touched 32,617. Guests in the hospitality sector spent 20.5 million nights in Dubai in 2007.
"Expected decreases in market occupancy averages will facilitate the development of mass tourism markets as hoteliers become more competitive."
The report did not see any immediate affect on the hospitality sector from the massive Bawadi hotel development next to Dubailand. The sector will see a shift towards mass tourism with the completion of Dubailand.
The hotel sector in the second quarter saw an increase in the average length of stay in resort hotels to 3.97 days, against a slight decrease in the business hotel average length per stay to 1.29 days.
On the retail front, Colliers says: "Occupancy rates ranged between 98 per cent and 100 per cent in destination shopping malls, with average occupancy levels of over 90 per cent across the market."
More than 70 per cent of the new shopping malls set to enter the Dubai market between 2008 and 2010 is already pre-let. And the report adds: "The retailers remain bullish on Dubai's growth prospects."
Average mall asking rents for line stores were Dh4,418 per sq m per annum. Premium destination malls such as Mall of the Emirates, Ibn Batuta and Burjuman commanded as much as Dh6,620 per sq m.
For new malls that have already been announced anchor tenant rents have commanded an average of Dh497 per sq m per annum. However, the report notes that with forthcoming malls competition could lower average anchor tenant rents to Dh441 per sq m.
"The Mall of the Emirates currently achieves the highest footfall at two million visitors per month followed by City Centre, which recorded 1.5 million visitors per month and Ibn Batuta Mall which recorded just under one million visitors per month."
Dubai is expected to account for 71 per cent of the total UAE gross leasable area (GLA) by 2010 and 24 per cent of the total GLA supply in the GCC region by 2010.
The report warns that small and older malls in the city need to revamp themselves to meet market requirements in order to reduce the impact of sharp vacancy increases and possible pressure on rental rates made likely by market oversupply.
"Short-term market oversupply is expected by end of next year, resulting in a stratification in the market for retail malls in favour of new generation malls."
New and larger malls with strong tenant mixes are expected to maintain current absorption rates owing to strong economic fundamentals, continued brand diversification and the evolution of the shopping resort concept towards greater incorporation of leisure amenities.
"The scale of forthcoming retail supply and increased competition is expected to bring about a softening in rental rates at market level," adds Colliers.
The numbers
98%: was the high-end residential occupancy rates in Dubai, with asking rent for a two-bedroom residential unit amounting to Dh154,476 per annum and asking sales price at Dh21,000 per sq m
115,000: new units were expected to be delivered by the end of 2010 as the market demand for the residential sector came largely from the middle-income segment in the emirate
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