Government supply regulation initiatives to support Dubai’s real estate market in year of Expo
There is a continued push for residential developments to be completed before the start of Expo 2020
Dubai government initiatives, including the formation of a new real estate committee to regulate and control future supply, are expected to support the emirate’s residential sector, said a new report.
There is a continued push for residential developments to be completed before the start of Expo 2020, according to fresh data from global real estate consultancy firm CBRE. These initiatives include rent-to-own programmes, waived completion fees and new residential “co-living” schemes.
Figures from CBRE demonstrate that existing supply at the end of H2 2019 stood at 608,500 units in the emirate, with an additional 127,000 units expected to be delivered by 2023. The sales price of an apartment in Dubai at the end of H2 2019 was between AED 480 and 1,950 per sq ft, while a villa could be purchased for AED 640 – 2300 per sq ft.
The positive effects of Expo 2020 on the real estate market are expected to be felt strongly within the hospitality sector.
Occupancy levels are anticipated to increase in line with a growth in visitor numbers as a result of Expo 2020. To further stimulate the tourism industry, the government has decreased municipality fees and licensing fees which has had an immediate uplifting effect on hotel occupancy.
CBRE reports that the sector experienced the entry of several lifestyle and boutique hotel operators into the market in H2 2019, while increased competition further drove refurbishment, rebranding and repositioning amongst ageing properties.
Rise in ‘flexible’ spaces
Another key trend which emerged in H2 2019 was a greater focus on creating larger common areas and blending of different uses within hotels, such as co-working space.
According to CBRE’s Market View, the average occupancy rate in Dubai hotels was 74%-76% in the second half of 2019, remaining stable from the same period in 2018.
Supply stood at 122,180 keys in H2 2019, with 4,500 keys expected to enter the market by 2023.
Co-working and flexible office working structures have continued to disrupt the global office markets, and are expected to influence Dubai’s office leasing market, according to CBRE.
The report also reveals an increased penetration of serviced and micro-offices in 2019, with a move towards more open-plan spaces and fit-outs that support wellness in the workplace.
Last year witnessed the introduction of enhanced licensing options for businesses such as the “One Free Zone Passport” and Dual Licensing. Such initiatives will be especially important as Expo 2020 approaches.
According to figures by CBRE, there was 107,000,000 sq ft of gross leasable area (GLA) in existence in Dubai’s office market in H2 2019, with a further 6,000,000 sq ft of GLA expected to be delivered by 2023.
Office rental rates in the central business district stood at AED 115-180 per sq ft per annum in the second half of 2019. Meanwhile, the secondary office rental rates came in at an average of AED 85 -165 per sq ft per annum in 2019.
Softer performance for retail
According to CBRE, older and smaller secondary retail centres witnessed softer performance figures in the second half of 2019, creating a two-tiered market within the emirate’s retail sector.
The growth of e-commerce has prompted retailers to extend sale activity from physical space to online platforms, in line with the global shift in consumer behaviour trends.
This in turn has stimulated the logistics and warehousing sectors as retailers increasingly look to e-commerce to boost sales. Dubai’s retail sector is also experiencing increased investments in innovation. Technologies such as customer tracking tools can be used to enhance shoppers’ in-store experience thus promoting loyalty and increasing customer satisfaction.
Increasing the average time that shoppers spend in the mall has also been a key objective of landlords; this has led to a growing focus on improving F&B, entertainment, edutainment and wellness facilities within malls.
In order to further stimulate the sector, landlords are introducing initiatives such as rent-free periods, and capital expenditure to attract anchor tenants.
The retail sector continues to experience a strong source of supply, with 53 million sq ft of GLA in existence in H2 2019 and a further 21 million sq ft expected to enter the market by 2023.
Simon Townsend, head of strategic advisory at CBRE MENAT said: “The year of Expo represents yet another important milestone for Dubai’s real estate sector. There have been concerns around supply in recent years, however a number of promising initiatives will certainly boost the market sentiment, across all major segments, by regulating supply and promoting collaboration between all key stakeholders in the industry.”
He added: “Performance remains soft in sectors such as retail, but the innovative spirit of government, developers and landlords will play a key role in driving growth.”