Oil crash, dollar gains hit UAE real estate

|By Arabian Post Staff| The decline in investor sentiment driven by lower oil prices and a slowdown in government spending, as well as regional geopolitical unrest have affected the UAE’s residential market, real estate investment and advisory firm JLL said in its annual review for 2015.

The gaining strength of the dollar, which is making UAE real estate more expensive for overseas investors, also contributed to the problem.

In Dubai, data from the Land Department reveals falls of 33% and 28% in the volume and value of transactions respectively in the YT November 2015, compared with same period in 2014. This comes as rents and sales prices dropped 2% and 11% respectively in the YT November according to the REIDIN General Index.

Rents have performed better than sale prices in all sectors of the residential market in 2015, increasing rental yields and the future attractiveness of the sector. With average rentals declining in the Dubai market, 2015 has seen a widening of the gap between residential rents in Abu Dhabi and Dubai.

The report noted that real estate performance during 2015 remained largely stable as developers adjusted to lower oil prices, reduced government spending and a significantly slower rate of economic growth than in recent years by reducing levels of new supply.

Across the two cities of Dubai and Abu Dhabi, just 8,000 residential units were completed in 2015, less than half the number completed in 2014, as developers responded to more subdued market conditions and tightened liquidity, a trend likely to continue into 2016.

Craig Plumb, Head of Research at JLL MENA, said: “Following a rapid increase of residential rents and prices between 2012 and 2014, the market has now clearly stabilised, with sales prices falling in Dubai and remaining stable in Abu Dhabi during 2015 – but with a significant decline in transaction volumes in both markets. Prices softened by around 11% in 2015 according to RERA in the Dubai residential market and are expected to decline further over the next 6 months.”

A slowdown in the pace of economic growth has also affected the rental market – although with supply also generally subdued, there has been a lesser impact on residential rents compared to sales prices – with residential rentals in Dubai falling marginally (by around 3%) and rents in Abu Dhabi increasing marginally over the year.

Average commercial rents have remained largely unchanged in both Dubai and Abu Dhabi.  While there has been rental growth recorded in a number of the best quality schemes in both markets (those with low levels of availability) this is not an accurate reflection of the overall market where rents have generally remained unchanged in the face of significant levels of vacant space.

Retail rents have remained largely unchanged in both Dubai and Abu Dhabi – although the retail market is generally likely to move more in the tenants favour in both markets in the short term as the rate of growth in retail sales slows down at a time of increasing new supply.

The UAE hotel market saw mixed performance throughout 2015. While ADR’s remained flat in Abu Dhabi, room rates in Dubai saw a 9% decline during the year to October. Occupancy levels remained healthy in both markets, at 74% and 77% in Abu Dhabi and Dubai respectively. The hotel market is now at more competitive levels than in 2014, partly attributable to a decrease in the number of tourists from Russia, South Asia, Far East Asia and Africa visiting Dubai (due to a slowdown in their domestic markets and the strengthening dollar) as well as the addition of new hotel rooms.