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JLL said that some 25,000 residential units are likely to be released onto the Dubai property market in 2011, down 31% from new supply in 2010. Meanwhile, new retail space will reach 140,000 sq m - down 31.7% on the previous year - and 3,400 new hotel rooms will become available, around 55% less than the 7,700 delivered in 2010.
"The oversupply problem varies across the different sectors of the market, from office space where it is a significant issue, down to industrial space where there is actually no oversupply," says Craig Plumb, Head of Research at JLL Mena.
"The office market will not see its oversupply absorbed in the near future. It's a situation that we expect will go on for another four or five years at least, and there will be some office buildings that will perhaps never achieve satisfactory levels of occupancy."
Continued drop in Dubai residential rents
At the same time, residential rents in some of Dubai's most popular areas have dropped by around 30% in the past 12 months, according to data published this week by Dubai's Real Estate Regulatory Agency (Rera). The authority measures rental prices across the emirate, compiling a Rental Index designed to help landlords and tenants to negotiate fair contracts. In its latest report, it confirmed that apartment rents in Dubai Marina, Palm Jumeirah, Discovery Gardens, and Jumeirah Beach Residences had all seen significant declines over the last 12 months.
Moreover, these declines look set to continue for a while yet - industry experts have long warned that Dubai faces a long wait before its surplus real estate stock is absorbed. Mohamed Alabbar, chairman of Burj Khalifa developer Emaar Properties, said in November 2010 that it would take at least 20 months for the city to absorb its surplus stock; a month later Nakheel CEO Chris O'Donnell said the process could take as long as five years.
"In the residential market there is an increasing amount of new supply entering the market, and while that's a good thing for tenants and is pushing down rents, you're probably looking at 20% to 25% of the residential supply being vacant at the moment," says Plumb.
"You would expect the residential oversupply to be absorbed over the medium term, between two to three years. It won't be absorbed over the next six months, but it won't sit there vacant forever, like the office market will."
The drop in supply of new office and residential space can be attributed to a number of factors, including tighter government control, the cancellation of projects, and decreasing liquidity. It is also a result of developers rephrasing project delivery schedules, in a bid to keep a lid on bills for half-empty buildings.
Developers rephase delivery estimates
"There are set payments that don't need to be made until developers get final approvals: connecting to power, connecting to sewerage, and so on," explains Plumb. "So by avoiding finishing the building, they avoid having to make utility payments and things like that. By keeping finished properties from the market, they are keeping their own costs down.
"What you'll find is that where there is a big project, a multi-tower project, the developers aren't releasing all the towers at once, but staggering the release dates."
A significant portion of the units still due to come onstream in 2011 and 2012, are in buildings where construction began before the crisis and continued because it proved cheaper for the developer to go on, than cancel and be forced to repay money to investors.
Staff
