The market is benefitting from recent Government initiatives and renewed commitment to major infrastructure projects, which are seen to be acting as a catalyst to improving sentiment.
During the quarter, the Business Bay Creek extension was reconfirmed, along with major transport related works that will ultimately improve connectivity in the emirate.
The long awaited Real Estate Investor Protection Law is expected to be released early in the new year. The new regulation will help to further solidify the recovery, underpinning investor confidence and crucially regulating the off-plan market.
Three delayed developments have now been revived under the Government's Tanmia project, with two properties located in Jumeirah Lakes Towers and one in the Business Bay area.
Dubai's office sector has remained broadly stable during the final quarter.
However, over the course of the year rents have fallen marginally by around 4.0%, due to an increase in tenant movements away from ageing properties to newer, better quality accommodation.
Despite a minor decline in the average rate, some prime properties around the CBD have actually managed to grow their headline rents over the past 12 months, aided by the limited supply of good quality and efficient office spaces.
The office market has seen a slight increase in leasing activity during 2012, but still fell some way short of matching new supply delivered over the course of the year. This has resulted in further inflation of vacancy rates across the majority of the emirate's major business districts.
The highest vacancies are found within locations most impacted by strata title spaces, such as Business Bay and Dubai Silicon Oasis. Sole ownership assets within these areas are currently commanding far loftier rents, whilst also benefitting from superior occupancy rates, highlighting the emergence of a two-tier marketplace.
Strata title office buildings are still considered unattractive by most large occupiers and corporate tenants, due to the complexities of multiple ownership across the property and the resulting inefficiencies this creates.
Office stock continues to swell as projects launched during the peak of the cycle enter the market. Close to 600,000 square metres of new stock was delivered during 2012, with the majority of this accommodation within freehold developments.
Overall office stock in Dubai has increased by 75% since the beginning of 2009, with close to three million square metres completed during this period.
The residential sector ended the year in buoyant fashion, with upward trends recorded for both sales and leasing rates during the period.
After several years of sustained declines, renewed confidence has returned to the sector, driven predominantly by increasing activity from cash investors. Dubai continues to dominate the region as the major investment destination with its safe haven status firmly cemented.
Residential rental rates increased by 16% during 2012, with average apartment lease rates rising 17% year-on-year and 8% quarter-on-quarter.
Villa lease rates also continued to rise despite the entry of a significant number of new villa properties, growing 14% year-on-year and 6% during the last quarter.
2012 witnessed the re-emergence of off-plan sales launches in Dubai, with mixed fortunes for the developers. However, Emaar in particular registered very positive sales for its new schemes in Emirates Living, Downtown and the Arabian Ranches.
To date, new off-plan developments have been focused on already established locations, with developers looking to exploit a lack of good quality available product in some of the emirate's more desirable freehold locations. Whilst the return of off-plan launches has so far been modest, a rise in speculative activity is clearly something to monitor closely over the coming year, particularly in light of recent regulatory changes.
The UAE Central Bank has moved to cap bank Loan-To-Value (LTV) ratios for first and second homebuyers in the country. With many local banks accused of over exposure to the property sector in the aftermath of the economic crisis, implementation of more stringent lending procedures would appear to be a reasonable response.
The bank circular (dated 30th December 2012) stipulated that first home lending to non-nationals should be restricted to 50%, and 70% for nationals. Second home lending and lending on subsequent properties should be restricted to 40% for non-nationals and 60% for nationals.
Clearly, the Government is looking to control speculation in Dubai's residential sector and avoid further overheating after increasing sales and leasing rates were recorded across much of the marketplace during 2012. However, whilst the move may have a moderate cooling effect on overall sales levels, current market growth is being driven by cash investors rather than end-users.
In 2012, Dubai's mortgage market was estimated at 20 - 30% of total residential transactions, reflecting a high degree of liquidity in the sector. This is a trend that is arguably more difficult to manage and control, at least without further regulation or the implementation of higher taxes and levies on property sales.
The office sector is likely to remain under stress during 2013, due to continued supply and demand imbalances caused by the excessive delivery of strata title stock. Of the roughly 600,000 square metres of new inventory to be completed during 2013, we estimate that close to 60% will be held on a multiple-ownership basis.
Based on new and existing office enquiries, absorption rates are expected to increase again during 2013. Although, the weight of existing vacant stock, coupled with new supply, will see the further elevation of vacancy rates over the next 12 months.
Rental levels in the CBD area are unlikely to fluctuate too significantly despite expected new supply across much of the market. Office demand in this area remains extremely high, with limited availability of good quality stock. As a result, we can expect to see a further evolution of a two-tier market, with declining rental rates for ageing and multiple-ownership properties, and potential upside in rent and occupancy rates for accommodation within good quality, single ownership buildings.
The country's strong economic performance is anticipated to fuel a further influx of quality workforce over the next 12 months, helping to sustain demand for mid and high end residential units.
Overall, the residential sector is forecast to continue its upward trend for sales and leasing rates, although given recent legislative changes, 2013 is perhaps unlikely to match the performance of the current year.