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JLL: Dubai’s real estate market remains under pressure

Number of residential transactions drops by 69 per cent during the H1 2015

Jones Lang LaSalle’s (JLL) recent report explores Dubai’s real estate market, highlighting factors that impact the emirate’s residential, commercial and hospitality sectors.

“The Dubai real estate market continues to face downward pressure during the second quarter of the year,” said Craig Plumb, head of Research at JLL MENA, noting that residential rental rates have remained relatively flat, but sales prices have dropped by “an average of eight per cent since June 2014”.

In its Dubai Real Estate Market Overview, JLL reveals that the number of residential transactions dropped by 69 per cent during the first half of 2015, compared with the same period last year.

“This single-digit price correction is in sharp contrast with declines we witnessed in 2008/2009 and is a clear indication that the market is maturing,” Plumb concludes, adding that the firm expects further drops on transaction volumes and sales prices for the remaining duration of the year.

The reported noted that declines in apartment sale prices exceeded those of villas.

During the second quarter of 2015, a total of 1,200 additional residential units were completed and delivered in Dubai, JLL revealed. This increases the total unit supply to 379,000.

Moreover, 16,000 units are expected to enter the market by the end of 2015, taking into account that some deliveries may be delayed beyond that deadline, as the market continues declining, according to analysts’ forecast.

Meanwhile, Dubai’s retail market maintained its stability for the year’s second quarter as no new projects were delivered. Performance also remained steady within the emirate’s malls, but the sector witnessed a slowdown in annual rental growth and retail sales, with the decline in the numbers of Russian tourist suspected to be the main contributing factor.

For the remainder of 2015, Dubai’s retail market is expecting 194,000 square metres of gross leasable area (GLA), comprising mall extensions, but no new projects.

Besides impacting Dubai’s retail market, the dwindling numbers of Russian tourists, coupled with a few other factors, has also affected the city’s hospitality sector.

Dubai’s hotel sector continues to face pressures for the second quarter of 2015, JLL stated. Since the beginning of the year, average daily rates of Dubai’s hotels saw a six per cent drop, reaching $249 (AED914.6) by May. A marginal decline in occupancy rates was also witnessed, driving down revenue per available room to $208 (AED764) by May, a nine per cent year-on-year decline.

JLL, therefore, anticipates softer average daily rates (ADRs) in the short to medium term. This is also “in response to an additional 30,900 keys scheduled for delivery in the next couple of years and a slowdown in visitors from Russia and the Eurozone.”

However, the hot months of summer – when top hotels usually attract regional and international tourists through bold drops in room rates – are expected to slightly revive the sector, with results possibly to be seen in Q3 2015 records.