Dubai: Dubai’s office realty has some catching up to do to be where its residential space is right now... 18 months to be precise.
“It is 18 months since Dubai’s residential property value came off its bottom levels while those for offices are still at the lower or very early into an upturn,” Craig Plumb, head of research at the realty consultancy Jones Lang LaSalle (JLLS), said. “There’s still oversupply on offices, with the bulk of it in non-Grade A units... but even Grade A space is still available for the asking. Any growth in rentals will be limited to the very best buildings.”
This is where the great imbalance lies in Dubai’s property market. Investors have been so caught up with ploughing cash into residential assets that concurrent possibilities in commercial space are being overlooked. It remains to be seen how much of the nascent Expo 2020 buzz will help feed tenant demand for offices and whether that would get investors interested all over again. It is a question of timing when it comes to the Expo 2020 factor.
On residential, an estimated 25,000 units could be delivered in Dubai this year, JLLS estimates. While that is a fairly substantial number on its own, in reality, “investors have limited choice in established locations where new supply is quite tight though the talk in the market has been of too much supply,” Plumb said. “This could create a situation where new projects could be announced much more quickly than developers had anticipated.”
The leading developers are already well-stocked in terms of land availability and planned projects. “The pipeline we have now will keep us busy right through to 2017,” Ziad Al Cha’ar, managing director at Damac Properties, said. “Most developers work on a four-five year planning as such. What we need to decide now is when to go shopping for the 2018 project inventory and beyond.”
Hot picks
Current hot picks for investors (end-users are still a distant minority) are the Downtown, with its mix of soon-to-be-ready, off-plan and secondary market purchases, and Business Bay. “Business Bay may not have been popular in the past but is certainly getting there, and it’s the established Executive Towers leading the way and helped a good deal by their closeness to the Metro,” Plumb said. (According to market feedback, Downtown values are averaging around Dh2,000 a square foot and additional off-plan projects are imminent, while the prime Business Bay high-rises have gone well over Dh1,000 a square foot.)
“While we expect the residential market will witness further growth, this is expected to be at a lower rate of growth as price increases seen in 2013 are felt to be unsustainable,” Plumb said. “The office sector is expected to continue to lag behind other sectors in Dubai in 2014.”
And when it comes to Abu Dhabi, demand continues to be quite “selective”, a backlash to the oversupply of luxury residential properties there. “Prime rents are expected to increase further in the residential market during 2014, with the hotel market in the capital also beginning to recover.”
