A growing number of new residents and higher transaction levels may be improving demand for Dubai homes, but supply is running at a faster pace meaning there is still downward pressure on pricing and rents, according to a new report by property group Savills.
Close to 21,800 housing units were absorbed in the second half of 2019, and transaction numbers were up 50 per cent year-on-year. Total transaction numbers were up 25 per cent in 2019, according to Savills. However, some 36,700 new units were delivered last year, and "we expect an actual increased delivery of units [for 2020]", Richard Paul, head of professional services and consultancy at Savills Middle East, told The National.
Savills expects about 40,000 units to be handed over this year as projects that were conceived in stronger market conditions in 2014-15 move towards completion. Of the total 110,912 new work permits issued in the UAE in the first nine months of 2019, more than 80,000 were issued in Dubai, according to Mr Paul.
“What's noticeable from our point of view is the change in announcements of new stock. Announcements in 2019 were only 15,000 units, which was a good 35 per cent down year-on-year,” he said.
“What we hope that means, is that clearly there’s a realisation that balance of supply and demand has not been there. We are still dealing with a lot of announcements that were made back in [2014-17] that are finally hitting the market.”
Supply pressures meant apartment prices in communities like Jumeirah Beach Residence, Jumeirah Lake Towers and Dubai Investment Park dropped about 10 per cent last year, while villa and townhouse prices were down on average by about 11 per cent. Apartment rents dropped between 4-8 per cent, and villa rents by 5-8 per cent.
Mr Paul said the market now feels “like it’s going in the right direction but probably not at the pace that would slow down [price] softening tremendously”.
Higher levels of supply in Abu Dhabi, with 4,700 new homes completed last year, also placed downward pressure on its residential market, with prices and rents averaging a 10 per cent fall.
Yet the relatively smaller size of the market, and the emirate’s bid to attract different types of businesses and tenants through initiatives like the start-up accelerator Hub71, means there will be “probably not as much softening in 2020” as last year.
The capital’s office market “is undergoing a transformation from being predominantly driven by oil & gas and government-related entities to one which is witnessing an increasing demand and space take-up by technology firms”, the report said.
“In the last 12 months, the market has seen a spike in investment and space take-up activity by local tech start-ups catering to a variety of industries such as logistics, financial services, artificial intelligence and e-commerce,” it said, crediting both the Dh535 million Ghadan Ventures Fund and initiatives such as Hub71 in attracting new firms.
More new supply continues to be added to a market that already has a lot of vacant space, though, meaning rents in certain buildings in the central business district dropped 7 per cent.
New supply also means Dubai’s office market remains under pressure, with rents in Jumeirah Lake Towers dropping 5 per cent year-on-year, Dubai International Financial Centre rents falling 4 per cent and rents in Dubai Media City and Dubai Internet City declining 3 per cent.