Core Research Dubai Property
An International Associate of Savills
Spotlight Dubai Property H1 2015
core-me.com CEO’s Message
It is a pleasure to write the foreword to our new research report, covering both Dubai residential and commercial real estate markets, during the first half of 2015.
In light of market comment since the beginning of the year, many owners and investors of real estate are turning to us and asking whether they should hold or sell, buy or wait for a better time to enter the market.
While there is no universal answer to these questions, as they depend largely on each investor’s appetite for risk, this report addresses the objective aspects of the issue - which can be reformulated as: Do we believe the current trend of softening prices will continue? For how long? Will this be substantial? And what is the future of the Dubai real estate market?
Offering a forecast of where the market is headed requires an analysis of prices and rentals evolution over the past few years, along with the underlying reasons for the market dynamics we have witnessed. This is the subject of the first part of our report, with a deeper analysis of both the prime residential and the commercial real estate markets. The following sections consist of research-backed answers to some of the most frequently asked questions from our clients over the past few months, e.g “What are some of the most competitive free zones real estate wise?” - with a special spotlight on the DMCC free zone in this issue. Also included is a quick legal update on what investors can do when their residential off plan acquisition turns sour, and an instructive study on how single owners commercial properties typically command higher rental premiums (and price) over multi-owners buildings in Dubai.
Now, although we see residential prices softening, commercial real estate market slightly less active than a year ago, the region less stable, oil prices down, the dollar (and dirham) high, and Russian investment gone, still I am more bullish than ever.
We are bullish but not blind. Yes, an adjustment is indeed taking place, and we are in the middle of a mild correction, for many of the reasons described in this report. A correction, however, does not mean crisis - on the contrary, a healthy softening is what Dubai really needed to give renewed confidence to long term investors that the real estate market has matured and gained more depth and liquidity. There is no reason to be overly optimistic, at least in the short term, as there is more softening to come over the next 12 months. But this is a very positive thing to witness, and soft adjustment is exactly what long term players were after, having witnessed prices reach unsustainable levels too quickly last year, in a remake of the pre-2008 scenario.
It is because the real estate market has matured, that today’s softening cannot be compared to the 2008 crisis, and it is for this reason that we have confidence in the market over the long run, as Dubai is slowly but surely on its way to realising its vision of becoming an essential global and stable hub - if it hasn’t gotten there already.
The Dubai real estate market has matured and gained in depth, and this is the reason why it is now able to absorb shocks in a much more resilient way than five years ago, when one or several segments of investors, or occupiers were impacted by global macroeconomic factors. Russian money withdrew from the market and there was an impact, but not a crash. Oil prices are low. This did have an impact, but a low overall negative effect on Dubai real estate prices. Commercial European corporate occupiers do not massively expand anymore. This does have an impact, but demand is still strong to find vacant office space in quality and prime commercial areas such as Downtown, DIFC, or the largest free zones, with occupancy at historically high levels.
The 2020 World Expo is a key milestone for the city in the realization of its vision. As the market is slowly starting to gear up for it, the challenge will soon be for the real estate players to pre-plan a smooth absorption of the typical post expo slowdown in corporate and residential occupier demand.
I hope you will find this report both informative and useful. I invite you to contact our research department, or anyone else in the team if you have any queries or question.
David Godchaux Chief Executive Officer
H1 2015 Current Affairs IS THE PROPERTY MARKET HEADING FOR A CORRECTION?
Dubai Residential Market enter the Dubai market looking for a We anticipate that the market will short term high yield, many more rely continue its downward streak with Spotlight Q1 2015 on rental income as part of their further price and rent softening ahead, investment strategy, and with high before stabilizing in early to mid 2016. A new period of investor caution. rental inflation over recent years, rental CONTENT returns are likely to have levelled out for Exiting the market now may be a wise The Dubai residential sales market has existing owners. For owners who are choice for those who have invested moved into an interesting period over entering the market now, rental yields between 2009 and 2014 and who are the past two quarters. After several are expected to increase. Wage growth looking for short term capital gains; Current Affairs: Is The Property Market Heading For A Correction? years of consistent gains, our data could lead to a recovery in prices but however, we expect the market to return What’s Coming Up? New Master Communities And Office Complexes Planned In Dubai suggests that the market peaked in there are a number of regional and to growth in late 2016 or early 2017 as October 2014, which was higher than Legally Speaking: Invested In Property, But Didn’t Get Anything Yet? Here’s What You Can Do… global economic trends that are very Dubai gears up for EXPO 2020. Buyers the levels achieved during the boom in likely to stop this happening. looking to enter the market now should Value Drivers: Do Single Owner Properties Command A Premium In The Office Sector? 2008. Since then, apartment prices wait for deals priced lower than last Here or There: Jumeirah Lakes Towers Is Becoming Dubai’s Most Vibrant Community To Work And Live have steadily softened by a compounded In particular, external factors such as year’s prices, and should expect Concluding Remarks: Same But Different average of 1.2% per month. Sale prices the possible lifting of Iranian sanctions, reasonably higher rental yields with no for villas have also peaked and have stability in Egypt, Chinese crackdown substantial short term capital appreciation. begun falling by 0.7% per month since on capital outflows, Russian sanctions, then. instability in Yemen, the falling Ruble Price adjustment in prime areas, and and Euro and the appreciating Dollar new long term opportunities These headline figures should provide a are all making their mark on Dubai’s note of caution to investors but the residential market. In addition, the If we take a closer look at variations decline should not come as too much decline in apartment prices is steeper across the Dubai residential market, we of a surprise. House prices typically than that of villas because new can see that prices per sq. ft. remain move in cyclical fashion, responding to residential supply is heavily weighted highest in the city’s mature districts macro issues such as wage growth, job towards apartments. All of these factors such as Downtown Dubai, DIFC, figures and GDP. Whilst many investors combined are almost certainly contributing Emirates Hills and Palm Jumeirah; to a sustained drop in prices.
GRAPH 1 TABLE 1 Dubai Residential Sale Prices 2003 to 2015 Apartments Villas H1 2015 Movement in Villa Sale Prices 1,600 1,452
1,336 1,400 Lakes, Palm Jumeirah and 1,415 Jumeirah have had a small decline (up to 5%) 1,200 1,203 Green Community, Emirates
1,000 Hills, Jumeirah Islands, Al Barari have had a medium decline (5-8%) 800
AED AED perSq Ft H1 2015 Movement in Apartment Sale Prices 600
Palm Jumeirah and DIFC
400 have had a small decline (up to 5%) 200
Greens, Downtown, JLT and
0 Business Bay have had a medium decline (5-8%) H1 2003 H1 2004 H1 2005 H1 2006 H1 2007 H1 2008 H1 2009 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 This publication This document was published in June 2015. The data used in the charts and tables is the latest available at the time of going to press. Sources are included for all the charts. We have used a standard set of notes and abbreviations throughout the document. Source: Core Research, Reidin.com Source: Core Research, Reidin.com
core-me.com 03 Spotlight | Dubai Properties H1 2015
areas that benefit greatly from factors We have recently witnessed a widening As a largely expatriate driven economy, GRAPH 4 such as good infrastructure, quality of gap between bid and ask, with sellers Dubai needs to maintain stability in its Dubai Residential Rents 2009 to 2015 construction and finish, well designed sticking to 2014 price levels, with housing market in order to retain the Apartment Villas communities, accessibility and a unrealistic expectations, while buyers millions of people on moderate or even 120 desirable location. Emirates Hills villas are (wrongly) expecting a steeper price large incomes. In short, the slight are the highest in the city averaging adjustment of quality assets in prime correction that we are seeing is good
AED 3,200 per sq. ft., closely followed location. news for Dubai’s economic and social 100 by villas on the Palm Jumeirah which stability, which is an essential condition command sale prices of AED 2,600 per This trend is naturally bad news for those of the prime market long term growth. sq. ft. investors who enter the market looking 80 for short term capital gains but less so Relief for renters Sale prices of apartments closer to the for individuals who are here for the long city’s financial centre are also continuing haul. Rental prices in all of the prime Stabilizing rents is very good news for 60 to command high figures, with the DIFC and mature residential areas are likely the millions of renters in Dubai. commanding AED 2,000 per sq. ft. and to remain high, which will deliver good Apartment rents have slightly decreased those in Downtown Dubai commanding medium-term rental yields for property by 0.3% per month during the last six 40 AED AED perSq Ft per Annum AED 2,500 per sq. ft. owners. More importantly, it appears months, whilst villa rental prices have These two districts benefit from tight that we may be entering a period where remained constant (-0.1%). These 20 supply and demand; but crucially, are inflationary pressures caused by short figures are significant because, even surrounded by highly desirable lifestyle term investors will ease and that is though the drop is minor, it represents facilities such as world-class dining, good news for overall economic stability. a turning point where renters can 0 leisure and shopping destinations. breathe a sigh of relief: they are unlikely H1 2009 H1 2010 H1 2011 H1 2012 H1 2013 H1 2014 H1 2015 These districts continue to be considered to see their rents shoot up as they have premium locations and this is unlikely to done over recent years. GRAPH 2 Source: Core Research, Reidin.com change. Dubai Apartment Sale Prices by District (2014, 2015) The rental rises over recent years have However we expect to see a correction H1 2014 H2 2014 H1 2015 made life difficult for millions. During the in these areas, along with the rest of the 3,000 past three years of growth, apartment market. rental prices shot up by 17% in 2012, 26% in 2013 and 15% in 2014. These 2,500 numbers are mirrored in villa rental prices, which have risen by 18%, 17% and 9% respectively. This is clearly 2,000 unsustainable and has made Dubai suddenly much more expensive to live
1,500 in and a far less attractive place for expats to move to. Many renters have been forced to relocate to less desirable AED AED perSq Ft
1,000 locations that are in mid-construction phases which damages the lifestyle “YIELDS HAVE factor that attracts so many foreigners 500 to Dubai’s shores. MECHANICALLY Even those on relatively good incomes INCREASED” 0 have had to relocate and downgrade Greens Downtown Dubai Palm JLT Business Views DIFC JBR Marina Jumeirah Bay to smaller apartments in places such as As prime residential rentals have Business Bay, JLT, Discovery Gardens and Dubai Marina. The troubling news adjusted slower than prices since GRAPH 3 the beginning of the year, yields for Dubai’s overall balance is that these have mechanically increased. Dubai Villa Sale Prices by District (2014, 2015) areas are already densely populated H1 2014 H2 2014 H1 2015 and in some locations there are This makes high end residential 3,500 infrastructure issues such as limited assets more attractive for buyers parking or traffic congestion. Exacerbating looking at re-entering over the 3,000 this development was the inflationary next 12 months with mid to long pressure on rental prices caused by the term investment horizon. 2,500 migration of so many people to these The market has matured, and as areas. prime areas have become more 2,000 distinctly identi able, so has Landlords should now be prepared to changed the pro le of local and 1,500 negotiate with their tenants, not only on global investors in the region - AED perSq Ft prices but on lease terms. This should Pre 2008 speculators are 1,000 not be interpreted as a crash; though, increasingly being replaced by we expect to see rents drop steadily more sophisticated buyers 500 and by only around 3% - 4% for seeking long term capital gain and decent yield levels. apartments and 1% - 2% for villas in 0 2015. The theme is, once again, stability through a slight and healthy Jumeirah Al Barari The Villa The Lakes Edward Macura Emirates Hills correction. Palm Jumeirah Victory Heights Jumeirah Park Arabian Ranches Jumeirah Islands Managing Director - Residential Springs/MeadowsGreen Community
Image > Springs, Emirates Living, Dubai, UAE Source: Core Research, Reidin.com Image > Jumeirah Beach Residences, Dubai, UAE
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Dubai Office Market GRAPH 5 For many businesses here and abroad, decline modestly over the next 18 2014, and DIFC rents saw a 7% increase Dubai Office Rents 2010 to 2015 DIFC is also considered to be one of months. A surge in supply is also likely during the same period. We expect an Spotlight Q1 2015 Dubai’s best office district due to its to exacerbate this trend. The increased adjustment on prices and rentals in
180 unique regulatory structure, location, supply is certain to inject greater Business Bay, which will make this area Mild relief for businesses office space quality, and high profile competitiveness in the sector, which competitive and attractive again. Some 160 tenants. will help businesses in their negotiations Freezones also offer very competitive Much like the rest of the real estate with landlords as they seek to achieve rates and solutions that make them market, we do expect to see a mild 140 The gap between supply and demand larger floor plates, more favourable very attractive to regional and global 129 correction in 2015; although this is is a significant force there. The DIFC terms and better fit-out incentives. occupiers. DMCC in particular, as the 120 largely due to external factors such as continues to benefit from a waiting list largest freezone of the region, registers of companies wishing to move there Stability and growth over 170 businesses a month and has the appreciating US Dollar and low oil 100 prices. However, because Dubai’s and even though the Centre is seen significant increase in both supply
economic fundamentals are sound we 80 increasing its supply, demand will The bigger picture here is that Dubai is and demand of office space, driven by are unlikely to see a crash. Dubai has quickly fill new spaces. still viewed as a great place to do its substantial growth over the past few seen expansion in several major sectors, 60 business. Downtown and the DIFC are years (Special spotlight at the end of
particularly construction, finance, AED per Sq Ft per Annum Owners of office space in Downtown now considered to be the central this report). pharmaceutical and technology. Such 40 and DIFC may choose to exit the business district for the region and expansion creates jobs and stimulates market now if they get a good deal, or foreign companies are still happy to pay The overall story in the office space demand for office space. 20 should plan to hold on to their investment high prices to set up shop in these sector is one of stable, steady growth for the next few years and aim for a prime locations. We are seeing and greater choice for tenants. The good news for businesses is that, 0 decent rental yield in the interim. numerous regional headquarters Businesses in Dubai benefit greatly partly thanks to an increase in supply, searching for office in this whole area, from the quality of its infrastructure and
the steep rises of recent years - 5% in 2010 Q1, 2010 Q2, 2010 Q3, 2010 Q4, 2011 Q1, 2011 Q2, 2011 Q3, 2011 Q4, 2012 Q1, 2012 Q2, 2012 Q3, 2012 Q4, 2013 Q1, 2013 Q2, 2013 Q3, 2013 Q4, 2014 Q1, 2014 Q2, 2014 Q3, 2014 Q4, 2015 Q1, 2015 Q2, Business Bay that quickly turns into an exciting, with wider real estate choice. Dubai 2012, 11% in 2013 and 13% in 2014 – world-class central business district continues to be well positioned to offer GRAPH 6 will recede. As with the residential Business Bay which is close to the and destination. Indeed, Downtown companies a competitively priced choice market, this will inject stability into the Dubai Office Rents 2014, 2015 city’s CBD, major highways, and rents enjoyed a 10% YOY increase in for investment and growth. business sector. This comes at a critical H1 2014 H2 2014 H1 2015 benefits from easy access to RTA point in time when the UAE’s overall 250 buses and the Dubai Metro, has seen competitiveness has been hit by issues substantial rental growth between 2012 GRAPH 8 such as the appreciating Dirham (7%), 2013 (18%) and 2014 (24%). Dubai Office Vacancy Rates H1 2015 (pegged to the US Dollar), Russian 200 During these 3 years, rents in Business sanctions, the declining Euro and falling Bay have gone up from around AED 70 60% Rouble. per sq. ft. in 2012 to AED 110 in 2015.*
150 50% Landlords should now prepare to As with the residential sector, such negotiate with tenants on prices and significant increases are unlikely to be terms, which is good news for sustained. We witness that current 40% businesses and a stabilizing force for 100 rents in Business Bay are not looking the business sector more generally. competitive anymore to many prospective
AED per Sq Ft per Annum tenants in the light of what they would 30%
If we take a closer look at the office 50 get in other areas for similar or lower rent levels and we expect to see prices space sector in Dubai we can see that 20% there are several conflicting stories. There is a clear disparity between 0 different locations, with Downtown and 10% Tecom C JLT Business Bur Downtown SZR DIC Deira DIFC Al Quoz DHCC the DIFC making the whole area one Bay Dubai unified business district likely to avoid GRAPH 7 0% any drop in prices. Business Bay seeing Tecom C JLT Business Bur Downtown SZR DIC Deira DIFC Al Quoz DHCC an opposite trend, and freezones like Dubai Office Rental Growth (H1 2015 vs H1 2014) Bay Dubai DMCC offering competitive rates and GRAPH 9 unique advantages. DHCC 0% Average Office Sale Prices 2014, 2015 H1 2014 H2 2014 H1 2015 Downtown and DIFC -1% Al Quoz 3500 One of the more interesting business DIFC 3% centres is the Downtown area, which 3000 Deira 2% unlike most rests inside a primarily residential area. From an infrastructure DIC 5% 2500 and lifestyle perspective, working in the SZR 5% Downtown area is highly desirable and 2000
as such, continues to command very Downtown 2% AED AED perSq Ft high sale prices. In Downtown, prices 1500 range between AED 2,400 and Bur Dubai 1% AED 3,500 per sq. ft., whilst Burj Khalifa -5% Business Bay 1000 demands prices upwards of AED 5,000.
JLT 6% The area is seen by many as prestig- 500 ious due to the quality of buildings, 2% Tecom C 0 world class infrastructures and the -6% -4% -2% 0% 2% 4% 6% 8% proximity to the DIFC making the whole Tecom C Downtown Business Bay JLT DIFC DSO area a larger unified business district. Source: Core Research, Reidin.com Note: Office rents do not include service charges * depending on building quality and amenities Source: Core Research, Reidin.com
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What’s Coming Up NEW MASTER COMMUNITIES AND OFFICE COMPLEXES PLANNED IN DUBAI
No.10 at Citywalk – Residential District One – Residential Dubai Hills Villas – Residential Apartments Villas and Mansions Villas
Introduction: Developed by Meraas Introduction: District One, a mixed use Introduction: This is a luxury project and designed by Woods Bagot, this project from Meydan Sobha includes built as part of Emaar and Meraas’ project will include apartments in low the world’s largest man-made lagoon Dubai Hills Estate. Plots and villas (shell rise buildings. and luxury residential units. and core) are being offered to investors, interiors need to be completed in 18 Supply: 81 units split as follows: 21 Supply: 1,500 four to eight bedroom months. one bedroom, 35 two bedroom, villas and mansions. 22 three bedroom, 3 four bedroom. Supply: 100 units of which 70 were Costs: AED 2,500 to AED 2,700 per launched in December 2013. Costs: Launch prices are expected to sq.ft. range between AED 1,800 to AED Costs: AED 1,200 per sq.ft. onwards. 2,100 per sq.ft. Scheduled Completion: 2016 for Phase 1 Scheduled Completion: 2018 Scheduled Completion: Late 2015 Yes: Yes: Yes: More than 60% open and green 18-hole championship golf course First freehold in Jumeirah space High-end shopping and fine dining Centrally located 3 kms away from Burj Khalifa Tennis academy with 14 courts Onyx- Mixed Use One JLT - Offices Bay Square – Mixed Use Close to metro Includes parks, water features, Choice of architectural styles Efficient floor plans sports facilities, high street retail Introduction: Developed by Israqah, it Introduction: One JLT is being Introduction: Thirteen 16 storey mixed Retail and hotel facilities available with F&B, school, nursery, mosque No: includes a 14 floor office tower, a 24 developed by DMCC as a low rise office use buildings developed by Dubai Canal project to add value Time to completion is far floor tower with 10 office floors and 13 complex. Properties in Business Bay, includes 1 Good Amenities No: Lack of infrastructure apartment floors, a 14 floor four star hotel, 1 residential tower and 11 office Handover is in phases, and thus Currently the location is undeveloped hotel and podium retail. Supply: NLA - 23,400 sq. m. (G+14) towers with residential on the top two No: early residents may face hindrances floors. Traffic noise expected on lower Supply: 170 apartments and 47,000 Costs: Pre leasing is at around AED floors sq. m. of office space, 25 retail units, 160 per sq. ft. plus AED 25 service Supply: 575 offices with sizes averaging 210 beds hotel. charges. between 1,500 to 4,500 sq.ft.
Costs: Offices: AED 1,150 to AED Scheduled Completion: Q4 2015 Costs: Sale prices for offices are 1,300 per sq. ft. Apartments: AED between AED 1,200 and AED 1,350 and 1,250 to AED 1,450 per sq.ft. Yes: office rentals are between AED 90 and Single landlord AED 125 per sq. ft. pa Scheduled Completion: Q1 2016 Leed Gold Standard Column free efficient floor plate Completed: Q4 2014 to Q1 2015 Citywalk Yes: (1,930 sq. m.) One Located near DIC, DMC, Tecom, Close to metro Yes: JLT Onyx Emaar Business Park Overlooking JLT park Strategic location Close to metro Columnless efficient floor plates Retail, F&B and hotel facilities No: Access to RTA buses available Preference to large corporates High ratio of parking spaces for Good Amenities leasing full floors, SMEs may be tenants, visitors Bay Attractive payment plan disappointed Includes services, amenities, retail Square Developer insisting on landlord No: fit-outs Parking may be inadequate (1,440 bays) No: Competition from established Far from metro station District locations such as Emaar Business Since landlords being forced to fit-out, One Park the quality of fit out may be inferior Location not considered to be a Huge availability and thus lot of vacancy Dubai major business district Fit outs going on throughout the Hills Villas development
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The procedures followed are outlined in DIAGRAM 1 Legally Speaking the adjacent flowchart. The special judicial committee is RERA resolves to cancel responsible for examining issues, demands and claims that arise between INVESTED IN PROPERTY, BUT DIDN’T the developers and purchasers. Developer Under this scheme, over 40 projects appeals GET ANYTHING YET? have been cancelled of which, two have been liquidated and the monies distributed. For 20 projects a hearing has completed and the distribution has Appeal is Appeal is HERE’S WHAT YOU CAN DO… accepted rejected started. Eleven other projects are under hearing.
In October 2014, it was reported in the Developer must Technical report is agree to new terms prepared. Auditor is media that the Real Estate Investor and condition appointed Protection Law (Tanweer) was ready and would soon be approved. t is no secret that Dubai has attracted a large number of Escrow Account Media reports have indicated that the property buyers – investors GROUNDS FOR CANCELLATION is reviewed draft of this law allows investors to get a looking for capital appreciation, full refund if the developer fails to and annual returns, as well as The developer does not commence construction in spite of having relevant regulatory complete or hand over a property within end users looking for a safe approvals I a certain timeframe; deliberately haven to live in or simply as an Funds are sufficient Funds are insufficient defrauds an investor or alters the alternative to renting. However, The developer commits any crimes concerning the project’s escrow account specifications of the unit without obtaining thousands of such purchasers are still The developer has no intention to perform, whether or not they express this intention or requisite permission. to get the keys to their properties, since Escrow funds should be Purchasers should does not perform due to negligence refunded within 14 days post 2008, a number of projects were be refunded within Developer must pay the put on hold. So, what recourse do 14 days The developer declares bankruptcy shortfall within 60 days these buyers have? Does the law protect them in any way? The plot is withdrawn by the master developer due to breach by the sub developer TABLE 2
The Dubai government has been The plot is affected by re-planning by the relevant authorities Projects have been heard - Projects Liquidated Project Under Hearing extremely proactive and has introduced Distribution has started a number of laws and regulations to Ahmed Abdul Rahim 1 Dorna Tower High Rise Properties 1 Abjar Tower Khyool Investment 1 Toronto improve transparency in the real estate Al Attar sector and to provide investor confidence. 2 Orchid Residences High Rise Properties 2 Faras 2 Khyool Investment 2 Vancouver Ahmed Abdul Rahim Al Attar
In 2009, Law 9 of 2009 clarified the 3 The Heights-Golden High Rise Properties Projects Cancelled - Pending Hearing 3 Al Masa II Azizi Investments issue of refunds when purchasers are in Waves Business 4 High Rise Properties 1 Tower 88 Remah Holding Limited 4 Fortune Serene Fortune Serene Limited default. Tower 32 Group Properties 5 The Heights-Silver High Rise Properties 2 Rufi Tower (Quattro) Makaseb Properties 5 Paris Residence In June 2010, the Tayseer initiative was Limited Sama Emirates Estate launched, through which the Dubai 6 Rotating Residence High Rise Properties 3 Archery Tower Makaseb Properties 6 The Sama World Dev government can facilitate funding of High Rise 7 High Rise Properties 4 Rufi Lake View Makaseb Properties 7 Victory Bay Tower Alternative Capital Invest certain projects based on their merits. Boulevard 1 High Rise 8 High Rise Properties 5 Quattro West Makaseb Properties 8 Sami Q Alternative Capital Invest In September 2011, the Tanmia Boulevard 2 Alternative Capital scheme was launched to handle 9 Wings Of Arabia 6 Cascade Manor Dheeraj & East Coast 9 Santeview Sungwon incomplete projects, which can be Invest Azizi Fountanne 10 Orbrit Holding Orbit Holdings 7 Merwess Abdulaziz 10 Hydra Towers Hydra Properties taken over by new developers. Tower
11 Tonino Lamborghini I. R. Investments 8 Beti Ul Funoon Bux Holdings Limited 11 Spark Khalifa Alabbar In June 2012, the draft law regarding Real Estate the protection of real estate investors 12 Windsor Residence M E Development was released so as to get feedback from the public. 13 Global Golf Cliff Dwellings Residence Enterprises
14 G-Office Tower Galadari Investment In July 2013, the Dubai government Of ce issued Decree No 21 of 2013 which enabled the formation of a special 15 Beti Ul Funoon Parshwa Holdings judicial committee for the liquidation of 16 Sapphire Escan Real Estate cancelled real estate projects in Dubai. If any of the outlined conditions are 17 Azizi Feirouz I Merwess Abdulaziz applicable, the Real Estate Regulatory Authority (RERA) will resolve to cancel 18 Azizi Feirouz II Merwess Abdulaziz the project. 19 Azizi Feirouz III Merwess Abdulaziz
20 Eden Blue Dujan Properties Image > Executive Towers, Business Bay, Dubai, UAE Source: Dubai Courts Website
10 core-me.com 11 Spotlight | Dubai Properties H1 2015
It has also been reported that under the draft law, investors can claim compensation for breach of any warranty or undertaking Value Drivers contained in the contract for sale by the seller and the broker, misrepresentation by the developer, investor or broker and DO SINGLE OWNER PROPERTIES specification in violation of the contract for sale after obtaining an expert’s report to that effect. COMMAND A PREMIUM IN While the law has not yet come into effect, once it is implemented, expectations are that it will provide much needed THE OFFICE SECTOR? assurance and confidence to prospective investors.
For disgruntled investors already in the market and who want to take action now, a number of options are available which are explained briefly in the chart below.
Investors are advised to take action and make developers accountable for their obligations and responsibilities. This will enable the Dubai property market to become more transparent, to mature faster and to become more investor friendly. DIAGRAM 2
Buyer is Eventually property will complete, continuing payments Buyer can ask for a delay penalty.
Project is Under Construction Law 9 of 2009 will apply and the buyer will get Buyer has stopped a proportion of the amounts paid, depending on payments the amount paid and DLD approval
New SPA may be Buyer must make Project is transferrred required, eventually contact with the under Tanmia scheme the project will be new developer delivered
Not recommended Buyer does not since the SPA is take any action still alive e often do read and Buyer can check Buyer can follow talk about this aspect Project has not with Land up about project PEOPLE SPEAK... been cancelled of the office property Department cancellation status Recourse for sector. Is it really true Disgruntled Buyers that single owned “…we can expect to see demand spill-over into some secondary locations, particularly for Buyer can file a case Buyer will have to W properties command single owned properties…” reported in a Q2 2014 study by an international property asking for cancellation be prepared a premium? Property consultants often of the SPA to bear legal costs consultancy. advise developers to hold on to office Project is not Under Construction buildings, to not sell off their units, but Buyers can check instead to lease on completion. Is this “Single ownership buildings continue to account for the majority of demand, while strata Projects cancelled, dc.gov.ae monthly sound advice? Pending Hearing to know when the projects remain less popular…” posted in July 2014 on a Dubai based brokerage rm’s blog. project will be heard The following article aims at analysing Buyer must register whether single owned office properties “… the vacancy rate for strata space is signi cantly higher. For example, in Business Bay, Project Is manually or are truly more popular compared to Under Hearing electronically before single owner buildings have an average vacancy of 22 per cent, but strata buildings have an the due date strata owned ones. We analysed a Project has been average of 49 per cent…” reported in Feb 2015 by a prominent UAE newspaper. cancelled number of single owned office properties Buyer can follow up Project has been across the city in order to better with Dubai Courts heard and distribution to get an update understand what is really happening. has started “We won’t look at a tower that has been sold to 200 people… This is what gave the of ce about liquidation market a bad reputation, but it also gives us an opportunity because we think it’s mispriced… In the case of Business Bay, which has If you buy a single-held property today, you might have good upside…” said by an executive The project monies a majority of strata owned office buildings, Project is are distributed and at a real estate investment trust. liquidated the buyer gets back the preference for single owned properties his investment
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is clearly evident. We compared average Bay Square, which has recently The reasons often cited for the preference In addition to this, large companies office rents in the Business Bay area to completed handover has a few single for single owned properties is that these cannot risk the non-payment of service the rents in some of the single owner owner office buildings such as Bay are demanded by multinational charges by landlords, since this towers – U Bora Tower, Blue Bay and Square 4 which rents at around AED companies. International companies jeopardizes building security, hygiene, Capital Golden Tower. As can be seen 120 per sq. ft. which is also above the have large space requirements and cleanliness and maintenance of the from the adjacent chart, U Bora and current Business Bay average. they are generally unwilling to interact premises. With single landlords, the Blue Bay command an average premium with and manage multiple landlords. likelihood of early contract termination is of approximately AED 26 per sq. ft. This trend is replicated in Downtown as also reduced which is attractive to well, where Emaar Square 6, a single Distinct lease terms and rental rates companies who have invested However, in case of Capital Golden, owner property commands a premium with different landlords also make substantially in an office fit-out. As a this trend is not seen in spite of it being averaging AED 19 per sq. ft. compared operating an office more complicated. result of all the above factors, MNCs do owned by a single owner. The reasons to other strata owned buildings. In case tend to prefer offices in single owner for this could be its unfavorable location, of the Standard Chartered Building buildings. lower quality of finish, minimal lobby which is another single owner property, area and maintenance issues. the premium is much higher. Inspire of this, we did see a different trend in Jumeirah Lakes Towers (JLT). At JLT, our consultants have reported GRAPH 10 that almost 80 percent of the demand Business Bay Office Rents 2013 - 2015 for office space is from small companies requesting office spaces of around 500 Capital Golden U Bora Blue Bay Business Bay sq. ft.
160 These companies are generally new startups coming to Dubai for the first 140 time and are in need of an office space in order to get a DMCC license. For 120 these companies, single owned COMMERCIAL properties do not command a premium. 100 PROPERTY Red Diamond and Jumeirah Business Center – 3 (JBC3) are the two single MARKET UPDATE 80 owner properties in JLT. Rents in JBC3 currently range between AED 75 and Apart from this anomaly, we have seen or property managers and the status of that strata buildings do suffer due to owners associations was elevated, it is Lorem ipsum dolor sit amet, 60 AED 110 per sq. ft., while in Red their ownership structures. likely that occupancy would improve in consectetur adipiscing elit. Sed AED perSq Ft per Annum Diamond rents are between AED 85 strata buildings. at ante. Mauris eleifend, quam a 40 and AED 95 per sq. ft. These rents are vulputate dictum, massa quam more or less the same compared to So what can be done to improve the dapibus leo, eget vulputate orci average rents in JLT and also in similar desirability of strata buildings for Also, if the law makes it difficult for purus ut lorem. In fringilla mi in 20 buildings such as Jumeirah Business MNCs? In our opinion, some legal individual landlords to evict tenants for ligula. Pellentesque aliquam Center – 2 (JBC2). changes and strengthening of the arbitrary reasons, MNCs may be less quam vel dolor. Nunc adipisc- 0 Strata Law can help. If the law were to cautious about these types of properties. ing. Sed quam odio, tempus ac, H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 introduce mandatory strata managers aliquam molestie, varius ac, tellus. Vestibulum ut nulla aliquam risus rutrum interdum. Pellentesque lorem. Curabitur GRAPH 11 GRAPH 12 sit amet erat quis risus feugiat viverra. Pellentesque augue Downtown Office Rents 2013 - 2015 Jumeirah Lakes Towers Office Rents 2013 - 2015 justo, sagittis et, lacinia at, JBC 2 venenatis non, arcu. Nunc nec Emaar Square 6 Downtown Dubai JBC 3 JLT libero. In cursus dictum risus. 250 120 Etiam tristique nisl a nulla. Ut a orci. Curabitur dolor nunc, egestas at, accumsan at, 100 malesuada nec, magna. 200
Nulla facilisi. Nunc volutpat. Vestibulum ante ipsum primis in 80
faucibus orci luctus et ultrices 150 posuere cubilia Curae; Ut sit
amet orci vel mauris blandit 60 vehicula. Nullam quis enim. Integer dignissim viverra velit. Curabitur in odio. In hac 100 habitasse platea dictumst. Ut 40 AED AED perSq Ft per Annum AED perSq Ft per Annum consequat, tellus eu volutpat varius, justo orci elementum 50 dolor, sed imperdiet nulla tellus 20 ut diam.
0 0 David Abood H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 Managing Director - Commercial Source: Core Research, Reidin.com Note: Office rents do not include service charges Image > JBC3, JLT, Dubai, UAE Source: Core Research, Reidin.com Note: Office rents do not include service charges
14 core-me.com 15 Spotlight | Dubai Property H1 2015
expensive at prices exceeding AED GRAPH 13 3,000 per sq. ft. and rents ranging JLT Residential Rents Compared to Other Residential Locations Here or There between AED 160 and AED 250 per sq. Dubai Marina Palm Jumeirah Greens JLT Business Bay ft. per annum. Reef, Gold, Silver, and 140 Platinum rents are on the higher side with rents ranging between AED 140 DMCC FREE ZONE AT JUMEIRAH and AED 160 per sq. ft. 120
Factors such as easy access to 100 LAKES TOWERS IS ONE OF DUBAI’S highways, efficient floor layouts, water connections within offices, concrete 80 parking spaces, choice of cafes and other facilities are key to the higher MOST VIBRANT PLACES TO WORK 60 occupancy and rental rates. As such, based on data from Reidin.com we Residential rents are lower compared observed that towers such as Mazaya AED per Sq Ft per Annum 40 to the Greens, Palm Jumeirah and AND LIVE (AA, BB1, BB2), Dome, HDS Business Dubai Marina, whilst being on par Tower and JBC 1 and 4 have high 20 with rents in Business Bay vacancy rates. With high vacancy rates, terms are becoming increasingly flexible 0 but inspite of this, occupancies remain low. Core consultants have reported that in order to boost occupancy rates, H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 he DMCC Free Zone at late 2003 and early 2004, with sale AED 50,000 and AED 80,000 in 2009, landlords in these towers are starting to GRAPH 14 Jumeirah Lakes Towers has prices starting at AED 400 per sq. ft. with 2011 rents remaining in more or offer better terms to tenants such as emerged in the last few According to data from Reidin.com, less the same range. Number of Companies vs Office Rents (2008 to H1 2015) longer rent free periods and 4 to 6 Companies Office Rents (AED/sq.ft/Annum) years as an all-inclusive prices peaked in 2008, ranging cheque payments. 12000 450 community with approximately between AED 1,300 per sq. ft. to AED According to data from Reidin.com, 12,000 residential units, 1.1 1,600 per sq. ft., depending on the sale prices have seen growth in the last Our consultants have also observed The number of companies registered T 400 million sq. m of office GLA, four hotels building and its status of construction. three years rising by 17% in 2012, 24% in the freezone has also risen from about that in the case of the prime towers, 10000 and 400 retail outlets. It covers an area Prices did fall to below AED 700 per sq. ft. in 2013 and 18% in 2014. Sought-after 1,400 in 2008 to more than 10,400 in with office rents on the rise, tenants are 350 of 1.5 million sq. m. and includes 66 during the recession years, stabilizing in towers such as Al Seef, Indigo and Al choosing to stay where they are while early 2015 – an annualized growth rate of 37%, which is reportedly the fastest completed towers, three lakes, a 2011 at rates marginally above the Waleed Paradise have occupancy rates landlords prefer to find new tenants. A 8000 300 55,000 sq. m. community park, numerous 2009 prices. of around 95% with Lake Terrace, number of tenants are also looking to among any freezone in Dubai. nurseries and two metro stations. Green Lakes, Goldcrest and Armada purchase their units in order to make 250 Rents for one bedroom units ranged demanding the highest sale prices. mortgage payments instead of rents. 6000 Projects within JLT were launched in between AED 90,000 and AED 130,000 200 Companies in 2008, dropping to between In the case of offices, Almas is the most According to our consultants, the Office Rents freezone attracts a large number of 4000 150
100 2000 BENEFITS 50
0 0 Advantages of a DMCC License 2008 2009 2010 2011 2012 2013 2014 H12015 GRAPH 15
Range of businesses permitted is much Number of People vs Residential Sale Prices (2010 to H1 2015) wider than other freezones such as DIC or People Residential Sale Prices (AED/sq.ft.) DIFC 90000 1600
80000 The number of people living and working in JLT Location is on Sheikh Zayed Road, with 1400 has been rising steadily from 2,000 in 2008 to access to Mohammed Bin Zayed Road 85,000 in early 2015 – an annualized growth rate 70000 of 82% over 6 years. 1200 Freehold office space is available at low 60000 rates compared to DIC and DIFC 1000
Accessible to Abu Dhabi, Dubai airports 50000 800
People 40000 Mixed use with residential, retail, hospitality and industrial 600 30000 Residential Sale Prices
Traffic flows smoothly, two metro stations 400 20000
Immigration, DHA are located within the 10000 200 development
0 0 DMCC organizes events, clubs, training and 2008 2009 2010 2011 2012 2013 2014 H12015 workshops Source: Core Research, Reidin.com, number of companies and people data is from DMCC Image > JLT, Dubai, UAE Note: Office rents do not include service charges
16 core-me.com 17 Spotlight | Dubai Properties
small startup companies, who prefer fully fitted spaces just over 500 sq. ft. which is the minimum required to get a DMCC license. Fitted spaces command an extra AED 20 to AED 30 per sq. ft. Demand for larger spaces comes from companies that are expanding, such as those in the construction, technology and pharma industries.
One of the reasons why JLT is commanding interest is that DMCC, the master developer as well as Concordia, the facilities management company, are hugely committed to making JLT a great place to live and work now and in the future.
In 2012, DMCC converted Lake C into a 55,000 sq. m. park to cater to the demand for more green space. The park includes playgrounds, theatre areas, exercise zones, a Kobe Bryant basketball court, and picnic areas. F&B options are also expected to open in GRAPH 16 the park. JLT Office Rents Compared to Other Office Locations A pedestrian bridge was opened last TECOM-C JLT Business Bay SZR DIC year to connect the north and south 700 side and a new pedestrian walkway has
recently been completed between 600 Mazaya Tower and Almas Tower. Various other crossings are planned throughout the community. 500 In the case of offices, JLT rents are comparable with TECOM and Business Bay. Concordia has invested in an energy 400 Vacancy rates are 17% in Tecom, 53% in efficient system in Gold, Silver and Business Bay and 30% in JLT. Almas Tower which has resulted in 300 significant cost savings. They have also bought outdoor cinema equipment
AED per Sq Ft per Annum 200 which was being used every fortnight in the JLT Park before the summer started. Art has also been promoted through 100 the sponsoring of the painting of a wall in the V Cluster. There are plans to 0 bring more art to JLT, with details
expected to be released later in 2015. H1 2008 H2 2008 H1 2009 H2 2009 H1 2010 H2 2010 H1 2011 H2 2011 H1 2012 H2 2012 H1 2013 H2 2013 H1 2014 H2 2014 H1 2015 In addition, an Events Manager has Source: Core Research, Reidin.com been appointed to organize community events such as flea markets, food festivals and film festivals. The aim is to breathe life into the community and create a place to work, live and play.
Many of Core’s consultants have reported that parking remains a concern within JLT. DMCC has engaged a parking consultant to look at all issues and opportunities related to parking in the DMCC Free Zone and the results are expected to be positive.
With a number of residential and office towers under construction, the Leed Gold Standard One JLT is close to completion and the world’s tallest commercial tower, Burj 2020, is in planning stages. These developments are likely to lead to an increase in the popularity of JLT, a location that Core, UAE associate of Savills, will continue to be heavily involved with.
18 Spotlight | Dubai Properties
Global Presence OVER 600 OFFICES AND ASSOCIATES WORLDWIDE
UK & Europe Ireland 2008 and Now - Same But Different Asia 95 48 How does the current slowdown compare to what we have witnessed five years back… 35 India America 6 68 Middle East & Africa LONG TERM MERIT BASED CHANGE IN DEPENDENT MORE TRANS- CONSTRUC- MATURE INVESTORS VALUES PROPERTY ON EXTERNAL PARENT TION BEFORE MARKET 271 The market Sale prices and LOANS FACTORS A number of LAUNCH Overall the today has more rents are Loan to value The market is regulations have A number of Dubai market is Australia end users and determined ratios are much still dependent been introduced new projects are now more 12 long term based on the lower now on external over the last few being launched mature with a investors rather merits of the compared to factors such as years which after some strong GDP and than the flippers property rather before. Also, instability in the have made the progress has population and speculators than a particular banks are region, currency Emirate more been made on growth. of yesteryears. developers maintaining a fluctuations, investor friendly. the construction. Infrastructure Developers are selling strategy. more cautious sanctions in Regulations Unlike the development is restricting Location, quality, approach while countries such have covered a yesteryears ongoing while reselling before amenities, lending. as Iran and number of areas where off plan the construction, handover and facilities, Furthermore, Russia. The - strata and projects were pharma, Please contact us for further information land department accessibility and interest rates movement of oil escrow laws, the sold based on technology and transaction fees availability of have declined prices is also a issue of refunds brochures only, financial sectors Core Research Executive Team have increased. public transport substantially. key factor to investors, this trend is are growing. are some of the impacting the transfer or helping to boost The Expo 2020 factors deter- UAE. cancellation of investor has given a mining values. stalled projects, confidence. definite boost to guaranteeing of the economy projects, and is expected regulation of real to create estate agents 277,000 jobs. Safeena Rangooni David Godchaux Edward Macura David Abood and so on... Associate Director - Research CEO Managing Director - Residential Managing Director - Commercial +971 (0) 4 423 9933 +971 (0) 4 388 3339 +971 (0) 4 388 3339 +971 (0) 4 388 3339 [email protected] [email protected] [email protected] [email protected]
Joel McQueen Jim Drysdale Maher Mallah Director - DMCC Of ce Director - Investment Sales Director - Property Management +971 (0) 4 423 9933 +971 (0) 4 388 3339 +971 (0) 4 423 9933 [email protected] [email protected] [email protected]
Core - UAE Associate of Savills
As one of the largest UAE property services rms, Core, UAE associate of Savills, combines expert local market insight with the international strength provided by 600 of ces globally.
Core’s multi-lingual advisers share an entrepreneurial spirit with a commitment to cultivating long-term, collaborative client relationships. Our local roots, commitment, and attention to detail are backed by the global standards of Savills’ 150 year old brand, giving our clients direct access to 27,000 experienced practitioners, with a deep understanding of specialist real estate services in over 60 countries.
Our bespoke residential and commercial property advice enables our clients to make informed real estate decisions both locally and abroad, through a single point of contact in any of the 15 languages spoken by our consultants, in one of our 3 of ces, in Downtown Dubai, Jumeirah Lake Towers and Abu Dhabi.
This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Core, UAE associate of Savills, accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without 1 2 3 4 5 6 7 written permission from Core’s Research Team. © Core Real Estate Brokers.
20 Head Office DMCC Office Abu Dhabi Office Ground Floor, Building 6 B1, Almas Tower Of ce 409-410, Emaar Square, Downtown Jumeirah Lakes Towers Al Mamoura Building B, Al Muroor Road, Dubai, UAE Dubai, UAE Abu Dhabi, United Arab Emirates +971 (0) 4 388 3339 +971 (0) 4 423 9933 +971 (0) 2 659 4152 core-me.com An International Associate of Savills