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Dubai Market Update Q3 2020 Market Snapshot Q3 2020

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Dubai Market Update Q3 2020 Market Snapshot Q3 2020 CORE Research core-me.com/research DUBAI MARKET UPDATE Q3 2020 MARKET SNAPSHOT Q3 2020 As with most global markets, Dubai’s economy rental falls compared to sales prices are resulting in and real estate market reeled under the impact of yield contractions. Lower yields coupled with the COVID-19 since late March 2020 with widespread new regulation on non-payment of service charges job losses and salary reductions seen in the ensuing in legal issues and restrictions on new private sector. While retail and hospitality sectors rentals and sales is expected to put further pressure continue to face headwinds due to a slowdown on landlords with limited liquidity. in global tourism, residential and office asset classes saw enquiries and transaction activity The office market saw increased relocation activity, levels rebound with higher volumes seen in Q3 particularly from SMEs and regional occupiers as 2020 as buyers, tenants and occupiers adjusted to most businesses adapted to market conditions. the new normal. Although this rise in transaction International corporates on the other hand are activity may be perceived positively, particularly mostly continuing to work from home for the in the residential market, it is most likely a release remainder of 2020 with their real estate decisions of pent-up demand created over Q2 2020. It deferred to 2021. We expect a second wave of would be interesting to see if these activity levels relocations in 2021 when these large corporates will be sustained over the near to mid-term as adjust their workplace strategies. positive demand drivers such as lower interest rates, increase in loan-to-value ratios, retirement While the initial adoption of widespread work from visas and fractional ownership of title deeds are home arrangement was met with enthusiasm, many implemented. enterprises are now witnessing that lack of social connections and no clear separation between Despite a raft of demand drivers and higher personal and professional life is causing loss of transaction volumes, sales prices remain at a productivity and lower levels of engagement. cyclical low, with many districts transacting nearly Although we agree that work from home will remain 35% lower than their 2014 peaks. With capital prevalent with hybrid models the largely accepted values now nearing the 2011 trough, we continue workplace strategy, the importance of the physical to see investor buyer interest remaining strong, office is unlikely to be diminished as businesses particularly for competitively priced ready units. will need common spaces to foster innovation, Historically, institutional investments have been productivity and teamwork that are hard to sustain limited in the UAE primarily due to the scarcity of through remote working. investment grade stock, despite strong demand. However, we now see institutional interest piquing The UAE government has been very proactive and as many existing developers and corporates agile in navigating through this ongoing situation are making assets available for dispositions as with unprecedented fiscal stimulus measures and occupiers look at focusing on core business lines policy reforms deployed to soften the impact on and assets. businesses while maintaining the highest standards of public health measures to curtail the spread of While residential supply handovers have slowed COVID-19. As we draw closer to the end of 2020, compared to initial forecasts, ample existing with signs of gradual revival seen across sectors, we inventory and contraction in demand is expected remain cautiously optimistic of a stronger 2021 on to keep a supply overhang in the near to mid-term. the back of ease in global travel, potential availability This along with the lingering impact of COVID-19 of vaccinations and undoubtedly the positive impact on the overall economy is expected to further created by the upcoming Expo. delay sales price and rental recovery while sharper This publication This document was published in October 2020. 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. 2 core-me.com/research core-me.com/research 3 Residential Market 4 core-me.com/research core-me.com/research 5 DUBAI MARKET UPDATE Q3 2020 32,000 Estimated Residential Apartment vs. Villa Deliveries YTD 2020 Residential Supply Deliveries for 2020 12.000 10,000 30% Villas Dubai saw nearly 21,500 units come to market YTD Supply Delivered by Area YTD 2020 8,000 2020 (January 2020 to September 2020), bringing total residential stock to 571,500 units. Furthermore, Others 6,000 there are over 10,500 units expected to be handed 14% Dubai over in Q4 2020. Although handover volumes for Land 4,000 Downtown Number of units 25% 70% 2020 are significantly lower than the initial forecast 3% Apartments 2,000 of 49,000 units at the beginning the year, 2020 will Muhaisnah still see nearly 32,000 deliveries in total. While there 4% 0 are other factors at play such as lower realization Dubai Q1 2020 Q2 2020 Q3 2020 Q4 2020 E rates over the past several years, we have seen the Sports City impact of COVID-19 cause a significant slowdown in 4% handover volumes. Al Furjan Source: CORE Research 4% Major YTD 2020 villa deliveries include Noor Business Dubai Townhouses by Nshama in Townsquare, Pacifica by Bay South Damac in Akoya Oxygen (Dubailand), Casa Dora 5% 13% (Serena) Villas by Dubai Properties in Dubailand, Dubai Silicon Maple 3 by Emaar in Dubai Hills Estate and Arabella Oasis 6% Transaction Market Trends 2 in Mudon (Dubailand). Prominent apartment JVC & JVT Meydan & handovers this year include Rawda and Hayat 9% MBR City Boulevard by Nshama in Townsquare, multiple 13% Transaction volumes across the secondary to the release of pent up demand. However, deliveries by MAG in Dubai South, Merano Towers market and off-plan market displayed year- off-plan market activity is facing an interim lag by Damac in Business Bay, Boulevard Point by on-year growth in Q1 2020, stemming from as buyers prefer ready units to avoid further Emaar in Downtown Dubai and One JBR by Dubai positive market sentiment with which we uncertainty and delays that may be expected Properties in Jumeirah Beach Residences. entered the year. As expected, due to lockdown from the off-plan market. 571,500 units 21,500 units restrictions and the overall uncertainty caused Total residential stock in Delivered YTD 2020 Dubailand and Dubai South are the leading areas Dubai as of Q3 2020 (Jan - Sept 2020) due to COVID-19, we saw a sharp decline in As pent-up demand activity gradually stabilizes by number of handovers YTD 2020, followed by transaction activity levels in Q2 2020. over Q4 2020, it would be interesting to see Meydan and MBR City. how transaction volumes perform as economic In Q3 2020, secondary market transaction sentiment recovers on the back of a host of We conservatively forecast nearly 39,000 units volumes saw a quick rebound and marginally demand drivers initiated by the government to 10,500 units for 2021, however, further downward revisions are Estimated to be handed over in Q4 2020 higher transactions than Q1 2020 volumes due spur demand. expected on supply forecasts as they will inherently depend on buyer confidence as developers continue to adjust to ongoing market conditions. Residential Transaction Market Trends 7000 Residential Deliveries in Dubai 2011 - 2021 6000 40 5000 35 39 4000 30 10.5 3000 25 32 20 2000 Number of transactions 28 15 1000 19 21.5 18 17 18 18 10 0 Number of units in thousands 12 Q1 2019 Q1 2020 Q2 2019 Q2 2020 Q3 2019 Q3 2020 5 11 Secondary market sales Off-plan sales 0 Source: REIDIN, CORE Research 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E Source: CORE Research 6 core-me.com/research core-me.com/research 7 DUBAI MARKET UPDATE Q3 2020 Residential Market Performance Apartment Sales Prices Q3 2019 vs. Q3 2020 The Greens Dubai Discovery JLT Dubailand DIFC Jumeirah Business Dubai Downtown Palm and The Sports Gardens Village Bay Marina Dubai Jumeirah Views City Sales Market Despite the rise in secondary transaction volumes, The most important recent announcement is -5% -6.2% -6% residential sales prices continue to follow a undoubtedly the retirement visa regulations which -7% downward trajectory with almost all areas showing is expected to create long-term demand as more -9% sharp double-digit year-on-year drops. resident expats and international buyers choose the -11% -12% UAE to settle down, thus contributing to sustained -13% -13% The government is implementing many demand population growth. In the mid to long-term, we drivers to spur recovery including attractive interest expect this regulation to open new real estate -16% rates and the favourable loan-to-value ratio with asset classes such as retirement communities with an increase of five percentage points for first-time integrated healthcare that are prevalent in other -19% buyers which is expected to improve affordability in mature economies while retirees can also benefit the secondary sales mortgage market. While this is from UAE’s tax free environment for their retirement Source: CORE Research a good initiative, contraction in disposable income, funds. With a warmer climate compared to most concerns of oversupply and caution is making some European markets, world class infrastructure, end-user buyers, who were otherwise primed to excellent air connectivity and proximity to countries buy, wary of investing in current market conditions. with a higher population of aging residents, we New Service Charge Regulations expect strong demand from this demographic. Other positive measures include fractional Dubai’s Real Estate Regulatory Authority, as part of Management companies will need to provide ownership of title deeds for hotel or serviced Sustained price drops have also piqued the interest a series of regulatory reviews and improvements, transparency on where the money has been spent apartments.
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