Property Review Dubai Real Estate Report Q2 2020 SPECIAL NOTE FROM MANAGEMENT Asteco’s research reflects the latest market trends. Our data is obtained from an extensive range of sources, including transactional evidence, valuation evidence (internal and external), discussions with major UAE lenders, brokers (internal and external) and data from managed portfolios comprising assets situated across the UAE. To date, the UAE real estate market has shown a surprising level of resilience in the face of serious challenges created by COVID-19. However, despite a number of positive reports suggesting that the economy is moving into a recovery phase, it is widely perceived that the full economic impact has yet to be felt. Rather, there is considerable risk that the economic unwinding from the pandemic has yet to begin in earnest. The Calm before the Storm? Whilst it might be surprising to describe recent tumultuous months as calm, the current data indicates a lag in real estate market trends to events that have already unfolded, and continue to unfold. This would appear evident from our Q2 2020 figures, which indicate no significant drop in values and rents over the past quarter. Rather, the declines were broadly in line with Q1 2020 results. On this point, it is worth noting that these drops were already anticipated based on significant levels of supply and weak demand. As such, it would appear that the ‘new’ headwinds created by COVID-19 have yet to bare teeth. It is widely expected that this picture will become much clearer following the resumption of international travel and the repatriation of unemployed workers. Nevertheless, measures have been made to offset the full economic impact of Covid, both at Federal and Municipal levels, through a series of stimulus packages. These packages will mitigate some of the short term Elaine Jones effects and provide a platform for improvement in the overall economy in the medium to long term. FRICS These stimulus packages are supported by existing commitments to infrastructure spending / delivery, such as the Expo 2020 metro line (Dubai Red Line extension) with 7 new stations, which will officially open to the public Executive Chairman and Founder in September this year. The opening of UAE airports to international tourists will also undoubtedly provide welcomed relief to the hospitality and retail sectors, two of the hardest hit segments of the economy. The recovery of these sectors is ultimately critical to returning the economy to full health. However, the pace of this recovery remains uncertain and will ultimately be influenced by a range of factors, many outside of the UAE’s borders. Nevertheless, with an increased probability of business downsizing and potential job losses, there is a high risk that demand for real estate (rental and sales) will weaken further. This potentially sharp drop in decline is set to coincide with the continued delivery of pre-pandemic committed supply. As such, significant corrections in values (rents in particular) during the second half of the year and into 2021 are likely. 2 DUBAI MARKET OVERVIEW SUPPLY* RENTAL RATES SALES PRICES New Apartment supply slowed markedly in Q2 2020 with the The rate of decline for Apartment, Villa and Office Rental rates over Q2 2020 was more or Whilst there is definite traction in the market, handover of 4,200 units, compared to over 5,750 in the first less similar to previous quarters, recording quarterly drops of 4%, 3% and 5%, respectively. sales prices for Apartments, Villas and Offices quarter of the year. Similarly, new Office supply fell short of contracted by 4%, 4% and 2% compared to last quarter’s output, with the delivery of 0.3 million sq.ft. of Annual changes were also broadly aligned with preceding trends and amounted to 13%, the previous quarter, and recorded annual Office space compared to 0.5 million sq.ft. in Q1. 10% and 13%, respectively. Asteco anticipates that this pattern is likely to prevail, or even declines of 11%, 11% and 9%, respectively. intensify due to the expected volume of additional supply combined with a potentially sharp Interestingly, Villa stock increased marginally, from 2,150 drop in demand in the short to medium term due to the impact of COVID on employment. The reduction of the LTV ratio by 5% and units in Q1 to 2,300 dwellings in Q2 2020. partial release of pent-up Buyer demand There has been a marked rise in the number of small (circa. 100 - 500 sq.ft.), fully resulting from the lifting of movement Despite post-completion linked payment plans that furnished / fitted / serviced offices available for Lease, especially in areas with a large restrictions resulted in an immediate bounce previously encouraged Developers to complete projects in a amount of strata title space, such as Business Bay and Jumeirah Lakes Towers. Incentives in sales activity towards the end of the second timely manner, new supply is likely to fall short of earlier offered are extensive and include items such as free licenses, rent-free periods (up to 12 quarter. estimates. months), zero commission, free chiller, free parking, flexible payment options, etc. However, there has been a significant drop in Recent research revealed that approximately 20% of Despite discounts and incentives offered by Residential and Commercial Landlords, we off-plan Sales launches, a trend we expect will previously tendered or under construction projects have expect a reduced number of new Leases and renewals in the short term as Tenants adopt a continue for the short term. been put on hold, temporarily or indefinitely, and our wait and see approach. projections have been revised accordingly. Despite extensive Government initiatives on Whilst prolonged economic challenges and the general level of employment uncertainty both Federal and Municipal level, oil price Whilst these figures represent a notable decline on previous have and will result in Residents downsizing and seeking value-for-money accommodation, volatility and the threat of a breakdown in projections, it is still a significant volume, particularly given preliminary data suggests an increase in enquiries for larger (competitively priced) units with trade relations between China and the USA the current situation. extensive facilities. This is predominantly due to the rise in ‘work from home’ policies will continue to weaken global economic and implemented by companies, often on a permanent basis. therefore local recovery. Although Real Estate demand is likely to slow based on current uncertainties, it is reasonable to assume that the In addition, there may well be a trend for more flexible Residential options in terms of Lease Whilst we initially expected the fall out of number of new project announcements will be very limited terms and more limited upfront capital requirements due to shorter term employment Covid-19 to manifest in Q2, we do not believe until economic conditions and market sentiment improve. opportunities and in order to address concerns over job security. this to be the case just yet. Until greater This may aid in the absorption of pent-up demand in the stability returns to the market, it is difficult to medium to long term. In any event, monthly payments by direct debit / credit cards will become the market norm predict when conditions will normalise and and the Property Management structure will need to be able to address these how transactional volumes and values will be requirements going forward in terms of enhanced level of Tenant management and affected. Moreover, it is difficult to anticipate responsive maintenance services to retain Tenants. whether long term changes to purchaser habits and change in work-place, work-life habits will manifest. *It is important to note that whilst a number of projects may have received completion certificates, Asteco does not consider a project delivered until the handover process has been initiated and the units are available for Lease in the open market. 3 Dubai Real Estate Report - Q2 2020 DUBAI SUPPLY COMPLETED IN COMPLETED IN PROJECTED Q1 2020 Q2 2020 H2 2020 5,750 4,200 12,650 APARTMENTS NO. OF UNITS 2,150 2,300 3,750 VILLAS NO. OF UNITS 0.5 0.3 1.15 OFFICES MILLION SQ.FT. 4 Dubai Real Estate Report - Q2 2020 DUBAI APARTMENT RENTAL RATES (All figures in AED 000’s p.a.) STUDIO 1 BEDROOM 2 BEDROOMS 3 BEDROOMS % CHANGE FROM TO FROM TO FROM TO FROM TO Q1 2020 - Q2 2020 Q2 2019 - Q2 2020 HIGH TO LUXURY END DIFC 45 65 60 100 70 140 95 205 -3% -11% DOWNTOWN DUBAI 35 65 50 80 120 100 180 -6% -14% PALM JUMEIRAH 50 70 60 110 85 155 110 190 -3% -8% SHEIKH ZAYED ROAD 50 60 50 85 60 120 80 150 -2% -9% MID TO HIGH END BUSINESS BAY 30 47.5 40 65 95 95 125 -15% DUBAI MARINA 30 40 75 115 70 160 -5% -12% GREENS 35 47.5 45 70 65 105 85 140 -6% JUMEIRAH BEACH RESIDENCE 45 55 70 100 90 135 -13% JUMEIRAH LAKES TOWERS 45 37.5 45 85 60 120 -12% AFFORDABLE DEIRA 15 40 25 55 37.5 55 95 -4% DISCOVERY GARDENS 22.5 32.5 35 50 80 - - -4% -10% DUBAI SPORTS CITY 20 30 30 45 65 60 -16% INTERNATIONAL CITY 15 25 22.5 32.5 35 50 65 80 JUMEIRAH VILLAGE 22.5 32.5 30 65 90 -15% Q-o-Q Y-o-Y Since peak Since market low % Change Since Q1 2020 Since Q2 2019 Q2 2014 Q3 2011 -4% -13% -41% 0% 5 Dubai Real Estate Report - Q2 2020 DUBAI APARTMENT SALES PRICES % CHANGE (All figures in AED per sq.ft.) 0 500 1,000 1,500 2,000 2,500 Q1 2020 - Q2 2020 Q2 2019 - Q2 2020 HIGH TO LUXURY END DIFC 800 1,750 -2% -7% DOWNTOWN DUBAI 775 1,800 -4% -9% PALM JUMEIRAH 675 1,850 -8% MID TO HIGH END BUSINESS BAY 650 1,275 -3% DUBAI MARINA 600 1,500 -10% THE GREENS AND THE