DUBAI 2 February 2021: Cavendish Maxwell, a leading property consultancy and chartered surveying firm, released its Q4 2020 UAE Property Market Report, which mentions upcoming supply as a ‘nagging worry’.
In the first quarter of this year, 28,255 units are expected to hit the Dubai market, and 6,193 units in Abu Dhabi, it said.
“Upcoming supply continues to be a nagging worry in the new year but decisions by developers to hold off on new launches and efforts by the Higher Committee of Real Estate will likely help restore balance between demand and supply, cushioning prices. In 2021, we expect more communities to display stabilisation in capital values with the successful vaccine rollout further establishing confidence in the real estate sector and the broader economy,” said Aditi Gouri, head of strategy and consulting at Cavendish Maxwell.
“The last quarter of 2020 was an extension of changes that were witnessed during the year, may it be upgrading living spaces or adopting flexible working from homes and offices. We saw the prices and rents of more residential communities with superior offerings stabilise and even appreciate, while others continued to soften,” she added.
According to chief economist Julian Roche, investors in real estate markets throughout the UAE have three good reasons to feel more optimistic about the year ahead.
- First, Property Monitor data from Q4 2020 has been encouraging throughout the emirates and across virtually all sectors.
- Second, cautious consensus optimism over a rise in oil prices is reinforced by the widespread conviction that the global economy will begin to recover, as structural economic adaption mechanisms finally start to work. Both the International Monetary Fund and the World Bank predict a subdued recovery, with economic growth exceeding 4% in 2021.
- Finally, as one would expect in a pandemic, real estate comfortably outperformed equities last year in Dubai. Equity shareholders in Dubai ended 2020 almost 10% lower than at the start of the year but the value of residential real estate fell 4.4% in Dubai in 2020 and 7% in Abu Dhabi, according to Property Monitor.
Key Market Insights
The Q4 2020 UAE Property Market Report revealed several key insights and trends during the fourth quarter of the year.
- Average residential property prices in Dubai declined 4.4% over the 12-month period from Q4 2019 to Q4 2020 but grew 1.2% on a quarterly basis.
- Average apartment rents declined 16% over the 12-month period from Q4 2019 to Q4 2020 and 4% on a quarterly basis while villa/townhouse rents were lower by 1.7% on a yearly basis but higher by 3.4% from the previous quarter.
- Locations such as Business Bay, Al Furjan and Palm Jumeirah have displayed greater resilience over the quarters and the traditionally sought-after villa and townhouse communities have showcased strong performance since the onset of the pandemic.
Average sales prices in Abu Dhabi’s major residential zones declined by 8% for apartments on a yearly basis and increased by 1% on a quarterly basis.
Villa/townhouse prices registered a yearly decline of 6% and a quarterly increase of 2%.
The average rental decline for apartments was 6% on a quarterly basis and 15% yearly.
While villas/townhouses saw a 3% yearly decline, rents rose 2% on a quarterly basis.
On a quarterly basis, rent declines were more pronounced in some of the northern emirates than others. For instance, rents in Sharjah declined over the previous quarter but rents in Ras Al Khaimah were largely unchanged during the same period.
Offices: In Dubai, demand for office space in the range of 5,000-10,000 sq ft increased from 25% of total demand in Q3 2020 to 40% in Q4 2020. Demand from the construction sector was negligible in the latest quarter compared to 20% in Q3, potentially indicating the increasing challenges for the sector as the pandemic raged on.
Business Bay, Dubai Silicon Oasis, Jumeirah Lakes Towers and parts of Downtown and DIFC have seen rents decline on a quarterly basis. Office rents in Abu Dhabi remained largely unchanged on a quarterly basis. Headline office rents in Sharjah have mostly remained steady in 2020, largely due to innovative regulations and incentives that have helped ease the uncertainty brought on by the pandemic.
Similar to the office market, extended rent-free periods and capex contributions were offered to attract and secure reliable tenants in the retail segment. Other innovative schemes included providing tenants with turnover-linked rent options. The aim was to keep vacancy levels low and accommodate tenants’ requests of lowering rents or relocating to smaller units as business requirements changed.
Hospitality: As expected, 2020 was a tough year for the hospitality industry, with several hotels shuttering on a temporary or permanent basis. However, some others have used the pandemic as an opportunity to revisit and cut operating costs thereby improving margins not only for 2020 but beyond. Abu Dhabi has been slower than Dubai in easing restrictions in an effort to keep the rate of infections low. However, occupancy in Abu Dhabi hotels for 2020 was on par with Dubai, according to data from STR Global.
Free Zones: In Dubai, the onshore and free zone industrial market witnessed heavy activity over the past couple of quarters as Covid-19 impacted regional and global supply chains and increased reliance on e-commerce. In the northern emirates, vacancy rates increased in Q4 2020 compared to previous months, exerting downward pressure on rents. Warehouse demand in some areas was higher than the others. Areas that remained popular were the Industrial Area, Sajaa Industrial area, and Hamriyah Free Zone in Sharjah; Al Jurf Industrial and Ajman Industrial areas in Ajman and Al Hamra Industrial Park in Ras Al Khaimah.
Dubai property market buoyed by H2 2020 results: Chestertons
According to the latest research by leading international real estate services firm, Chestertons, Dubai’s residential sector enjoyed a comparatively strong second half of 2020, supported by an increase in completed property sales and continued tenant demand across more-established villa communities.
The findings, revealed in the latest Observer: UAE 2020 Review & 2021 Outlook, showed that while the total value of residential property sales fell by almost 14% over 2020, to Dh55.46 billion from Dh64.34 billion in 2019, completed property sales gained pace over the second half of last year, reaching Dh21.67 billion, a 35.5% increase from Dh 15.99 billion seen in H2 2019.
Villa sales prices recorded a comparatively moderate 3.6% decline in 2020, with the overall annual fall eased by a robust final quarter. Apartment sales price declines were more pronounced, falling 9.5% year-on-year, with continued unit completions continuing to place downward pressure on values. In the rental sector, villa rents witnessed an annual fall of 5.3%, while apartment rents fell by 12.4%.
Chris Hobden, Head of Strategic Consultancy, Chestertons MENA, said: “Dubai’s residential sector enjoyed a comparatively strong fourth quarter, with sales activity continuing to gain pace since mid-last last year. While residential rents continued to see steady falls, the pace of price declines eased in the final months of 2020, with the market-wide average bolstered by several villa communities seeing minor uplifts in achieved prices’.
“Overall, we expect to see modest declines in both average prices and rents this year, with ongoing unit completions likely to hamper performance. Price movements will increasingly vary by location and property type though, and we expect healthy demand for completed villas, across more-established residential areas, to continue into 2021.
On an annual basis, villas at Palm Jumeirah and The Meadows/The Springs saw the lowest price falls, with prices declining by just 2.1% and 2.7%, respectively. Values across Jumeirah Park and The Lakes saw the highest annual drop, falling by 5.2% and 4.9% respectively Y-on-Y.
In contrast, several locations saw modest uplifts in average villa prices over Q4, primarily driven by strong resale demand. Average villa prices across Jumeirah Park increased from Dh720 per sqft in Q3 to Dh725 per sqft in Q4, with average prices in Palm Jumeirah rising from Dh1,860 per sqft to Dh1,870 per sqft last quarter.
In the apartment sales sector, prices continued to fall, although the rate of decline eased in Q4. The largest annual price declines were witnessed in Discovery Gardens, with prices falling by 13.5% annually to Dh498 per sqft, from Dh576 per sqft in Q4 2019.
Dubai Sports City and Motor City also saw comparatively sharp declines Y-o-Y, falling by 13.3% and 12.8% respectively. Prices averaged Dh600 per sqft in Dubai Sports City, with Motor City prices decreasing to Dh510 per sqft.
Business Bay and Dubai Marina witnessed more moderate declines over 2020, with prices falling by just 3.7% to Dh973 per sqft, and 4.9% to Dh980 per sqft, respectively.
In the villa rental sector, rates fell by 5.3% on an annual basis. The Springs, Al Furjan, and The Meadows saw the steepest yearly declines, with rents decreasing by 10.1%, 7.5% and 6.9%, respectively. The Lakes, Victory Heights and Arabian Ranches all saw annual declines of above 5%, with a four-bedroom unit in each community averaging Dh212,000, Dh142,000 and Dh155,000 per annum, respectively.
While all areas saw annual declines, Q4 witnessed relative stability in average villa rents, with the majority of locations seeing rates hold steady, and a minority seeing modest improvements, leading to an average Q-o-Q drop of just 0.2%. Palm Jumeirah, Jumeirah Golf Estates and Arabian Ranches all recorded slight uplifts in average rents over Q4. Palm Jumeirah saw rents rise by 0.9%, with Jumeirah Golf Estates and Arabian Ranches seeing upticks of 0.4%, respectively, Q-o-Q.
“With work-from-home policies continuing across parts of the private sector, and tenant demand for larger residential accommodation likely to remain strong, we expect villa rents to continue to outperform the wider residential average over the coming year,” said Hobden.
For apartments, downward pressure on rental rates continued due to the economic impact of COVID-19, causing a year-on-year fall of 12.4%. The highest annual declines were seen in The Views and Discovery Gardens, at 16.3% and 16.2% respectively, with two-bedroom units in The Views averaging Dh100,000 over Q4. In Dubai Motor City rates fell by 15.9%, with three-bedroom apartments standing at Dh98,500, down from an average of Dh105,000 per annum in Q4 2019.
Studio units saw the sharpest fall over 2020, at 14.8%, followed by one and two-bedroom units, which fell by averages of 13.2% and 11.8%, respectively. Three-bedroom units declined annually by 9.2%.
2020 saw a significant slowdown in the number of new off-plan sales launches, with developers largely refraining from commencing new projects since Q1 2020. A total of 6,115 residential units started construction last year, compared to 18,650 in 2019 and 28,905 in 2018.
“We expect new off-plan sales launches to be limited in early 2021, with developers broadly reassessing project plans in the wake of an unprecedented 2020. We predict, however, that new launch activity will pick up as the year progresses, with Expo 2020 set to provide a backdrop to showcase new projects” concluded Hobden.
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