Dubai’s residential real estate market has completed an entire cycle of decline, recovery and decline in the last 10 years, according to a new report from UAE property services firm Core Savills
As other cities continue to gradually recover from the effects of the global financial crisis, Dubai is in a “unique” position, having swiftly recovered between 2011 and 2014, before declining again over the course of 2015, 2016 and 2017.
Core Savills, in its report 'Impacts: the future of global real estate', attributes Dubai’s distinct rental wave to significant fiscal stimulus from the government which kick-started growth, fuelled job creation and drove up demand for rental property, as well as the subsequent decrease in oil prices which results in job losses and contraction of domestic demand.
“Given that Dubai continues to be a fast-growing economy, largely reliant on expatriate tenant demand that has historically been responsive to Dubai’s economic fluctuations, the speed with which the city traversed its rental cycle is not surprising,” said Core Savills CEO David Godchaux.
“As the UAE sees further economic diversification and private sector-led growth, Dubai’s rental cycle is likely to decelerate and lengthen.”
According to Core Savills, the prime residential market which began to soften in late 2014 has more room to contract, as demand for prime residential subsides from ultra-high net worth individuals (UHNIs) and C-suite occupiers, while new offerings in the upper and mid-prime segment dilute demand.
However, the report notes that, with capital values softening, some products in this segment still hold stable yield values.
Additionally, the report notes that with relatively slower falls in rentals in core mainstream locations over the last several quarters, the segment is expected to be sluggish moving towards the bottom. Gross yields continue to be above 8 percent for apartments across mainstream markets, with yield compression expected because of further rental decreases.
Core Savills expects rents to continue softening as the next cycle of lease renewals causes a wave of relocations, particularly among tenants whose rents do not yet reflect the softening market.
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