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Sun 13 Mar 2011 01:26 PM

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Dubai real estate supply to slide by a third in 2011

Developers are holding back supply in bid to control real estate glut, says Jones Lang LaSalle

Dubai real estate supply to slide by a third in 2011
Dubai Marina at night

The supply of fresh real estate in Dubai will tumble by nearly a third this year as developers hold back units in a bid to manage the city’s saturated property market, Jones Lang LaSalle said Sunday.

The supply of residential, retail and hotel real estate is expected to be 32.2 percent lower than in 2010, a report from the real estate consultancy showed.

“The supply clearly is being held back. That is partly due to the market factors [and] it is partly due to the fact some developers have had trouble financing projects and making the last payments,” Craig Plumb, head of research at JLL, told Arabian Business. “There are a number of buildings that have been completed and have not been released to the market.”

Thousands of units are scheduled for release this year, despite an estimated 40 percent vacancy rate in homes and offices across the emirate.

JLL said some 25,000 residential units will be released on to the emirate’s property market this year, a drop of 31 percent when compared to 2010.

New retail supply will reach 140,000 sq m, a slide of 31.7 percent on the previous year.

Around 25,000 residential units are expected, a drop of 31 percent compared to 2010.

The hotel market will see the largest decline in supply, with 3,400 new rooms expected to come on stream in 2011 – around 55 percent less than the 7,700 that came online in 2010.

Plumb said an added number of new units may be held over to 2012 in a bid to pace the supply being released on to the market.  

 “Some space… will simply get pushed to 2012. The supply we have for 2011 will probably finish up less than we are forecasting,” he said.

In Abu Dhabi, the situation is reversed, JLL data shows. The capital will see a 108 percent surge in new real estate this year, driven by its residential market.

Some 25,000 new houses and apartments are due online this year, a massive 346.4 percent rise in the 5,600 units released last year.

Abu Dhabi’s retail market will see 331,000 sq m of space released to market in 2011, a rise of 100 percent on the previous year. The hotel industry is scheduled to absorb 3,000 extra rooms.

 “Dubai is past the peak of its annual pipeline of new supply   [while] Abu Dhabi is still approaching the peak for new supply,” the JLL report said.

Industry experts have long acknowledged the oversupply problem facing Dubai; however, there is little agreement on how long it will take to clear the backlog.

Mohamed Alabbar, chairman of Burj Khalifa developer Emaar Properties, said in November it would take at least 20 months for the city to absorb its surplus stock.

Chris O’Donnell, CEO of debt-hit developer Nakheel, said in December that the figure was closer to three to five years.

Bong 8 years ago

Any comments on how the House Rents are likely to be affected ?

Mohsen Mofid 8 years ago

It is very interesting,.. I am sure if any one could stopped the supply would have had done it in late 2008, and not after 3 years when the market is dumpped with thousands of Units.
Good luck with these type of proposals.

Mohsen Mofid

Abu Zahra 8 years ago

People are moving from Studios to 1BR, 1BR to 2BR, 2BR to 3BR and so on. They are also moving from Old Dubai to New Dubai, Sharjah to Old Dubai and so on. They are also upgrading from old buildings to new buildings, new to posh buildings etc., All the new supply will certainly be absorbed by the people and it is only the old and remotely located properties which will fall vacant. Ofcourse the rentals will not be the same but they won't fall to the extent all the Pundits are predicting for the simple reason that peoples earnings have increased over the years, the money supply is great in the country, the liquidity is at an all time high in the region due to the fact that Oil prices are again up and up and Up. This is the correct analysis.

desertzoner 8 years ago

so what's new? i thought the world knew that dubai real estate bubble burst years back. And people has long stopped pumping money into crazy projects with little real value. what is left standing and still rising after the dust has settled is only the more viable developments. Nor more baloney about "Iconic" structures.
I guess this will work out well for Dubai long term strenght and competiveness

bugle 8 years ago

So basically less over supply in the short term than previously expected . But an over supply is still an over supply and if it is delayed by a couple of years what will happen when those couple of years are over?

Vlad 8 years ago

Chris O'Donnell's analysis of the time needed to absorb the oversupply is probably the more accurate.

Let's not forget that someone very very VERY senior at Emaar was quoted in a leading UAE newspaper in late summer 2008 as saying that the credit crunch, which was just beginning to have an effect, would send Dubai property prices even higher! His reasoning was that investors would pile into Dubai property as a safe haven during the global financial meltdown, because Dubai was going to be immune. Ahem.

KBS 8 years ago

One silly move - rabid overbuilding in the upscale market and relative neglect of the mid-market segment that is typically the foundation of any healthy real estate market - followed by another.

What developers should be focusing on now is how to convert a segment of the tremendously vacant over-built (and over-priced) upscale market into product for the mid-market.

You can't cut supply to the upscale market by simply hiding it behind a curtain. Hidden or not, it's all "market overhang" until it's torn down, or until the market improves, or until a combination of both occurs.

In the meantime, Dubai's second biggest real estate market problem is a lack of market balance. Find a way to shift product to segments of the market that are "relatively" under-supplied.

When the next upturn occurs, pursue "product balance" when building. If egos will permit. A mid-market product that serves tenants, buyers and investors well is far more brilliant than designer condos that sit vacant.

Simon 8 years ago

I feel you are a little delusional Abu...and not in touch with the real world and what is really happening in todays economy. The worst is yet to come and I would suggest you take a real look around you and invest sometime in research to understand that Dubai is not in good shape...and neither is its populous.

Telcoguy 8 years ago

@Abu, I kindly invite you to take a stroll this evening in JBR, MArina, JLT and count how many windows are lit. I think you fail to undertand the numbers involved here and what is going on.
Many expats have finally followed the often repeated advise, at a time where more properties became available. There is only so much movement you will see.
@KBS, most of the upscale properties here would be midlevel anywhere else, so cutting the overcapacity in the upscale segment is as simple as pricing them properly :)

gordon 8 years ago

Sir...I know the answer....."oversupply"?