Middle East Real Estate Predictions: Dubai 2016 - Deloitte

Middle East Real EstatePredictions: Dubai2016#RealEstatePredictions

2 | Middle East Real Estate Predictions: Dubai | 2016

Introduction and recap on Deloitte’s2015 Dubai real estate predictions

Middle East Real Estate Predictions: Dubai | 2016 | 1

Following two years of significant capital and rentalgrowth across much of Dubai’s real estate market, 2015marked a turning point in the market.

At the beginning of 2015, we predicted a decline inresidential sales prices in Dubai, which averagedapproximately 9.5% across all submarkets.1 There wasalso a greater proportion of residential sales transactionsin the sub AED 2 million price bracket (77% in 2015,68% in 2014 and 70% in 2013), reflecting a shifttowards more affordable accommodation acrossdifferent submarkets.

Across the hospitality market, hotel occupancy andAverage Daily Rates (“ADR”) were down by -1.4% and-7.4% respectively in 2015, although hotel performanceis still strong in a global context. The 2015 Mid-scaleand Upper Mid-scale hotel pipeline growth of 217% inDubai, against the known pipeline in 2014, resonateswith our prediction of heightened activity in Dubai'smid-market hotel sectors.

We predicted that a number of new office schemeswould be announced in key districts in Dubai in 2015,demonstrated by ICD Brookfield Place in DubaiInternational Financial Centre (“DIFC”) and the Burj 2020District in the DMCC Free Zone. Our prediction ofincreasing polarization within office districts becameincreasingly evidenced by variable occupancies acrosskey office submarkets in Dubai and rental variation within districts, as a result of variable quality and a supply shortage of well located stock.

Meanwhile, in Dubai’s retail market, Evolution 2015, atMall of the Emirates is home to a number of flagshipinternational brands making their debut in the Middle

East and with BOXPARK featuring a mix of bothinternational and local concepts. Both of thesedevelopments, which opened in 2015, are focused on creating new retail, entertainment and diningdestinations, designed to appeal to a widedemographic, echoing our predictions of thedevelopment of destination retail and further globalbrand traction.

Despite declines in some performance metrics in Dubai’sreal estate market, real estate performance in Dubaicontinues to be amongst the top global cities whentaking a longer term investment view. We see positivemarket fundamentals for Dubai in 2016, includinginfrastructure investment and connectivity, offeringpotentially good prospects in the real estate market forwell specified developments. However, despite thesemarket fundamentals, we also expect headwinds inDubai’s real estate market in 2016, largely influenced by external factors, which are explored in this report.

Robin WilliamsonManaging Director and Real Estate industry lead

1Jan - Nov 2015

Despite some negative sentiment arounda market slowdown in 2015, real estateperformance in Dubai continues to beamongst the top global cities


Dubai economic overview

The downturn in global oil prices is forecast to promptfiscal reform.2 In 2015, fuel subsidies were removedacross the UAE, which, together with inflation forecastat 3.4% in 2016 and generally stagnant salaries, is likely to lead to lower disposable incomes for somehouseholds. Despite the UAE’s forecast budget balanceof -0.9% of GDP in 2016, any significant scaling back ofkey infrastructure projects should be eased by Federalreserves and the new Law No. 22 regarding PublicPrivate Partnerships (“PPP”), passed in November 2015,which aims to boost private infrastructure investmentand drive development.

In H1 2015, strong economic growth was experiencedin Dubai’s restaurant and hotels sector, at 9.2%, whilstDubai's transport, storage and communications sectorachieved 5.7% growth. With significant infrastructureprojects underway in these sectors, including theexpansion of Dubai’s airports and the construction ofEtihad Rail, we predict that these sectors will furtherstrengthen in 2016.

Any lifting of sanctions on Iran also presents potentialopportunities for Dubai in 2016. The release of capitalcurrently in Iran is likely to prompt an influx ofinvestment to safe haven markets from which Dubaimay benefit, as well as the opportunity for Dubai to act as a gateway for business into Iran.

The Economist Intelligence Unit ("EIU") forecasts realGDP growth in the UAE to average 3.6% per annumbetween 2015 and 2019, marking a decline from the4.6% growth experienced in 2014. This forecast declineis largely due to a significant fall in global oil prices,along with wider global economic factors, such as aslowing Chinese economy and sluggish growth in theEurozone economies. It is likely that GDP growthspecifically for Dubai will outperform the wider UAE in2016, largely due to the fact that Dubai’s economy isconsiderably less dependent on oil revenue compared toother Emirates. Nevertheless, lower oil revenues arelikely to drive lower bank deposit levels and greaterwithdrawals to support potential funding gaps, whichmay result in tighter liquidity and an increase in the costof borrowing.

Any lifting of sanctions on Iran presentspotential opportunities for Dubai in 2016

GDP growth, UAE and World, 2014 to 2019

Ann

ual R

eal G

DP

grow

th

Nom

inal

GD

P (A

ED T

r.)

2.0% 1.0

1.2

1.4

1.6

1.8

2.0

2014

Source: EIU (Dec 2015 forecast)

2015 2016 2017 2018 2019

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

UAE Nominal GDP (RHS) Annual World Real GDP (LHS) Annual UAE Real GDP (LHS)

1.47 1.46

1.61

1.741.88

1.36

0%

-1%

-2%

-3%

1%

2%

3%

4%

$54

$52

$50

$56

$58

$60

$62

Perc

enta

ge U

AE

GD

P (%

)

Global oil price and UAE budget balance forecast, 2015 to 2019

Nom

inal

spo

t cr

ude

oil p

rice

,U

SD p

er b

arre

l

20192018201720162015

UAE Budget balance (LHS)

Source: EIU (Dec 2015 forecast), World Bank (Oct 2015 forecast)

Spot crude oil price (RHS)

$53

$58

$51

$58

$62

2 EIU


Dubai’s investment and finance climate

2015 saw a squeeze on liquidity in Dubai as banksassessed their current and future real estate exposure.Between July and August 2015, deposits worth AED 4.4billion were withdrawn from banks in the UAE, causingthe Government to shift from a net saver to a netborrower, with the loans-to-deposits ratio at 102.3%.3

We predict that for 2016, lenders will continue tocarefully scrutinize their real estate exposure, particularlyfor speculative development. Non-recourse structuresare likely to be limited to projects and investments withquality tenants and long term, reliable rental flows withlenders requiring greater equity contributions (inaddition to land) and other forms of security to supporthigher-risk lending. With the prospect of base ratesincreasing over the next 12 to 18 months, we predictthat the hedging of benchmark interest rates willbecome more common in finance packages.

In terms of the retail finance market, mortgage capswere introduced in the UAE at the end of 2013 toprotect consumers and slow down sales price growth.However, as residential sale prices in Dubai havegenerally increased quicker than salaries between 2013and 2015, even taking into account recent sales pricedeclines, the affordability of deposits has become morechallenging. The expatriate employment packageshistorically offered by corporates have in some casesbeen scaled down and a strong dollar has contributedto reduced end user demand for housing in Dubai fromsome segments.

Given the volume of residential supply planned acrossDubai over the next few years, a reform in mortgageregulations to permit non-resident loans (unrestricted)and a reduction in deposit requirements (for qualifyingcustomers) could be an option to stimulate residentialdemand.

We predict for 2016 that lenders willcontinue to carefully scrutinize their real estate exposure, particularly forspeculative developments

UAE Central Bank Government deposits, 2015

100,000Jan Feb Mar Apr May Jun Jul Aug Sep Oct

20% decreaseApril to October

Source: UAE Central Bank

120,000

140,000

160,000

180,000

200,000

AED

Mill

ions

3 Bloomberg

Following a period of below trend monthly residentialsales transaction volumes in Dubai in H2 2014, activitypicked up in 2015 and transaction levels bounced backto average monthly volumes experienced between 2012to 2015. Monthly residential transactions in Dubaiexceeded 1,300 in both January and February 2015,partly attributable to a number of project completionsand unit handovers in Business Bay, Dubailand andJumeirah Village.

The average value per transaction (calculated monthly)in Dubai in 2015 was lower than 2014, at AED 1.7 andAED 2.0 million respectively. This reflects a shift towardsmore affordable residential units, as we predicated lastyear. In 2015, 77% of residential sales transactions inDubai were within the AED 1 to AED 2 million price

bracket, an increase of 9% compared to 2014. 2015saw average residential sales prices across Dubai declineby approximately 10% for villas and 9% for apartments.The change in average residential sales prices during2015 was not, however, uniform across all areas ofDubai. Key submarkets where sales prices fell most wereJumeirah Beach Residence (“JBR”), Downtown SuperPrime and Jumeirah lakes Towers (“JLT”) (in excess of10%), whilst lower price declines were experienced insome more affordable submarkets such as Dubailand(villas) and International City (5.5% to 6.5%).

Residential sales price declines in Dubai in 2015 can beattributed to a number of factors, including exceptionalgrowth experienced during 2013 and 2014, which at24% and 14% respectively, was significantly in excess of inflation (1.3% in 2013 and 3.4% in 2014).4 Anotherfactor is a significant fall in global oil prices, which hasnegatively influenced sentiment and demand from theMiddle East North Africa (“MENA”) region. The strengthof the US Dollar (to which the UAE Dirham is pegged)against currencies from key international sourcemarkets, such as India, the UK and Russia, has also ledto declining purchaser power. Furthermore, a factoroften overlooked is the impact of increasing stock inmore mid-market sectors and discounting in emerginglocations, putting downward pressure on city wideaverage sales prices.


Dubai’s residential market – 2015performance and 2016 outlook

400

200

Jan Feb

600

800

1,000

1,200

1,400

1,600

Residential monthly sales transactions, Dubai, 2014 and 2015

Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2014

Source: REIDIN (Jan 2014 to Nov 2015)

2015 4 year average

Average residential sales price percentage change, key Dubai submarkets, Q4 2014 to Q3 2015

Source: REIDIN, Deloitte

JBR: -15.8%

Downtown Super Prime: -15.1%

The Views: -12.3%

JLT: -11.2%The Greens: -10.0%

Downtown Prime: -9.9%Business Bay: -9.4%

Sports City (Apartments): -9.0%

Palm Jumeirah (Villas): -7.5%

Palm Jumeirah (Prime apartments): -6.5%

Dubailand (Villas): -5.7%

Dubai Marina (Prime): -9.2%

Discovery Gardens: -7.6%

Arabian Ranches: -7.5%

International City: -6.3%DIFC: 0.9%

Average residential sales transaction values, Dubai, 2014 vs. 2015

2015

16%

77%

4%3%

2014

Source: REIDIN (Jan 2014 to Nov 2015)

23%

6%4%

68%

up to 2m 2.01m to 4m 4.01m to 6m 6m+

4 EIU

Despite the decline in average residential sales prices inDubai during 2015, price growth over the last 4 yearsreflects a Compound Annual Growth Rate (“CAGR”) ofapproximately 11.6%, which outperforms most otherleading global cities including London and Sydney (bothwith a residential sales price CAGR of approximately10.5%). Paris and Singapore have experienced anegative residential sales price CAGR over the sameperiod.5

Whilst sales prices have declined during 2015 overall,Dubai's residential Rental Price Index has shownrelatively more robust performance, despite somesubmarket variations. This has spurred the launch of anumber of development offered on a leasehold basis to end users/occupiers. Developers such as Nakheel,Meraas and Al Wasl have been growing their residentialleasehold portfolio, focusing on a rental incomestrategy.

Predictions• Following a significant number of project launchesduring 2015, contributing to a strong residentialpipeline for Dubai, we predict that the focus in2016 will turn to project delivery.

• Whilst published pipeline forecasts estimate thatsome 40,000 residential units will be delivered in2016, consultations with key developers suggestthat a more realistic number will be approximately10,000 units.

• We predict that average residential sales prices willdecrease further in 2016 reflecting a transition to amore mature market as well as an increase in moreaffordable stock and discounting in emerginglocations.

• We foresee that developers with limited track-records in delivering residential projects in Dubaiwill increasingly compete for sales, with paymentplans weighted towards handover and beyond.

• We predict that whilst there may be a softening in residential rental prices in some submarkets, we do not anticipate that this will be to the samedegree of recent declines in residential sales prices.We consider that rental price decline could beexacerbated further if speculative investors whoare unable to sell product for a satisfactory return,instead decide to release units for rent.


1,150

Average residential sales prices, Dubai, 2015

Villas - Monthly change

Villas - Average sales price

Source: REIDIN (Jan to Nov 2015)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

Sale

s pr

ice

(AED

per

sq

ft)

Qua

rter

ly p

erce

ntag

e ch

ange

Apartments - Monthly change

Apartments - Average sales price

0.0200.0150.0100.005

-0.005-0.010-0.015-0.020-0.025-0.030

1,200

1,250

1,300

1,350

1,400

1,450

1,500

0.000

-10.0%

-12.0%

-8.0%

-6.0%

-4.0%

-2.0%

0%

Residential Sales Price Index and Rent Price Indexpercentage change, Dubai, 2015

Rent Price Index

Source: REIDIN (Jan to Nov 2015)

Perc

enta

ge c

hang

e

Sales Price Index-9.7%

-2.8%

Despite the decline in average residentialsales prices in Dubai during 2015, pricegrowth over the last 4 years reflects aCAGR of approximately 11.6%, whichoutperforms most other leading globalcities

5 Halifax, Australian Bureau ofStatistics (ABS), Le conseilgénéral de l’Environnement et du Développement durable (CGEDD), UrbanRedevelopment Authority of Singapore (URA)


Hospitality market fundamentals in Dubai and the UAE were strong in 2015. Dubai International Airportretained its position as the world's busiest airport forinternational passenger traffic, up 12% year-on-year.The UAE was ranked 24 overall in the Travel and TourismCompetitiveness Index 2015, scoring number oneglobally for Government prioritization of the travel andtourism industry and effectiveness of marketing andbranding. The tourism industry is fundamental toDubai’s economy, with the Emirate having the highestovernight visitor arrival expenditure globally, atapproximately AED 17,146 per city resident.6 The directcontribution of travel and tourism to the UAE’s GDP was AED 61.6 billion (4.1%) in 2014 and is forecast torise by 4.9% in 2015. Notably, the travel and tourismindustry in the UAE supported 307,000 direct jobs in2014 (5.4% of total employment) and is forecast to rise by 5.4% in 2015.7

Total visitors to Dubai in 2015 was 14.2 million,representing 7.8% year-on-year growth. KSA drove the largest number of visits to Dubai in 2015 with 1.6million, followed by India with 0.95 million and the UK with 0.9 million. Iran and China drove the greatestincrease in visitor numbers, whilst visitors from Russiadeclined by more than 15% due to economic andpolitical turbulence and a weakened ruble.8

2015 saw average occupancy and ADR in Dubai declineby approximately -1.4% and -7.4% to annual occupancyof 77.5% and AED 797 respectively. This was primarilydue to new supply growth (6.8%) outpacing demandgrowth (4.4%) in 2015.

Dubai’s hospitality market – 2015performance and 2016 outlook

Hotel performance percentage changes, Dubai,2014 vs. 2015 November YTD

4.4%

6.8%

-1.4%

-7.4%-8.7%

Supplygrowth

Source: STR Global

Demandgrowth

Occupancy ADR RevPAR

Percentage change in hospitality source markets, Dubai,2014 vs. 2015

Source: Tourism Economics

Kuwait

US Russia

KSA

7.8% 6.6% 6.8% 8.8%

-3.1%

-15.2%-10.8%

41.7%

24.3%

0%

India UK

Germany

Iran China Oman

Global hotel occupancy and ADR benchmarks, selected cities, 2015 (November YTD)

Source: STR Global (US$)

New York

London

Berlin

Hong Kong

Dubai

Paris

84.8% ADR$256

82.8% ADR$221

ADR$104

77.4%

ADR$284 78.1%

83.6%ADR$206

ADR$217 77.5%

6 Mastercard Global Destination Cities Index 20157 WTTC 8 Tourism Economics

These relatively moderate falls should not be viewednegatively, as Dubai still remains one of the bestperforming hospitality market globally with regard tooccupancy levels, positioned together with New York at84%, London at 82%, Paris at 78% and Berlin at 77%.

In 2015, 11 new hotels opened, adding approximately2,800 new keys to Dubai’s inventory, with the greatestsupply growth in the Upscale and Upper Upscalesectors.

It is estimated that there are 31 new hotels in thepipeline (including Independent hotels), due forcompletion in 2016, which will increase Dubai’s hotelroom inventory by approximately 14% (9,300 keys) to atotal of 76,500. In the short term (2016 to 2017) thedelta between hospitality supply and demand will widenleading to a ‘new normal’ in hotel performance inDubai. In the medium term we predict that demandgrowth in Dubai's hospitably market will catch up withsupply growth, as the market gains traction in the runup to Expo 2020. We consider that planned tourisminfrastructure investment (including a number of majortheme parks), Expo 2020 and the prospect of a GCCSchengen-style visa will all have a positive impact ondemand in Dubai, driving up visitor numbers andaverage length of stay.

Predictions •We anticipate that given the market fundamentals,occupancy levels at around 70% to 75% are likelyto represent the “new normal” in Dubai in 2016.Rather than being a negative, this can be viewed asa positive, as this will help Dubai to become a moreaffordable destination. As ADRs soften slightly thisshould encourage the growth in tourism volumeswhich will be required to support the investment intourism infrastructure being developed over thecoming years. • We predict that serviced apartments are likely toattract greater attention in 2016, driven by keysource market trends, growing visitor demand forlonger average lengths of stay and better valueaccommodation.

• Following a period of exceptionally strongperformance, we predict that hotels that focus ona proactive marketing and sales approach andinvestment in refurbishment, will be best placed tocompete for demand given increasing competitionfrom the forecast new supply.

• With plans to increase capacity at DWC and DXB Airports to reach a combined capacity ofapproximately 97 million passengers in 2016, weforesee opportunities to capitalize on hospitalitydemand from transit and destination visitorgrowth and by promoting extended stayovers inthe Emirate, provided that appropriateinfrastructure, policies and incentives areimplemented.


Hotel pipeline, Dubai, 2016 to 2020

Source: Deloitte 4

7 622 6Midscale

UpperUpscale

UpscaleLuxury

UpperMidscale

9Independent

Looking at the longer term, we estimate that there aresome 23,000 hotel rooms in Dubai's pipeline between2016 and 2020 and while market fundamentals arestrong, investors, developers and lenders should alsoconsider the Expo 2020 and devise strategies forsustaining demand levels beyond 2020.

These relatively moderate falls should notbe viewed negatively, as Dubai remainsone of the best performing hospitalitymarket globally

Polarization in Dubai's office market was noticeable in 2015, as per our predictions at the beginning of theyear. A divergence between occupancy and rental valueswas experienced both inter-district and intra-district. InDIFC for example, a shortage of stock in the most primebuildings has driven rents up to AED 350 per sq ft perannum, whilst less well located and specified buildingsare quoting below AED 200 per sq ft per annum.

Across Dubai, the average office size acquired betweenJanuary to October 2015 was approximately 1,420 sq ft,at an average price of approximately AED 1,185 per sqft. A total of 1.88 million sq ft of office space was soldover this period, reflecting a year-on-year increase of12%. Business Bay dominated office sales transactionsbetween January and October 2015, accounting fornearly 50% of total office sales in Dubai.9

The importance of retail and other facilities andamenities for office occupiers was evident this year with landlord’s investing in retail improvements andcarefully selecting the right tenant mix. DAFZA Square,inaugurated in 2015, aims to meet the demand ofregional and global multinational companies featuring

a bank, business centre, gym, food court and shops. Forsimilar reasons, Emirates REIT is currently redesigning the retail space at Index Tower.

We estimate that 3.35 million sq ft of primeinternational Grade A office space was added to themarket in 2015. Take up in prime developments waspredominantly driven by consolidation and expansion of tenants seeking high quality, single ownership offices,as well as some interest from education institutions. As we predicted, dual licensing has become a keydifferentiator for new schemes, with both D3 DesignDistrict and Dubai World Trade Centre District (“DWTC”)able to accommodate both onshore and offshorecompanies.

2015 saw the first buildings in D3 Design Districtdelivered, with office space secured by a range of highprofile brands and businesses for their HQ or regionaloperations including Chalhoub Group, Hugo Boss,Jumeirah Group and Moncler. The concept and targetmarket for D3 Design District adds another dimension to Dubai’s office footprint, which has become a diverseamalgamation of clusters attracting a range of globalcompanies and SMEs.


Dubai’s office market – 2015 performanceand 2016 outlook

DowntownDubai

Sheikh Mohammad

Bin Zayed Road

Abu Dhabi Sheikh Zayed Road

Emirates Road

Sharjah

Science Park

DAFZA

DWC

Jebel Ali

Academic City

Healthcare City

Studio City

Design District

DIFC

IMPZMedia City Internet City

Dubai Industrial CityKnowledge Village

Illustrative office cluster map, Dubai, 2015

Source: Deloitte

9 REIDIN


Looking ahead, we forecast a confirmed pipeline ofinternational Grade A space in prime office districts ofapproximately 3.2 million sq ft, including ICD BrookfieldPlace, DIFC and DWTC.

3.2 Million sq ft GFA

500,000Science Park

950,000Trade Centre District

1,400,000DIFC

96,000Internet City

255,100Media City

Confirmed major international Grade A office pipeline, Dubai, 2016 to 2019

Source: Deloitte

Predictions • With a number of quality office schemes in primeareas of undersupply due for completion in 2016,we predict that rental growth will slow in somesubmarkets and the power of negotiation will shiftfrom landlords to tenants.

• Within the office sector, we predict a trendtowards more mixed use developments and agreater allocation of space to amenities in order to differentiate against competing schemes andmeet occupier demand for retail andentertainment in proximity to the workplace, aswell as a strategy for developers to diversify riskand generate more robust cash flows.

• We predict that Free Zones will continue toperform well and benefit from high occupancy inthe most prime buildings, especially those located

in proximity to key transport infrastructure(airports, ports and logistics) as these industries are projected to generate significant economicgrowth in Dubai in 2016.

• Given the shortage of quality office space inDubai, we predict that growing companies will be more amenable to leasing additional space than is required at present in order toaccommodate future expansion, with a view to subletting surplus space in the short term.

• We foresee an opportunity for investors andproperty managers to utilize data analytics and real time information to optimize leasemanagement, occupancy, revenue and costsacross their portfolio and better match occupierrequirements with availability for improvedfinancial performance and client satisfaction.

Investment in retail and other facilitiesand amenities for office tenants was apriority for some landlords in 2015


Emaar Malls Group (“EMG”) reported 90 million visitorsduring the first nine months of 2015, equating to 11%growth YTD, and a 2.9% increase in tenant sales,compared to 2014 (Q1 to Q3).

Despite a strong start to the year with 56 million visitorsto the Dubai Shopping Festival (“DSF” ) spending aroundAED 145 billion, some retailers have reported a fall insales in 2015. This has largely been attributed to aslowdown in the economies of some typically highspending source markets, political instability in certainareas of the MENA region and unfavourable exchangerates for dollar pegged currencies, making Dubai arelatively more expensive retail destination. In particular,luxury jewellery and designer fashion retailers havestated that sales were down during 2015, notably dueto Chinese shoppers not purchasing in the volumes ofthe recent past. UAE wide, the EIU estimates that retailsales volumes will have decreased by 0.7% in 2015 butwill return to growth in 2016, averaging 1.6% a yearover the period 2016 to 2019.

Food and Beverage ("F&B") was a particularly strongretail sector for Dubai in 2015. Indicative of this is anumber of restaurant chain acquisitions by investorsincluding Al Safadi Restaurants and Reem Al Bawadi,together with growth in brand penetration including thedebut of American chain Texas de Brazil and variouscelebrity-backed concepts such as Marina Social (JasonAtherton) and Tom Aikens’s Pots, Pans & Boards.

Approximately 2.5 million sq ft of mall retail space inDubai was added to the market in 2015, including theMall of the Emirates expansion, City Centre Me’aisemand The Golden Mile Galleria on Palm Jumeirah. Highoccupancy was achieved on opening at the most primemalls, especially those that benefit from high tourismfootfall and delivered by a developer with a strongtrack record.

Dubai’s retail market – 2015 performanceand 2016 outlook

Retail sales and consumer price inflation, UAE, 2014 to 2019

Source: EIU

3.4%

-0.7%

1.0%

2.1%1.6% 1.7%

Retail sales, volume growth (%)Retail sales (AED bn)

260 265 274 287 301 315

Key tourist retail mall source markets, Dubai, 2015

GCC

27.5%

Levant10.6%

Other6.0%

Europe20.4%

S Asia24.2%

NE Asia5.8%

SE Asia5.5%

Source: GRMC


A significant amount of speculative retail space has been announced in Dubai, however, we consider itunlikely that all of this will be constructed in the short-to-medium term. We estimate that there isapproximately 12.5 million sq ft of mall retail GLA in the confirmed pipeline, of which 4.3 million sq ft isplanned for delivery in 2016, based on currentcompletion dates. Approximately 40% of planned retailsupply in 2016 comprises the expansion of existing mallsand 5% community retail projects (on a GLA basis).

The retail pipeline over the next four years shows afocus on development in high density and growingcommunities such as Palm Jumeirah, Jumeirah Villageand International City, which could positively impactresidential real estate prices in these locations.

In the context of growing supply, both existing andplanned retail schemes in Dubai are competing todifferentiate and we predict that this will continue in2016. We have seen existing malls re-position theirtenant mix, the development of more creative urbanretail concepts and the creation of unique attractions to complement retail use, such as BOXPARK and TheDome Box cinematic experience.

Predictions • We predict there will be a moderation in retail sales growth in 2016 againsta strong dollar and slowing demand from countries such as Russia, Chinaand parts of Europe.

• We predict that retail rental growth in Dubai will be relatively flat in 2016,with the exception of super prime malls, which we predict will continue toexperience strong demand as they benefit from both tourist and residentspending.

• In light of new retail supply in 2015 and planned additions in 2016, offeringretailers more choice, we predict that landlords of some secondary malls will need to incentivize the major retail groups to retain certain brands, forexample through capex contributions, or rental reductions.

• We predict that F&B retailers will go from strength to strength in 2016driven by greater brand penetration and expansion. We also foreseeopportunities for more licensed retail projects in Dubai (subject toregulations).

• We envisage good prospects for fashion retail following the completion ofthe initial phase of D3 Design District, which has attracted a number of highprofile brands and fashion houses to Dubai. These key moves should attracttalent and business to Dubai’s fashion industry and contribute to trade.

Expectation on disposable income levels in 2015 and 2016,comparison to previous year, Dubai

31.9%

17%

51.1%

More

52.9%6.9%

40.3%

Less

2015

2016

Same

Source: GRMC

Confirmed retail supply pipeline, Dubai, 2016 to 2019

2016 2019

12.5

million

sq ft

GLA

Source: Deloitte


Robin Williamson MRICSManaging DirectorTel +971 (0) 4 506 4700 Mob +971 (0) 50 656 [email protected]

Martin CooperDirector - AdvisoryTel +971 (0) 4 506 4945Mob +971 (0) 50 657 [email protected]

Grant SalterDirector - Travel, Hospitality & LeisureTel +971 (0) 4 506 4778Mob +971 (0) 50 658 [email protected]

Nick Witty MRICSDirector - Bahrain -Kuwait - QatarTel +974 (0) 4 4434 1112Mob +974 (0) 3 3397 [email protected]

Dorian ReeceDirector - Airports, Transport & InfrastructureTel +971 (0) 4 506 4849Mob +971 (0) 50 658 [email protected]

Bruce Allan MRICSDirector - ValuationTel +971 (0) 4 506 4760Mob +971 (0) 50 455 [email protected]

Oliver Morgan MRICSDirector - AdvisoryTel +971 (0) 4 506 4978Mob +971 (0) 50 813 [email protected]

Kosta GeorgiadisDirector - Corporate FinanceAdvisoryTel +971 (0) 4 506 4848Mob +971 (0) 55 784 [email protected]

Annika Prince MRICSAuthorManagerTel +971 (0) 4 506 4975Mob +971 (0) 50 455 [email protected]

Key contacts

We are members of Deloitte’s real estate industry group that brings together teams with global knowledge and localexperience to provide customised solutions for clients across the full spectrum of the real estate community.


This publication has been written in general terms and therefore cannot be relied on to cover specificsituations; application of the principles set out will depend upon the particular circumstances involved and werecommend that you obtain professional advice before acting or refraining from acting on any of the contentsof this publication. Deloitte Corporate Finance Limited would be pleased to advise readers on how to applythe principles set out in this publication to their specific circumstances. Deloitte Corporate Finance Limitedaccepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Deloitte Corporate Finance Limited is a Company limited by shares, registered in Dubai International Financial Centre with registered number CLO 748 and is authorized and regulated by the Dubai Financial Services Authority. A list of members is available for inspection at Al Fattan Currency House, Building 1, Dubai International Financial Centre, the firm’s principal place of business and registered office. Tel: +971 (0) 4 506 4700 Fax: +971 (0) 4 327 3637.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Deloitte Corporate Finance Limited is an affiliate of the UK and Middle East member firms of Deloitte ToucheTohmatsu Limited. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, consulting, financial advisory, risk management, tax and related services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients,delivering the insights they need to address their most complex business challenges. Deloitte’s more than220,000 professionals are committed to making an impact that matters.

Any reference to ‘In the Middle East since 1926’ applies specifically to the Middle East member firm of Deloitte Touche Tohmatsu Limited.

© 2016 Deloitte Corporate Finance Limited. All rights reserved.

Documents

Middle East Real Estate Predictions: Dubai 2016 - Deloitte