Dubai’s economy is on the mend, largely benefiting from the regional instability created by the Arab Spring. According to the International Monetary Fund, the glitzy sheikhdom in the United Arab Emirates (UAE) will experience annual growth of 3.5%; some of that comes at the expense of its neighbors, particularly Bahrain.
Following its bloody crackdown on Shiite protestors, Bahrain has seen law and financial firms flee to Dubai, or set up temporary offices there. The flow of new businesses has been welcomed by Dubai’s beleaguered commercial real estate sector, which has over 6 million square meters of vacant office space currently available, according to a July report by international property firm CB Richard Ellis.
Still, the influx of business has not provided the boost commercial lessees were seeking — according to the same report, office lease rates have dropped 18% year on year, and 75% from the market’s peak in 2008.
The outlook is even bleaker for the residential market, which is caught up in a vicious cycle of oversupply and lack of demand. At its peak in 2008, price increases in the UAE’s real estate market were on a six-year run. But the global financial crisis and Dubai’s debt issues derailed the market.
Since then, Dubai real estate prices have sunk nearly 60%, according to a Reuters poll. Building meanwhile continues, as developers attempt to capture what they can from old projects: An estimated 18,000 new homes will be added to Dubai’s market by the end of the year, according to property consultancy Jones Lang LaSalle.
Dubai has attempted to drum up new investors for its real estate market, offering three-year visas to anyone buying over US$272,000 worth of property, and also instituting an Islamic REIT to draw in institutional investors. But not enough buyers have entered the market yet, preferring to wait it out — according to the Reuters poll, a majority feel that the market is still two years away from hitting bottom.
The one bright spot in Dubai’s real estate market has been hotel occupancy. According to a report from Cluttons, an international real estate firm, overall hotel occupancy in the peak season for Dubai this year averaged 86%, a 4% year on year increase. Thanks again to the UAE’s relative calm in the region. “To what extent Dubai’s current performance is being buoyed by the recent political uncertainty in the region is not yet known and it is unclear how long this situation will continue,” noted Steven Morgan, head of Cluttons UAE.
#1 by backlink on October 23, 2011 - 5:27 pm
Abnormally well written blog post!