Q32014 DXB Market Overview

Q3 2014

Dubai Real Estate Market Overview

Rents Falling

Rental Growth

Accelerating

Rents Bottoming

Out

Retail Residential

Hotel*

Rental Growth Slowing

Rents Falling

Rental Growth

Accelerating

Rents Bottoming

Out

Office

Retail

Residential

Hotel*

The Dubai real estate market saw a welcome levell ing-off during the summer months. The broad based recovery witnessed in the residential sector over the past 18 months has now slowed down, as rental prices and sale values have stabil ized in most locations. While new project’s continue to be announced, these have no immediate impact on supply as they are phased over a longer t imeframe. Although the hotel sector underperformed over the month of July, registering 50% occupancy rates, it is expected to trend upwards into the peak season in the last quarter of the year. Elsewhere in the market, the retail segment maintained its solid growth while the recovery of the off ice sector remains patchy, as high levels of supply continue to constrain the market.

Rental Growth Slowing

* Hotel clock reflects the movement of RevPAR

Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or

remain at the same point in their cycle for extended periods. Source: JLL

Dubai Market Summary

Q3 2014

Office

Dubai Prime Rental Clock Q3 2013

Dubai Office Market Overview

Future Supply (2014–2016) Current Supply (2011–2014)

Office Supply

Office Performance

Market Summary

The third quarter of 2014 continued to see a two-tier office market. While prime CBD rents have remained stable over the quarter, they are expected to increase as demand remains strong for Grade A office space. Meanwhile, rents in secondary locations are expected to remain under downward pressure as more Grade A office space enters the market by 2015. On the demand side, corporates are becoming increasingly aware of the importance of sustainability and there is heightened interest for LEED certified buildings. As traffic congestion increases, tenants and therefore owners are also paying more attention to access and parking issues.

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Hot Topics

A number of local and international companies looking for headquarters in Dubai are going for build-to-suit options. While Habib Bank AG Zurich on Sheikh Zayed Road is one example, others remain in the market on the look out for suitable land plots.

As occupancy rates in the core DIFC buildings (e.g. The Gate) remain high, we see a spill over in demand to other non-DIFC managed buildings in the precinct (e.g. Index Tower/Burj Daman). These offer rents 25%-35% lower than the DIFC buildings and are of Grade A quality.

2014 / 2015 Outlook

6.3M sq m (GLA)

6.9M sq m (GLA)

7.3M sq m (GLA)

7.4M sq m (GLA)

0.4M sq m (GLA)

0.6M sq m (GLA)

0.5M sq m (GLA)

CBD Vacancy Rate Prime CBD Rents (per sq m)

2014 / 2015 Outlook

30% 24% Q3 2013

Q3 2014

1,830 1,860 Q3 2013

Q3 2014

AED

Q4 2014 2015 2016 2011 2012 Q3 2014 2013

Rentals

2% Sales

1% Apartment

residential

Rentals

24% Sales

34%

Q-o-Q

Y-o-Y Source : REIDIN

Market Summary

While property values in Dubai have increased over the past year, the third quarter saw more subdued growth levels in both apartment & villa sale prices & rents. Average rents & sale prices grew by just 2% & 1% respectively in Q3 (down from 3% & 6% in Q2). Driven by tighter government regulations and an increasing mismatch between buyer and seller expectations, the residential sector is now experiencing a welcomed period of stability. As the various new project announcements will have no immediate effect on supply, we expect rents & prices to remain relatively stable over the remainder of 2014, with the market behaving in a more sustainable and healthy manner.

Hot Topics

As existing communities become fully established, developers are looking at alternative locations for their new projects (e.g. Tecom have announced Lantana Villas in Umm Suqeim / Jersey Properties launched the first freehold property project in Mirdif; Mirdif Tulip).

There is a shift in developer attitudes towards the off-plan sales market. Developers are seeking to attract more end-users by introducing flexible payment terms, with a higher proportion of the final price payable due after handover.

Dubai Residential Market Overview

Rentals

0% Sales

3% Villa

residential

Rentals

9% Sales

20%

Q-o-Q

Y-o-Y Source : REIDIN

Residential Performance

Dubai Residential Property Rent and Sale Indices

9K units

22K units

11K units

373K units

366K units

356K units

342K units


Residential Supply


Residential Performance

Q4 2014 2015 2016 2011 2012 Q3 2014 2013

2.7M sq m (GLA)

2.8M sq m (GLA)

2.9M sq m (GLA)

2.9M sq m (GLA)

20K sq m (GLA)

256K sq m (GLA)

396K sq m (GLA)

Market Summary

The Dubai retail market has witnessed the completion of two projects in the third quarter of 2014. The Discovery Gardens (8,700 sq m) and Jumeirah Park (10,600 sq m) Community Centers have increased the total retail stock to 2.9 million sq m. While size still matters (Mall of the World), some developers are shifting their focus to community & neighborhood centers that capture the attention of residents, and generate additional recurring revenues as opposed to cyclical residential sales. Three such malls are scheduled for completion over the last quarter of the year.

Dubai Retail Market Overview


Retail Supply

Retail Performance

2014 / 2015 Outlook


2014 / 2015 Outlook

Hot Topics

The Road and Transport Authority (RTA) has appointed JLL to lease and manage 10,000 sq m of retail space at the Red and Green line metro stations. In 2013, the metro attracted on average almost 450,000 passengers a day and is expected to draw in additional retail revenues for Dubai.

While the majority of supply in the residential sector is expected to enter the pipeline in 2017 and beyond, the retail market will witness more stock over the next two years.

Vacancy Rate Super Regional Malls

Average Retail Rents (per sq m) Super Regional Malls

AED 13% 8% Q3 2013

Q3 2014

Primary 5,000 Q3 2013

7,700 Q3 2014

Secondary 1,725 Q3 2013

2,400 Q3 2014

Q4 2014 2015 2016 2011 2012 Q3 2014 2013

235 238 YT Aug 2013

YT Aug 2014

USD

Source : STR Global

Market Summary

Year to August saw occupancy rates and average daily room rates remain largely unchanged Y-o-Y. On the supply side, the third quarter of 2014 saw the opening of the Warwick Hotel on Sheikh Zayed Road and Doubletree by Hilton JBR, increasing the current hotel stock to 62,800 keys. While the remaining three months of the year are expected to witness some openings, the sector is likely to maintain its strong performance as Dubai continues to position itself as a leading tourist destination.

Dubai Hotel Market Overview

Hotel Performance


Hotel Supply

2017 2016 2015 Q4 2014 Q3 2014 2013 2012 2011

Source : STR Global

Hot Topics

While the bulk of the supply pipeline is currently positioned in the upscale segment, initiatives to promote and facilitate development of midscale hotels are being undertaken by the tourism authorities.

Following the sale of the Movenpick JBR earlier in 2014, in the coming years we can expect to see more high-profile hotel transactions as a result the result of a more transparent and sophisticated market.


2014 / 2015 Outlook

2014 / 2015 Outlook

53,400 keys

57,000 keys

60,150 keys

62,800 keys

2,400 keys

2,800 keys

6,000 keys

7,600 keys

Average Daily Rate Occupancy Rate

79% 78% YT Aug 2013

YT Aug 2014

The supply data is based on our quarterly survey of 32 sub-markets, starting from 2009. Completed buildings refer to those handed over for immediate occupation. Future supply is based on projects in the announced and under construction phases.

Central Business District includes DIFC, DTCD, Sheikh Zayed Road, Burj Khalifa Downtown. Prime Office Rent represents the top open-market net rent (exclusive of service charge) for a new lease that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date. Data relates to headline rents, exclusive of incentives. Vacancy rate is based on estimates from the JLL Agency team, and represents the average rate across a basket of buildings in the CBD.

Definitions and methodology

Classification of Retail Centres is based upon the ULI definition and based on their GLA: • Super Regional Malls have a GLA of above 90,000 sq m • Regional Malls have a GLA of 30,000 - 90,000 sq m • Community Malls have a GLA of 10,000 - 30,000 sq m • Neighbourhood Malls have a GLA of 3,000 - 10,000 sq m • Convenience Malls have a GLA of less than 3,000 sq m The supply data is based on our quarterly survey of 45 sub-markets, starting from 2009. Future supply is based on projects in the announced and under construction phases. Malls are categorized based on their turnover levels. Primary Malls are the good performing malls with high levels of turnover. Secondary Malls are the average performing malls with lower levels of turnover. Prime Rent Shopping Centre represents the top open market net rent expected for a standard in line unit shop of 100 sq m at super regional malls.. Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit shops at super regional malls.

Hotel room supply is based on existing supply figures provided by DTCM as well as future hotel development data tracked by JLL Hotels. Room supply includes all graded supply and excludes serviced apartments. STR performance data is based on a monthly survey conducted by STR Global on a sample of more than 32,000 rooms across Dubai.

The supply and stock data is based on our quarterly survey of 53 sub markets, starting from 2009. This data excludes labour accommodation and local Emirati housing supply. Completed buildings refer to those handed over for immediate occupation. Future supply is based on projects in the announced and under construction phases. Residential performance data is based on the REIDIN monthly index. REIDIN Dubai Residential Property Price Indices (RPPIs) use monthly sample of offered/asked listing price data and land registry price data (trans- action data). Index series are set at 100 starting at the beginning of each data set.

Interpretation of market positions: 6 o’clock indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards. 9 o’clock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation. 12 o’clock Indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards. 3 o’ clock Indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation.

jll-mena.com

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014 This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of JLL IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. JLL does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

Dana Williamson Head of Agency MENA [email protected]

Andrew Williamson Head of Retail MENA [email protected]

Craig Plumb Head of Research MENA [email protected]

Chiheb Ben-Mahmoud Head of Hotels & Hospitality MEA [email protected]

Dana Salbak Senior Research Analyst MENA [email protected]

@JLLMENA youtube.com/joneslanglasalle linkedin.com/companies/jll joneslanglasalleblog.com/EMEAResearch

Dubai Emaar Square Building 1, Office 403 Sheikh Zayed Road PO Box 214029 Dubai, UAE Tel: +971 4 426 6999 Fax: +971 4 365 3260

For questions and inquires about the Dubai real estate market, please contact:

Documents

Q32014 DXB Market Overview