15 September 2015

Dubai: Curvology

Conventional wisdom in Dubai for analyzing square foot rates has historically been an inverse relationship between price and unit size. However, when compared to New York, we witness a straight-line correlation between unit size and price per square foot rate.

A square foot rate analysis of Dubai reveals that the general trend is a downward curve, where studios are the most expensive. However, in the prime segment, we see a U-shaped curve, where properties on each end of the size spectrum being the most costly. However, as Dubai gravitates towards a more end-user base, we can see that larger sizes will be the preferred, eventually mimicking Singapore and New York respectively.

As developers roll out a plethora of mid-income options in a market that is under-going a correction, they have reduced unit sizes in order to retain their profit margins. In addition, the upcoming supply is skewed towards an investor base as the stock is dominated by studios and one-bedrooms.

Comparing Dubai housing supply with more mature markets such as San Francisco, there is a stark difference being witnessed.  San Francisco’s market is driven by the end-users; therefore, it is skewing new supply towards larger units (two bedrooms and three bedrooms).

As Dubai begins to ramp up supply for smaller size units and the end-user base grows, we opine that larger sizes will begin to trade at a premium, implying a positive correlation between size and per square foot rates, since it starts to mimic other mature markets.

To download the full report click here: http://blog.reidin.com/PublicReports/AE1509.pdf