Dubai residential market cools in 2Q2026 amid regional tensions; retail and industrial segments hold firm

The Dubai real estate landscape saw divergent performances across sectors in 2Q2026, as regional geopolitical tensions prompted “a period of adjustment”, according to Chestertons Global.

While the residential and office markets saw more measured activity in the second quarter following years of expansion, the industrial and retail segments logged resilient performances, the UK-headquartered real estate consultancy firm said in its Q2 2026 Dubai Real Estate Market Report, published in August.

Notwithstanding a more cautious second quarter, Dubai’s real estate fundamentals remain strong, with performance increasingly driven by asset type, location and underlying demand, the report states.

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“Dubai’s property market continues to demonstrate resilience, but we’re now seeing a nuanced shift towards a more mature market where performance varies significantly between sectors,” says John Stevens, CEO of Chestertons Mena (Middle East and North Africa).

Slower residential activity, but prime enclaves still in demand

The Dubai residential market saw a quieter 2Q2026, reversing from “exceptional gains” recorded in the previous quarter, says Chestertons. Uncertainty in the market due to the US-Iran conflict — which broke out in February — persisted into the second quarter, with buyers holding off on decision-making.

As a result, Dubai residential transactions declined 19% q-o-q to 36,620 in 2Q2026, while total sales value fell 46% across the same period to AED87.9 billion ($30.6 billion). Off-plan property transactions, which made up the bulk of activity, fell around 15% last quarter, while secondary market deals decreased 30%.

Prices also declined on a psf basis compared to the previous quarter. The overall average apartment sale price in Dubai slid to AED1,814 psf in 2Q2026, down 3.1% q-o-q.

However, prices stayed above 2Q2025 levels, bolstered by the villa and townhouse segment. Average prices in this submarket were up 7.7% y-o-y to AED2,339 psf. Chestertons notes that ultra-prime enclaves such as Palm Jumeirah and Emirates Hills continued to set price benchmarks, backed by deep demand from families and high-net-worth buyers.

In the rental market, average apartment rents in Dubai stood at AED123 psf in 2Q2026, marginally lower q-o-q but broadly unchanged compared to the year before.

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Dubai’s residential supply is expected to increase substantially over the next few years. Chestertons estimates around 146,400 units will be completed in 2027, followed by 120,100 in 2028. The majority of the supply comprises one-bedroom apartments and studios in areas such as the Jumeirah Village Circle, Business Bay and Dubailand.

In any case, Chestortons notes that sustained demand, coupled with a recovery in regional trade and tourism, should help support gradual absorption of new market supply.

In addition, supportive government policies are expected to improve overseas buyer activity. These include the removal of an AED750,000 minimum property value requirement for a two-year Dubai residency visa through sole property ownership, as well as relaxed minimum values for jointly owned homes.

Steady retail rents despite disruptions

Retail property rents in Dubai were broadly steady in 2Q2026, despite conflict-related disruptions to international travel and discretionary consumer spending.

Dubai saw 19,868 retail rental contracts last quarter, down 14.2% q-o-q. However, average retail rents for the period stood at AED273 psf, slightly higher than in 1Q2026.

At that figure, rents remained at record-high levels, with the 2Q2026 average representing an 18.3% premium y-o-y.

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Super-regional and prime destination malls — terms that refer to large-scale retail and leisure destinations such as The Dubai Mall and Mall of the Emirates — continued to drive activity, with near-full occupancy and rents at the upper end of the rental range.

On the other hand, community and secondary schemes faced a more competitive leasing environment, with lower demand and a more price-sensitive occupier base.

Chestertons also highlights a widening gap between prime and secondary stock, reflecting the premium retailers place on retail destinations that draw tourists and high-income footfall.

In response, local developers are expanding proven assets. At The Dubai Mall, owner Emaar Properties is adding 279 new luxury outlets in a new precinct dubbed “The District”, while Majid Al Futtaim, which owns Mall of the Emirates, is carrying out an AED5 billion expansion that will add about 100 new stores. The additions to the two malls were announced in 2024 and 2025, respectively, and will be completed in phases.

Nonetheless, Chesterton observes that Dubai’s new retail supply remains tight, while prime retail spaces continue to experience strong demand.

Consequently, the market is well-positioned to ride a recovery in consumer sentiment and visitor figures, which will propel it into its next phase from a position of strength, the firm adds.

Strong demand in key industrial corridors

The industrial property market also logged a resilient performance in 2Q2026, underpinned by demand for warehouses in key industrial corridors such as Dubai Technology Park, Al Qusais and Jebel Ali. Average rent in these areas collectively rose 4.3% q-o-q and surged 23.3% y-o-y to AED66.40 psf in 2Q2026.

The movement bucks the wider market, as average rent across all Dubai warehouse contracts eased 2.1% q-o-q to AED43 psf last quarter. This comes as warehouse rental volume fell 8.4% q-o-q to 2,835 contracts.

Still, Chestertons points out that both the volume and average price increased 4.3% and 7.3% y-o-y, respectively. Additionally, the total value of warehouse rental contracts reached AED528 million in 2Q2026, representing an annual growth of 7.7%.

The steady momentum in the industrial segment was backed by Dubai’s non-oil economic activity, which stayed firmly in expansion territory even as it eased to its softest pace in over five years due to the US-Iran conflict.

Domestic consumption and government investment bolstered business confidence, while companies opted to hold larger stock buffers to mitigate freight risk, further supporting demand.

With occupancy for Grade A facilities remaining high at around 95%, rents are expected to hold steady in the coming months.

“Until a meaningful volume of new Grade A supply is delivered, competition for well-located and modern warehouse space is expected to remain strong, supporting rental levels across Dubai’s established industrial corridors,” says Chestertons.

Office leasing shifts to smaller footprints

Despite the regional conflict weighing on occupier sentiment, Dubai office leasing volume rose in 2Q2026. A total of 38,898 office rental contracts registered across the quarter, 6.5% higher q-o-q and 15.2% higher y-o-y. Activity was supported by new leases, which rose 18% q-o-q, while renewals dipped 15% over the same period.

However, average office rent stood at AED205 psf in 2Q2026, marginally lower than in the previous quarter. Chestertons attributes this to a larger proportion of smaller, lower-value rental deals, as larger footprint decisions have been deferred in light of the conflict.

This is the second quarter that office rental growth has dipped. Still, Chestertons believes the movement suggests a measured phase of rental growth, rather than the start of a broader correction.

“Demand remains concentrated in prime Grade A assets, where limited availability continues to support rental levels,” the report adds.

Grade A office supply is expected to remain tight, even as new projects are completed in the near term. While around 1.9 million sq ft of office space is scheduled for completion this year, much of the Grade A supply is anticipated to be pre-let or absorbed by existing demand, limiting any significant increase in vacancy, says Chestertons.

To that end, the firm predicts Grade A office rents may improve in the second half of the year as regional conditions settle and business confidence returns.