Dubai Markets in 'Recovery Stage'

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All property sectors in Dubai are "positioned in the recovery stage" for the first time since mid-2008, according to a new report from Jones Lang LaSalle.

However, the upbeat forecast includes a large caveat.

"The positive performance remains largely concentrated in the best quality projects in prime locations with secondary locations and poor quality projects continuing to experience high vacancy rates and stable or even falling rental values," JLL reports.

The REIDIN villa sale price index was up 17 percent and the apartment index rose 18 percent in the first quarter, compared to a year earlier. But apartment prices were still down 23 percent from the peak of the market in 2008, while villa prices remain 8 percent below the height of the market, JLL notes.

Investors have been "very active" in the residential market, with some groups from the Gulf and Middle East targeting full buildings. Continued "uncertainty" in Europe and the banking crisis in Cyprus might also spur increased interest, with Dubai seen as "politically stable and attractive to offshore investors," JLL notes.

Residential rents are also up, rising 10 percent from a year earlier, with villa rents hitting their highest level since 2009, JLL reports.

About 40,000 new residential units are in the construction pipeline, mostly outside central Dubai, with 28,000 homes expected to complete in 2013. While demand is picking up and work has resumed on some stalled projects, Jones Lang does not "expect all the announced space to be delivered in the timeframe."

The office market, which has been hampered by an oversupply of space, is also showing signs of rebounding the consultancy reports. Demand is picking up, particularly in prime buildings, with a "flight to quality" the key driver.

Average "headline dealing rents" rose 10 percent from the previous quarter, as landlords started to stand their ground with tenants.

But JLL offered a similar warning with the office market as in residential. While the market "appears on a recovery path," the growth "remains concentrated on prime buildings," JLL reports. Demand is primarily driven by consolidation and upgrades, rather than new entrants into the market.

Retail and hotels remain the most robust sectors in Dubai. Although most retail rents were flat, vacancy rates are down 13 percent from a year ago. Retail sales in Dubai Mall rose 24 percent in 2012.

Meanwhile, hotels posted an occupancy rate of 88 percent in February. More than 10 million tourists visited Dubai in 2012, a 9 percent increase from 2011, Jones Lang reports.