UAE’s real estate sector to remain resilient in 2023: JLL MENA

Property consultancy firm JLL has shared insights from its UAE 2022 Year in Review report, which offers a perspective of the sector’s performance in 2022 while showcasing the opportunities for this year.

The report revealed that despite macroeconomic volatilities impacting the global real estate landscape, the country witnessed strong momentum in the last quarter of 2022, signalling a steady growth pipeline in 2023.

Faraz Ahmed, associate, Research at JLL MENA, said that 2022 was a year of “sustained growth for the UAE’s real estate sector as it continued to gather pace while benefiting from the country’s reliable economic policies, excellent infrastructure, safe haven status, and innate ability to adapt to new trends”.

He added: “Even segments like retail that faced headwinds initially in the year, recovered significantly in the last quarter. Looking ahead, we can expect the UAE to continue to attract the attention of both regional and international investors with aspirational offerings within the sector.”

Here are some of the highlights from the report…

The residential sector leads the rest: Residential transaction activity in Dubai was robust last year. Data from Dubai Pulse further demonstrated that transaction volumes in the emirate were up 51 per cent between January and November 2022 while the value of transactions rose by 55 per cent.

In addition, the delivery of 38,000 residential units last year pushed Dubai’s total supply to 680,000 units whilst, in Abu Dhabi, the delivery of around 6,000 units brought the capital’s residential stock to 279,000 units. In 2023, the level of scheduled completions will be a little higher (41,000 units) in Dubai and the capital is slated to see the planned completion of 6,000 units.

In annual terms, average residential sales prices were up 10 per cent and 3 per cent in Dubai and Abu Dhabi, respectively, in Q4 2022. Though rents in Dubai grew by 27 per cent over the same period, they largely remained flat in the capital.

The standout performance of the residential sector reflects Dubai’s relative safe-haven status against the background of prevailing geopolitical and economic challenges in the world. Strong residential activity can also be partly attributed to prices continuing to look attractive in comparison to other major cities around the globe.

The pipeline of projects announced by developers in 2022 grew to 27,000 units; these will be delivered over the coming years.

The report stated that investors and end-users are generally making more informed decisions and are more selective when considering which properties to purchase. Therefore, developers need to differentiate their products from competitors and deliver units of a better standard.

Office spaces segment witnessed a remarkable turnaround: A combination of strong business conditions and limited availability of good quality office spaces was broadly responsible for double-digit growth in rental values, lifting them to levels previously seen in 2015.

Grade A rents in Dubai’s CBD increased by 21 per cent year-on-year in Q4 2022, to an average of Dhs2,100 per square metre per annum. Meanwhile, healthy leasing activities in Abu Dhabi have largely supported the 8 per cent annual increase in Grade A rents to an average of Dhs1,790 per square metre per annum.

Rising office demand and inadequate new completions translated into lower levels of availability in both cities. In the last quarter, vacancy rates in Dubai and Abu Dhabi fell to 11 per cent and 23 per cent, respectively.

In 2022, the technology, finance, defence, and other professional services industries accounted for a large share of enquiries. The segment also witnessed a steady influx of new entrants, pushing up aggregate occupier demand, and leading to landlords offering fewer incentives.

According to the report, the scarcity of well-managed Grade A office space is leading occupiers to consider less expensive buildings and locations, presenting an opportunity for owners of Grade B assets to potentially capture the “spill-over” of demand for good-quality floorspace by upgrading their existing space.

Overall, in 2022, the stock of office space in Dubai rose by 30,000 square metres to reach 9.1 million square metres whereas the addition of around 8,000 square metres in Abu Dhabi increased the capital’s total stock to 3.9 million square metres.

In 2023, almost 100,000 square metres of office floor space is expected to be delivered in Dubai and over 35,000 square metres in Abu Dhabi, respectively.

Rebounding tourism boosted the hotel sector: With the completion of around 6,800 keys in 2022, Dubai’s hotel stock rose to 148,000 with most deliveries comprising four and five-star properties and the addition of 600 keys raised the total supply of hotel & hotel apartment keys to over 32,000 keys in the capital.

In the forthcoming year, approximately 13,000 keys are scheduled to be added in Dubai while Abu Dhabi will see an expected delivery of an additional 400 keys.

The occupancy rate for Dubai’s hotels climbed to 72 per cent over January-November 2022, a strong improvement compared to last year (63 per cent). Simultaneously, the city’s average daily rate (ADR) rose by 22 per cent year-on-year to $184. Meanwhile, Abu Dhabi’s occupancy rate climbed to 69 per cent in the first 11 months of last year (up from 66 per cent in the corresponding part of 2021) and ADR jumped by 29 per cent to $119.

Several hotels in both Dubai and Abu Dhabi reported full occupancy towards the end of last year as demand skyrocketed on the back of the Formula 1 event in the UAE’s capital and the FIFA World Cup in Doha.

Read: Dubai’s hotel industry ends 2022 on a high note

Also read: Abu Dhabi hotels generate Dhs5.4bn in revenue in 2022

The retail sector saw growth in H2 2022: The sustained rise of online shopping has led retailers to strengthen their digital presence to further bolster revenues in an increasingly competitive environment. Although snarled supply chains and inflationary pressures were highlighted as key headwinds by market players last year, there were signs of easing in the second half of 2022.

The delivery of around 200,000 square metres of retail floorspace last year raised Dubai’s total stock to 4.63 million square metres with about 355,000 square metres of space scheduled to be delivered in 2023 across the city – a new super-regional mall and the expansion of two existing ones in the same category will account for the majority of it. In Abu Dhabi, the retail stock remained unchanged in 2022 at 2.89 million square metres, but is expected to increase by 232,000 square metres this year.

After trending down in recent years, rents have broadly stabilised across both cities. In Q4, average rental values across primary and secondary malls in Abu Dhabi were flat when compared with the corresponding part of 2021 while rents in Dubai edged down by 1 per cent. The report stated that well-located super-regional malls have benefited from returning tourists, leading to the growth in rents for this section. Average rents for super-regional malls in Dubai rose by 3 per cent year-on-year in the last quarter of 2022, compared with Q4 in 2021.

Overall, to differentiate their offerings, owners and franchise operators remained focused on bringing unique entertainment concepts to drive footfall. Landlords have been offering favourable lease terms and incentives to attract new international brands, especially in the F&B segment.

Read: The outlook for Abu Dhabi’s real estate sector in 2023

Also read: Dubai real estate: A positive outlook for 2023