CBRE anticipates that a strong demand and a lack of supply in key sectors will continue to support a positive outlook for the UAE’s real estate market in 2023, according to the company’s 2023 UAE Real Estate Market Outlook Mid-Year Review.
Global economic headwinds, led by tighter monetary policy regimes and persistently high inflation in major economies, have led to downgrades in both global and the UAE’s GDP growth forecasts. At the start of the year, the UAE’s economy was expected to grow by 3.5% and the latest forecast now puts this number at 2.2%. However, the downgrade has been down to the expected contraction in the UAE’s hydrocarbon sector, which is forecast to contract by 3.3% (compared to the 2.7% growth expected in January 2023). The non-hydrocarbon sector, on the other hand, is now estimated to register 4.2% growth in 2023, up from the previously estimated growth of 3.9%.
Despite a weaker than expected hydrocarbon sector and even amidst what we now expect will be a prolonged rates cycle, which is likely to impact demand, CBRE continues to maintain many of its forecasts made in early 2023.
Taimur Khan, Head of Research – MENA at CBRE in Dubai, comments: “In large parts, we are seeing market performance playout as expected in 2023, where despite some global economic concerns, the lack of supply in key commercial sectors such as the industrial & logistics, office, and even segments of its retail sectors has underpinned strong performance. The continued growth of demand in the residential sector has been more surprising. That being said, we nevertheless maintain our outlook that the rate of price growth by year-end will have tapered, but still remain positive.”
CBRE’s report details the company’s 2023 UAE real estate market outlook mid-year review for multiple sectors.
Offices
Activity levels in Abu Dhabi’s office market have been strong throughout the first half of 2023, with new office rental contract registrations up 12.4% year-on-year. Rents have continued to increase although the annual rate growth rates have moderated, across all segments of the market as expected. In Dubai, whilst occupier demand remains strong and has driven average occupancy levels to 92.7% as at Q2 2023, the lack of available stock is impacting take-up. Average rents have continued to rise, where in the year to Q2 2023, Prime, Grade A, Grade B, and Grade C rents have grown by 17.2%, 11.0%, 16.4%, and 30.0%, respectively. Only the Grade C segment has not shown a moderation in its rate of change since the start of the year, other than this market has developed as expected.
Residential
Year-on-year, in the year to date to H1 2023, the total number of transactions in Abu Dhabi has increased by 94.1%. This has been underpinned by a 160.4% increase in off-plan transactions over this period. Whilst on an annual basis average Abu Dhabi’s villa prices have started to grow at a faster rate, for apartments we have seen this rate moderate in Q2. For the latter, we still expect this trend to reverse over the course of the year. In Dubai, the total volume of transactions has broken records in the first half of the year, up 43.3% year-on-year in the year to date to H1 2023. This surge in demand has also underpinned higher than expected price growth. On the rental front, in Dubai, the growth rate of average rents has moderated in each of the first six months of the year. In Abu Dhabi, the rental market to date has performed as forecasted.
Hotels
The UAE’s ADRs, as expected, have softened year-on-year in the year to date to June 2023 by 1.9%. Over the same period, we have seen the occupancy rate rise by 4.1 percentage points, to reach 75.7%. This increase in occupancy has been at a faster rate than expected and as a result, we have seen RevPARs increase by 3.6% over the same period noted above. This better than expected performance can be in parts put down to the reopening of the European tourism market. Given the UAE’s hub status, tourists are both deciding and being induced into breaking-up their trips to the continent, which has helped underpin stronger performance. This, in turn, is helping drive demand and profitability in what is usually the start of the low season. The beachfront luxury segment of the market has underperformed the wider market in occupancy, ADR and RevPAR terms. We no longer expect a softening in ADRs and hence, we expect RevPARs to post positive performance for the year.
Retail
As we reach the halfway point of 2023, we have indeed seen a convergence in rental performance. In Abu Dhabi and Dubai, average rental growth reached 16.9% and 38.0% in the year to Q2 2023, up and down from the 5.6% and 51.5% year-on-year growth rates registered in 2022 respectively. In Dubai, year-on-year in the year to date to June 2023, we have seen new retail contract registrations fall by 16.2%. Whilst occupier demand remains very strong, the availability of prime quality stock is curtailing activity levels. In Abu Dhabi, long-awaited concepts, both new and repositioned, have underpinned an increase in the number of new retail contract registrations in Q2 2023, although a sluggish Q1 has meant the total is down marginally y-o-y.
Industrial & Logistics
On the whole, in the 12 months to June 2023, we have seen rental growth continue in the industrial and logistics sector over the course of the year, with average rents in Abu Dhabi and Dubai increasing by 6.4% and 19.0%, respectively. As at Q2 2023, average rents in Abu Dhabi stood at AED 393 per square metre and in Dubai at AED 41 per square foot. However, whilst we have seen uniform growth across sub-markets in both cities, the rate of growth has certainly been very polarized, as expected. Institutional quality stock has recorded significant rental increases over the first half of the year, whereas secondary stock, in most cases, has seen more muted rental growth in comparison over this period.
