Middle East Real Estate Market Outlook 2023
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For a number of years, the retail sector in the GCC has been under considerable pressure in terms of performance. This has largely been driven by excess supply and, to a point, by increasing levels of e-commerce penetration. The pandemic exerted even more complications and pressures. To the sector’s credit, it has weathered these challenges and even, in some cases, has returned with a stronger fundamentals.
In Bahrain, in the second half of 2022, we have seen occupancy levels start to increase. Furthermore, with consumers now preferring to return to traditional bricks and mortar retail, we expect that occupancy is likely to edge up over the course of 2023. We also are anticipating that after sharp declines in rental rates in recent years, we are near or at the bottom of the market.
The UAE’s retail market has been operating at varying performance levels over the course of the last year, with rental rates in Abu Dhabi and Dubai increasing by 5.6% and 51.5%, respectively. Looking ahead, we expect that we will see a convergence in performance, with Abu Dhabi likely to see rental growth accelerate and Dubai likely to see considerable moderation. In Abu Dhabi, many retailers have delayed expansion plans due to the prolonged COVID restrictions which were in place in the capital in 2022, we are likely to see many revisit these plans. In Dubai, particularly in the Prime segments of the market, due to a lack of available supply, and above all in the F&B sector, we may see activity levels taper-off during the year.
Finally, one common theme across the region is the subdued performance in secondary assets. Going forward, a key requisite for this to improve will be capital expenditures and asset repositioning.