Report | Intelligent Investment

2023 UAE Real Estate Market Outlook Mid-Year Review

August 28, 2023 8 Minute Read

By Taimur Khan

2023-UAE Mid-Year-Review

Executive Summary

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Welcome to CBRE’s 2023 UAE Real Estate Market Outlook Mid-Year Review; a report in which we look back at the predictions we made at the beginning of the year and evaluate what we got right, and what we got wrong.

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, forecasts from Oxford Economics expected the UAE’s economy to grow by 3.5%, its latest forecast now puts this number at 2.5%. However, the downgrade has been down to the expected contraction in the UAE’s hydrocarbon sector, which owing to the OPEC+ output cuts, is forecast to contract by 1.6%, compared to the previously expected growth rate of 2.7% in January 2023. The non-hydrocarbon sector, on the other hand, is currently estimated to register a growth rate of 4.5% in 2023. This is up from the 3.9% growth rate which was forecast in the beginning of the year.

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.

An acute lack of supply in the UAE’s industrial and logistics, office, and even segments of its retail market means that we are likely to continue to see rental growth in most parts. Albeit as previously stated, we expect to see these rates to moderate. The lack of supply simply makes many of these markets landlord-favoured, even if demand softens somewhat over the remainder of the year.

The residential market is where we have underestimated demand, substantially so, and in both Abu Dhabi and Dubai. That being said, we nevertheless maintain our outlook that the rate of price growth by year end will have tapered, but still remain positive. This is already happening within the rental segment of the market, something which we expect to continue.

Finally, in the hotels sector, we expect that occupancy rates will continue to remain strong, particularly as we head towards high season. More so, we no longer expect a softening in ADRs and hence, we expect RevPARs to post positive performance for the year.

Offices


Forecast made in February 2023:

  • Abu Dhabi’s office market will start to see increased levels of activity, which, alongside constrained levels of new supply, will underpin further rental growth. However, we do envisage that this rate of growth will slow.
  • In Dubai’s office market, with a limited amount of new quality supply scheduled to be delivered over the course of next year, we expect that rental rates will continue to increase in all segments of the market, albeit at slower rates than we have seen in 2022. Whilst occupier demand is likely to remain unwavering, the lack of supply may hamper market activity over the course of the year.


Mid-year review:

  • 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.

Residential


Forecast made in February 2023:

  • In Abu Dhabi, we are forecasting growth in both the volume of transactions and the rate of price growth over the course of the coming year.
  • In Dubai, whilst we do expect transaction volumes to soften year-on-year, we expect that prices will continue to increase, across both the apartment and villa segments of the market, albeit at a slower rate.
  • In 2023, regarding rents in Abu Dhabi, in the villa segment of the market, we expect that the rate of growth is likely to remain positive, although will remain in the low single digits. In the apartment segment of the market, we are forecasting positive rental growth to return over the course of the year, however, the growth rates will not be material.
  • Dubai’s rental market will continue to increase uniformly, however, we will not see this happen at the same pace.


Mid-year review:

  • 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


Forecast made in February 2023:

  • In the UAE, although we expected occupancy rates to continue to increase, we forecast that ADRs will soften over the course of the year, which will put pressure on RevPARs. The beachfront luxury segment of the market is expected to continue registering outperformance, both in terms of occupancy and ADRs.


Mid-year review:

  • 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.

Retail


Forecast made in February 2023:

  • 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-19 restrictions which were in place in the capital in 2022, and we are likely to see many revisit these plans. In Dubai, we may see activity levels taper-off during the year, particularly in the Prime segment of the market, due to a lack of available supply and, above all, in the F&B sector.


Mid-year review:

  • 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


Forecast made in February 2023:

  • With reliance on the asset class expected to only increase, we feel that the sector will continue to record rental growth unanimously irrespective of location. We will, however, see polarised rates of growth across markets.
  • Although in key hub markets such as Abu Dhabi and Dubai we are expecting new supply to be delivered over the course of the year, we do not envisage that this will have a negative impact on prices. In fact, where this is institutional grade stock, we expect that it is more likely to set new benchmark rents. As a result, this may also cause fragmentation in rental rate performance going forward, with poorer quality stock likely to see rental rates come under pressure.


Mid-year review:

  • 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 polarised. 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.

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