Press Release
CBRE releases its 2023 Middle East Real Estate Market Outlook
Resolute economic growth in the Middle East expected to drive strong levels of real estate activity in 2023
March 2, 2023
CBRE anticipates a positive outlook for the real estate sectors across the Middle East in 2023, as elevated oil prices and resolute economic growth are expected to support strong levels of occupier and investment activity, according to the company’s 2023 Middle East Real Estate Market Outlook.
CBRE foresees the economies of GCC countries to continue to record relatively strong rates of growth in 2023. Both the hydrocarbon and non-hydrocarbon sectors have seen strong rates of recovery over the course of the last year, with economic growth in the GCC region noticeably outpacing the global average during 2022. Over this period, economic growth in GCC countries recorded an average growth rate of 6.3%. and as we move into 2023, their GDP growth is expected to reach 2.7%.
This economic backdrop is expected to continue to provide the support required for regional economies to work towards their economic diversification targets. Real estate projects and associated sectors such as the hotels and industrial, logistics and manufacturing sectors will play a central role in this diversification drive. The total value of real estate projects currently planned or under construction currently stands at an estimated $1.36 trillion. Saudi Arabia accounts for 64.5% of this total or some $877 billion, followed by the UAE, which at $293 billion, accounts for 21.6% of the total. Bahrain, Kuwait, Oman and Qatar share 1.7%, 4.4%, 4.6% and 3.3% of the total respectively. While this level of investment in real estate is a core part of a number of countries’ diversification strategies, the continued development and easing of regulations will be crucial in supporting these initiatives.
Taimur Khan, Head of Research – MENA at CBRE in Dubai, comments:
“GCC economies and real estate markets, on the whole, are expected to continue to see performance levels remain relatively strong over the coming year, despite the weaker global economic backdrop. In the region’s key office markets, Dubai and Riyadh, with available supply being constrained, we expect rental rates to continue to grow. In other markets, a combination of subdued demand and excess supply will mean rental growth is likely to remain anaemic. Residential markets in the region will likely see somewhat fragmented performance in 2023, supply gluts in certain markets will drive down performance, whereas lack of supply in key business hubs such as Dubai and Riyadh is likely to mean these markets will outperform.”
CBRE’s report details the company’s 2023 Middle East real estate market outlook for multiple sectors.
Offices
Performance in the GCC’s office market was relatively upbeat over the course of 2022. In Bahrain, the prime and Grade A markets saw rates remain stable. Despite new developments scheduled to be delivered this year, we anticipate the occupancy rate, which currently stands at 74.0%, ticking up and rental rates to remain stable. Occupier activity in Saudi Arabia will continue to be centred towards Riyadh, where the average occupancy rate sits at 99.0%. With a lack of existing supply and strong pre-leasing activity taking place in new projects which are not scheduled for delivery in the immediate future, we expect that rental rates will continue to increase in 2023. In the UAE, 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. In Dubai, the current occupancy rate stands at 88.0%, up from 78.8% a year earlier. 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.
Residential
In 2022, the UAE was the only residential market to record price growth and transaction volume growth across all cities and sectors. In Dubai, while 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 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 Bahrain, villa prices are expected to record low-single digit price growth. In the apartment segment of the market, given new launches and existing levels of supply, prices are forecast to decrease more substantially. In Saudi Arabia, price performance in both the apartment and villa market segments is forecast to become more polarised over the coming year. Villa prices are expected to continue to increase, albeit at slower rates, whereas apartment prices are likely to continue to soften. However, we do not anticipate this trend occurring in Riyadh, where the rate of price growth is expected to moderate.
Hotels
In 2022, the GCC’s hotel sector recorded increasing visitation numbers, higher ADRs and ultimately higher RevPARs. Given that this will be the first year without any pandemic-related restrictions, we forecast that KPIs will, by year-end, almost uniformly surpass 2019 levels. That being said, there will be headwinds for the sector to navigate, including but not limited to a slowdown in global economic growth, a strong US dollar and the materialisation of new supply. These factors will impact country and city markets by varying degrees. In Bahrain, given the number of hotel openings in the five-star market segment, we expect that this sector is likely to see KPIs soften. In Saudi Arabia, the full-scale return of religious tourism will continue to drive occupancy in the Holy Cities and Jeddah. More so across the Kingdom, with the materialisation of luxury and ultra-luxury developments, we are also likely to see an uptick in ADRs. 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. After the FIFA World Cup 2022, unsurprisingly, we expect Qatar’s KPIs to soften amidst the dramatically higher supply and recently announced regulatory dynamics.
Retail
In Bahrain, in the second half of 2022, we have seen retail 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. 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. 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.
Industrial & Logistics
The GCC’s industrial and logistics sector over recent years has garnered a considerable level of occupier and investor interest. However, it has at the same time also been the most undersupplied in terms of suitable stock, which has held back both occupier and investment activity considerably. This backdrop has meant that average rents have increased in the vast majority of markets over the course of the last year. 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.
Read the full report here. To discover more deep market knowledge and insights visit our Insights & Research Corner.
CBRE foresees the economies of GCC countries to continue to record relatively strong rates of growth in 2023. Both the hydrocarbon and non-hydrocarbon sectors have seen strong rates of recovery over the course of the last year, with economic growth in the GCC region noticeably outpacing the global average during 2022. Over this period, economic growth in GCC countries recorded an average growth rate of 6.3%. and as we move into 2023, their GDP growth is expected to reach 2.7%.
This economic backdrop is expected to continue to provide the support required for regional economies to work towards their economic diversification targets. Real estate projects and associated sectors such as the hotels and industrial, logistics and manufacturing sectors will play a central role in this diversification drive. The total value of real estate projects currently planned or under construction currently stands at an estimated $1.36 trillion. Saudi Arabia accounts for 64.5% of this total or some $877 billion, followed by the UAE, which at $293 billion, accounts for 21.6% of the total. Bahrain, Kuwait, Oman and Qatar share 1.7%, 4.4%, 4.6% and 3.3% of the total respectively. While this level of investment in real estate is a core part of a number of countries’ diversification strategies, the continued development and easing of regulations will be crucial in supporting these initiatives.
Taimur Khan, Head of Research – MENA at CBRE in Dubai, comments:
“GCC economies and real estate markets, on the whole, are expected to continue to see performance levels remain relatively strong over the coming year, despite the weaker global economic backdrop. In the region’s key office markets, Dubai and Riyadh, with available supply being constrained, we expect rental rates to continue to grow. In other markets, a combination of subdued demand and excess supply will mean rental growth is likely to remain anaemic. Residential markets in the region will likely see somewhat fragmented performance in 2023, supply gluts in certain markets will drive down performance, whereas lack of supply in key business hubs such as Dubai and Riyadh is likely to mean these markets will outperform.”
CBRE’s report details the company’s 2023 Middle East real estate market outlook for multiple sectors.
Offices
Performance in the GCC’s office market was relatively upbeat over the course of 2022. In Bahrain, the prime and Grade A markets saw rates remain stable. Despite new developments scheduled to be delivered this year, we anticipate the occupancy rate, which currently stands at 74.0%, ticking up and rental rates to remain stable. Occupier activity in Saudi Arabia will continue to be centred towards Riyadh, where the average occupancy rate sits at 99.0%. With a lack of existing supply and strong pre-leasing activity taking place in new projects which are not scheduled for delivery in the immediate future, we expect that rental rates will continue to increase in 2023. In the UAE, 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. In Dubai, the current occupancy rate stands at 88.0%, up from 78.8% a year earlier. 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.
Residential
In 2022, the UAE was the only residential market to record price growth and transaction volume growth across all cities and sectors. In Dubai, while 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 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 Bahrain, villa prices are expected to record low-single digit price growth. In the apartment segment of the market, given new launches and existing levels of supply, prices are forecast to decrease more substantially. In Saudi Arabia, price performance in both the apartment and villa market segments is forecast to become more polarised over the coming year. Villa prices are expected to continue to increase, albeit at slower rates, whereas apartment prices are likely to continue to soften. However, we do not anticipate this trend occurring in Riyadh, where the rate of price growth is expected to moderate.
Hotels
In 2022, the GCC’s hotel sector recorded increasing visitation numbers, higher ADRs and ultimately higher RevPARs. Given that this will be the first year without any pandemic-related restrictions, we forecast that KPIs will, by year-end, almost uniformly surpass 2019 levels. That being said, there will be headwinds for the sector to navigate, including but not limited to a slowdown in global economic growth, a strong US dollar and the materialisation of new supply. These factors will impact country and city markets by varying degrees. In Bahrain, given the number of hotel openings in the five-star market segment, we expect that this sector is likely to see KPIs soften. In Saudi Arabia, the full-scale return of religious tourism will continue to drive occupancy in the Holy Cities and Jeddah. More so across the Kingdom, with the materialisation of luxury and ultra-luxury developments, we are also likely to see an uptick in ADRs. 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. After the FIFA World Cup 2022, unsurprisingly, we expect Qatar’s KPIs to soften amidst the dramatically higher supply and recently announced regulatory dynamics.
Retail
In Bahrain, in the second half of 2022, we have seen retail 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. 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. 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.
Industrial & Logistics
The GCC’s industrial and logistics sector over recent years has garnered a considerable level of occupier and investor interest. However, it has at the same time also been the most undersupplied in terms of suitable stock, which has held back both occupier and investment activity considerably. This backdrop has meant that average rents have increased in the vast majority of markets over the course of the last year. 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.
Read the full report here. To discover more deep market knowledge and insights visit our Insights & Research Corner.