Knight Frank releases UAE Real Estate Market Review and Forecast for 2020
Knight Frank has released its UAE Market Review and Forecast 2020. The report provides an overview and outlook of the key real estate sectors including the commercial, hospitality, residential and retail sectors in Abu Dhabi and Dubai.
According to Taimur Khan, Associate Partner at Knight Frank Middle East, “Whilst performance in the UAE’s real estate sectors has continued to soften, the introduction of a range of regulations to increase the ease of doing business and balance out supply and demand will enhance the fundamental offering of the UAE’s property market and, in turn, enhance confidence from developers and investors.”
According to the report, Residential sales prices in Abu Dhabi fell on average by 7.5% in 2019, whilst prices in Dubai fell by 6.0% over the same period. Dubai’s residential market is showing very early signs of recovery as the country begins to see a sustained increase in transaction volumes. Initial data releases show that residential transaction volumes in 2019 have increased by 26% compared to 2018.
Commercially, over the course of 2020, the trend of consolidation and a flight to quality is likely to continue across the UAE, driven by softer market conditions and regulatory changes, such as the 100% foreign ownership law and dual licensing.
In Abu Dhabi, rental rates for offices are expected to decline with the market is likely to remain favourable towards occupiers. As this trend continues, expect to see longer term commitments from corporate occupiers, with average lease lengths likely to shift towards the five-year mark. Over the next three years, over 392,000 square metres of supply is expected to be delivered in Abu Dhabi, a 10.6% increase compared to current total stock.
The short to medium term outlook for Dubai’s commercial market remains negative with rents expected to continue to decline across all segments. However, it is likely that the office market will begin to fragment - by area and even within asset grades.
In 2020, Knight Frank estimates delivery of over 280,000 square metres of commercial space in Dubai. The take up of such space is likely to be driven by relocations rather than new market entrants, which is expected to put further pressure on rental rates within locations where this additional supply is being delivered.
Whilst there will be an impact on retailers margins as greater levels of penetration from e-commerce and, as of more recently, e-retailers, physical retail space in the UAE, particularly that which is focused around destination and entertainment focused developments will attract both retailers and consumer demand. However, looking at the pipeline of upcoming developments in Abu Dhabi and more so in Dubai, there is expected to be further pressure exerted on retail assets of all grades across the UAE.
Looking ahead, whilst Expo 2020 will certainly help bolster the market, in the medium to long term both developers and operators are concerned about certain micro markets that not only have become extremely competitive in their own right, but also have a sizeable pipeline.
That said, recent government initiatives such as the easing of visa regulations and five-year multi-use tourist visas alongside a growing number of varied leisure and cultural demand drivers will help ease this pressure.
Finally, as new and more diverse demand drivers come to fruition, development opportunities remain in certain sub-markets, but can only be fully exploited with a very well differentiated value proposition, and cash optimisation driving the build phase.
The detailed report can be seen here.