Building on last year’s momentum, the UAE’s real estate market had a very strong start to the year, with high activity levels being recorded in the first quarter of 2023 across all sectors.
Looking at the UAE’s office sector figures, rental performance in Abu Dhabi’s occupier market continued to improve, with average Prime, Grade A and Grade B rents recording growth rates of 19.1%, 8.8%, and 10.7% respectively in the year to Q1 2023. In Dubai, the total number of new Ejari (lease) registrations in Q1 reached 22,802, up 60.5% from the previous year. Given these elevated activity levels and limited availability of supply, occupancy within Dubai’s office market has significantly improved, from 80.6% in Q1 2022 to 91.2% in Q1 2023. These increased occupancy levels have underpinned growth in rental rates, with average Prime, Grade A, Grade B, and Grade C asking rents rising by 20.2%, 13.5%, 18.7%, and 28.7%, respectively. Free Zone areas have been the focus of occupier activity, and this will likely remain the case over the reminder of the year, particularly with the introduction of the 9.0% Federal Corporate Tax, where we expect Free Zones to hold certain advantages.
In the residential sector, average apartment prices in Abu Dhabi increased by 1.4% in the year to March 2023, and average villa prices increased by 1.6%. In the rental market, Abu Dhabi’s average apartment rents dropped by 0.7% over the same period, while villa rents grew by 1.1%. In terms of transaction volumes, 2,194 residential transactions have been registered in Abu Dhabi in Q1, an increase of 72.2% from the previous year. On the supply front, in the year to date to March 2023, only 272 units were delivered, with new stock in Al Raha Beach and Shams Abu Dhabi accounting for all of this new stock. 7,306 units are anticipated to be completed over the remainder of year, with 52.2% of this upcoming supply being located in Yas Island, Al Sowwah, and Al Maryah Island.
In Dubai, average property prices increased by 12.8% in the year to March 2023, where average apartment prices rose by 12.4% and average villa prices rose by 14.8%. While these average apartment sales rates still sit at 17.1% below the highs witnessed in late 2014, several core and prime communities have long surpassed their 2014 levels. On the other hand, average villa sales rates have already surpassed the record highs of 2014 by 0.7%. On the back of rental rates reaching significant levels, we have started seeing a slight moderation in the rental market. Rents in Dubai’s residential market rose by 26.3% in the 12 months through March 2023, down from the 27.7% growth rate registered the previous month. Over the same period, average apartment and villa rents grew by 26.3% and 26.2%, respectively. The total number of rental contracts registered increased by 8.9% from the year prior, reaching a total of 148,882 contracts. Nonetheless, elevated rental rates have significantly impacted demand. In the first quarter of 2023 and compared to the same period last year, the number of new registrations dropped by 12.6%, whereas renewals grew by 29.7%, highlighting the fact that tenants are less willing to move, particularly when considering the potential higher rents when relocating. In terms of transaction volumes, a total of 29,332 residential transactions have been recorded in Dubai in the first quarter. This is the highest total ever registered during the first quarter of the year and a year-on-year to Q1 2023 growth of 52.4%. In terms of supply, 9,833 new units are estimated to have been delivered in Dubai in the first quarter of 2023, with 56.2% of this supply located in Downtown Dubai, Dubai Creek Harbour, and Business Bay. A further 55,261 units are under construction and expected to be handed over by year-end, although materialisation rates are expected to be lower. Of this new stock, 36.9% is scheduled to be delivered in Meydan One, District Seven, and Business Bay.
Looking at the hospitality sector, the total number of international visitors to Dubai totaled 4.7m in the year to date to March 2023, up 17.6% from a year earlier. However, notwithstanding this considerable growth, this headline figure remains 1.7% below the same period in 2019. Despite the average occupancy rate marginally increasing by 0.6 percentage points, year-on-year, in the year to date to March 2023, ADRs have registered a drop of 2.2% and average RevPARs decreased by 1.5%. Notwithstanding this softening of KPIs, the UAE’s average ADRs during the same period stood at 17.6% above the 2019 pre-pandemic levels. This has been supported by higher ADRs in Sharjah, Dubai, Fujairah and Abu Dhabi, which have registered growth rates of 23.0%, 17.0%, 12.6%, and 9.4%, respectively. In terms of citywide occupancy, the majority of cities are still marginally below their respective 2019 levels. Fujairah and Ras Al Khaimah are the only two locations to have registered increases in their occupancy levels, with their occupancy rates increasing by 5.9 percentage points and 2.6 percentage points, respectively. According to recent data published by STR Global in March 2023, there are 119,505 keys in the pipeline within the MENA region, down by 5.8% from a year earlier. The UAE accounts for a significant proportion of this pipeline, with a total of 22,324 keys in the pipeline, the second highest after Saudi Arabia.
In the retail sector, leasing activity remained relatively solid. In Abu Dhabi, 8,028 rental contracts have been registered as of Q1 2023, marking a year-on-year growth of 6.5%. The development of entertainment and experience-led offerings, such as those on Yas Island and Saadiyat Grove, are complementing core offerings in existing locations near Downtown Abu Dhabi. More so, over the quarter we have seen rising activity levels from new market entrants as well as existing occupiers expanding their footprint. In Dubai, the total number of retail registrations has dropped by 0.9% in the year to Q1 2023, reaching a total of 23,094 registrations. Demand in Dubai’s retail market continues to largely stem from the Food & Beverage industry, particularly licensed operators. The market in Dubai remains very much landlord-favoured, with landlords being more stringent on incentives and biased towards concepts willing to commit to longer lease terms. In both Dubai and Abu Dhabi, core and prime locations are still the primary areas that occupiers are focusing on, however, the scarcity of quality stock remains the main challenge being faced. In the 12 months to March 2023, average retail rents in Dubai have grown by 41.1%, reaching an average of AED 447 per square foot. This growth has been supported by increasing rental rates in regional and super-regional stock. In Abu Dhabi, rents have registered a year-on-year to Q1 2023 growth of 5.6% to reach an average of AED 1,875 per square metre.
The UAE’s industrial and logistics sector continued to showcase strong leasing activity as well, specifically in the automotive, e-commerce, consumer goods, manufacturing, and the SME sectors. In Q1 2023, the total number of rental registrations in Abu Dhabi has increased by 8.5%, while in Dubai, it grew by 4.7% year-on-year. The lack of new development over recent years, paired with the elevated levels of demand from both new and existing market players, has led to a scarcity of quality stock in both Abu Dhabi and Dubai. As a result, we saw average rents in Abu Dhabi and Dubai grow by 5.9% and 16.2%, respectively, in the year to the first quarter of 2023. Moving forward and given the prevailing market conditions, particularly the lack of supply and substantial levels of demand, additional increases in rental rates are expected. More so, despite this sector having considerable development prospects, the main challenge continues to be the lack of infrastructure to carry out such projects, with appropriate power infrastructure availability being particularly acute.
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