The strong activity and performance levels in the UAE’s Real Estate Market Expected to Continue into 2024, Says CBRE

Dubai:– Activity levels within the UAE’s real estate market remained solid over the last quarter of 2023, and this continues to drive performance.

Looking at the UAE’s office sector figures, given a marked increase in demand, rental performance in Abu Dhabi's occupier market has surged, with average Prime, Grade A, and Grade B rents recording growth rates of 0.5%, 3.4%, and 4.8%, respectively, in the year to Q4 2023. In Dubai, the total number of Ejari registrations reached 47,234 in Q4 2023, a 34.7% increase from the previous year. The current market conditions have pushed average occupancy rates to 92.6% as of Q4 2023, up from 88.1% a year earlier. Driven by increased take-up and limited stock availability, average Prime, Grade A, Grade B, and Grade C office rents in Dubai increased by 8.0%, 13.3%, 18.2%, and 20.3%, respectively, in the year to Q4 2023. Occupier activity has originated from a diverse range of sectors, in both Free Zone and Non-Free Zone locations. The pharmaceutical and financial services sectors, and particularly hedge funds and asset management firms for the latter, have been the two prominent sectors of demand.

In the residential sector, average apartment prices in Abu Dhabi increased by 1.1% in the year to Q4 2023, whereas average villa prices remained almost unchanged from the comparable period a year earlier. Rental activity in Abu Dhabi experienced a slowdown, with the total number of registrations in the last quarter of 2023 decreasing by 12.6% year-on-year. This decline was driven by an 18.4% drop in renewed rental registrations and a 2.2% decrease in new contracts registered. Despite the slowdown in activity, average apartment rents still managed to rise by 2.0% year-on-year, reaching AED 64,996. Over the same period, villa rents also saw a slight increase of 0.8%, reaching an average of AED 163,098.

Looking ahead, approximately 4,438 new residential units are expected to be completed in the coming year, with 69.1% expected to be delivered in Yas Island and Al Maryah Island.

In Dubai, average residential prices increased by 20.1% in the year to December 2023, with apartment and villa prices rising by 19.8% and 21.8%, respectively. In the rental market, a continued moderation in the rate of growth has been witnessed throughout the year, where average residential rents rose by 18.9% in the year to December 2023, down from the 19.2% growth registered in November 2023. In 2023, a total of 39,190 residential units expected to have been delivered, with 34.4% of this new stock estimated to have been completed in Meydan One, Downtown Dubai, and Business Bay. A further 68,880 units are expected to be handed over in 2024, with 22.7% scheduled for delivery in Business Bay, District Seven, and Damac Lagoons.

Looking at the hospitality sector, the total number of hotel visitors in Abu Dhabi reached 4.94 million in 2023, marking a 29.0% year-on-year increase and a 9.9% increase from the pre-pandemic levels. Similarly, in 2023, Dubai saw a 19.4% rise in international visitors compared to 2022, bringing the total to 17.15 million. Given these elevated visitation levels, the UAE’s average occupancy rate rose by 4.5 percentage points year-on-year in 2023. Over the same period, the average daily room rate (ADR) grew by 2.6%, and revenue per available room (RevPAR) saw a 9.0% increase, highlighting the strong performance of the hospitality sector. Looking ahead, the UAE's position as a global tourism and business hub, coupled with relaxed visa regulations, are expected to continue to drive growth in this sector’s key performance indicators (KPIs).

In the retail sector, leasing activity in Abu Dhabi's market slowed down in the last quarter of 2023, with the number of rental contracts registered dropping by 6.5% compared to the same period in 2022 to reach 6,913. This decline was driven by a 3.4% decrease in new contracts registered and a 7.9% drop in renewals. Over the same period, Dubai's retail market saw a marginal 0.7% increase in total rental registrations, reaching 17,894. However, within this, new registrations declined by 7.7%, while renewals grew by 5.6%. Despite the mixed performance in leasing activity, rental rates have risen across both cities. In Abu Dhabi, in the year to Q4 2023, average rents grew by 10.7% to reach AED 2,075 per square metre. Dubai saw an even stronger increase of 17.6%, with average rents reaching AED 490 per square foot. This growth reflects strong demand, particularly from the Food and Beverage sector, which includes both established international brands and a rising number of homegrown players expanding within Dubai and globally.

However, a potential challenge lies in the limited availability of quality retail space. This lack of available space in desirable locations could hinder market activity in the future.

Activity in the UAE's industrial and logistics market remained strong despite the limited stock availability. This has resulted in a more landlord-favoured market where occupiers are pressured to comply with landlords’ lease demands, and offered incentives are relatively constrained. In Abu Dhabi, the total number of rental contracts registered in the year to Q4 2023 saw a 15.3% increase. Over this period, new registrations increased by 24.0%, and renewed contracts rose by 9.6%. In Dubai, the total number of rental registrations marginally declined by 0.04% year-on-year according to Dubai Land Department data. Despite the heightened levels of demand but significantly depleted levels of available quality stock, we have seen new contracts registered fall by 26.4%, while renewals rose by 18.8%.

The persistent supply-demand imbalance continues to drive rental growth in both cities. In the year to Q4 2023, average rental rates in Abu Dhabi and Dubai grew by 7.3% and 14.8%, respectively. As of Q4 2023, average asking rents stood at AED 407 per square meter in Abu Dhabi and AED 43 per square foot in Dubai. Given these market dynamics, we expect that rental rates will continue to improve in the UAE's industrial and logistics sector, albeit at a slower pace. New institutional-grade stock is anticipated to reach record-high rates.

Taimur Khan, Head of Research – MENA at CBRE in Dubai, comments: “The UAE’s real estate market concluded another stellar year, with performance and activity levels reaching multi-year, if not historic, record highs in many sectors. Attention will now turn to the outlook for 2024, where, albeit reduced, but still material global economic headwinds are underlining concerns as to what extent these levels of performance could continue. Even with potential global economic downside risk, we anticipate that both performance and activity levels will resilient over the course of this year, albeit with growth rates expected to moderate in a number of sectors.”