Despite interest rates being at a near 20-year high and inflation remaining stubborn enough to justify a ‘higher for longer’ approach by the Federal Reserve – a situation that directly impacts dollar-pegged markets – there is plenty of room for optimism about the UAE’s commercial real estate sector and the wider economy, in 2024.
Not everyone thought it would be this way. At the start of last year, many industry observers were uncertain about the trajectory of the market. But now, well into the rate hike cycle, it appears that the UAE economy has weathered the storm and shown remarkable resilience on all fronts.
Commercial real estate growth
As we continue to compile and analyse real estate data for the financial year 2023, it is clear from the first three quarters that commercial real estate in the UAE experienced strong growth, despite the headwinds.
Aside from relatively strong fundamentals, with the UAE’s GDP up 3.7 percent and non-oil growth rising by 5.9 percent in the first six months of 2023, commercial real estate prices were also buoyed by rising demand. This was partly due to the UAE’s growing population, as start-ups, entrepreneurs and investors flocked to the country from around the world, attracted by its ‘safe harbour’ status, lifestyle, and attractive business environment.
Prices were also buoyed by the limited number of new assets coming on-stream during the year. Much of the new commercial space that was delivered in 2022 was absorbed in 2023, which meant continued rising demand translated into rising prices per square foot.
For example, there has been consistent demand for commercial property in Dubai International Financial Centre (DIFC) and Downtown Dubai, in addition to robust demand in Tecom and Dubai Media City.
For Emirates REIT, the occupancy rate across its portfolio of commercial, education and retail assets in the UAE reached 87.3 percent in Q3 2023 which is a year-on-year rise of 5.4 percent. We anticipate this continuing in 2024, with the overall economy growing at a clip, and the limited supplies of new commercial property coming on to the market.
Sure, global news headlines may make for grim reading, but our experience supports the view that the UAE remains a bright spot in the world economy – with the government spearheading and executing ambitious growth plans and creating the type of stable yet dynamic market that excites investors and builds confidence.
While macroeconomic numbers can reveal significant details about the state of the real estate sector and the wider investment environment, much can also be gleaned from everyday observations. We can see with our own eyes the high volume of traffic on Dubai’s roads and high footfall in malls, restaurants and on the transit network.
