MIDDLE EAST REAL ESTATE PREDICTIONS: DUBAI - 2021 #REALESTATEPREDICTIONS - DELOITTE
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Middle East Real Estate Predictions: Dubai 2021 #RealEstatePredictions
Middle East Real Estate Predictions: Dubai| 2021
Contents
Executive summary 4
Dubai real estate market performance
Hospitality market 8
Residential market 10
Office market 12
Retail market 14
Industrial and logistics market 15
Emerging trends
Cash flow management and lending considerations 18
Residential market demand and affordability 20
Changing role of the office 22
E-commerce boost to logistics sector 24
Key contacts 26
3
Middle East Real Estate Predictions: Dubai| 2021
Executive summary
Dubai real estate market performance
COVID-19 has caused significant disruption across all real estate sectors in 2020 with owners and occupiers having to make
necessary adjustments to business operations in response to the statutory restrictions on capacity and mobility. It remains unknown
whether the pandemic will result in structural shifts for different use classes. However, with the COVID-19 vaccine available, the
planned Expo starting in October and the 50th National Day in December there is an opportunity to showcase Dubai during 2021, in
a post-COVID-19 world to both visitors and residents.
Hospitality
The year to date (YTD) September 2020 occupancy for Dubai hotels averaged 45% in comparison to
73% for the same period in 2019, while the average daily rate (ADR) over this period has declined by
12% year-on-year to AED 455.
Residential
Average sales prices for residential properties in Dubai declined by approximately 7% between Q3
2019 and Q3 2020. Average rents have also declined by approximately 10% over the same period.
Offices
Office rents registered an average decline of 8% as of Q3 2020 compared to 2019. The impact
of COVID-19 on business performance is expected to be the primary driver for changes in office
spatial needs.
Retail
The reduction in international visitors due to COVID-19 travel restrictions impacted footfall and
spending at bricks and mortar stores. The Economist Intelligence Unit (EIU) estimates that the
total UAE retail sales volume will contract by approximately 10.3% in 2020, with sales expected to
increase by an average of 2.6% a year until 2024.
Industrial and logistics
The expanding adoption of the e-commerce industry, mainly due to mobility restrictions, has
proven beneficial for the logistics sector in 2020, generally with increasing demand for warehouse
space in Dubai.
4
Middle East Real Estate Predictions: Dubai| 2021
Emerging trends
Cash flow management and lending considerations
In the short-term, cash management and financing/lender considerations are some of the main
priorities across all real estate sectors. Macro-economic and demographic factors as well as
related government initiatives are likely to define the shape and pace of recovery for the real estate
sectors in 2021.
Residential market demand and affordability
The pandemic has impacted global investment sentiment and as such capital protection has been
the priority for the majority of real estate investors in 2020.
Changing role of the office
The relative importance of having traditional office space versus remote working is expected to
vary by industry. It is possible that companies may gravitate towards a hybrid model, combining
the core leased/owned space and additional on-demand flexible offices, while incorporating a
higher ratio of work from home policies than pre-COVID-19.
E-commerce boost to logistics sector
The growth in the e-commerce segment has increased the requirement for storage and fulfilment
centres, which is boosting the demand for warehouses.
5
Middle East Real Estate Predictions: Dubai| 2021
Dubai real
estate market
performance
6 6Middle East Real Estate Predictions: Dubai| 2021
Hospitality market 8
Residential market 10
Office market 12
Retail market 14
Industrial and logistics market 15
7Middle East Real Estate Predictions: Dubai| 2021
Dubai’s hospitality market
The inflow of tourists to Dubai has been disrupted due to travel restrictions and
lockdown measures that came into effect from March 2020, which had a direct
impact on the hospitality sector performance.
Review of 2020 performance Dubai hotel performance percentage change,
Similar to all major hospitality markets, Dubai’s hospitality January to September 2019 vs January to September 2020
market has been significantly impacted by the COVID-19
pandemic, with travel restrictions and lockdowns having 0%
disrupted the industry in an unprecedented manner.
-6.7%
Change (%)
-10%
The YTD September 2020 occupancy for Dubai averaged 45% -12.2%
compared to 73% for the same period in 2019, while average -20%
ADR over this period has declined by 12% year-on-year to
AED 455. This is higher than the majority of the regional and -30%
-30.1%
international markets, as shown on the following page. -39.4%
-40%
Rooms available Occupancy ADR RevPAR
As shown below, both ADR and occupancy declined
dramatically after the announcement of the travel restrictions
Source: Business Intelligence and Reporting, Dubai Department of Tourism
and lockdown measures in March. Meanwhile occupancy and Commerce (DTCM)
increased marginally in May, around the time of the relaxation
of measures around mobility and then again in July after
international flights resumed.
Dubai hotel market performance, January to September 2020
1,000 100%
84.4% Travel restrictions and Easing of travel restrictions and
800 lockdown measures resuming international flights 80%
77.1%
663
ADR/RevPAR (AED)
Occupancy (%)
600 560 563 60%
434 458
400 360 39.5% 40%
37.5% 329
241 33.7%
267 276 282
27.7%
25.7%
23.6% 23.2%
200 172 20%
121 111
63 67 71 76
- 0%
January February March April May June July August September
ADR RevPAR Occupancy
Source: STR Global
8Middle East Real Estate Predictions: Dubai| 2021
New campaigns and market focus These campaigns and events are expected to continue to improve
To ensure continued engagement with tourists during the current the hospitality market performance over the short to medium
constraints, Dubai Department of Tourism and Commerce (DTCM) term.
launched a number campaigns during the pandemic which
include digital campaigns such as #TillWeMeetAgain, followed by Revenue per available room (RevPAR) performance in September
#WeWillSeeYouSoon and most recently with #ReadyWhenYouAre and October has registered marginal improvement over the
as Dubai began welcoming back international flights from 7 July summer period, though primarily around beachfront and resort
2020. properties due to staycation demand.
According to the DTCM, Dubai received 416,700 overnight visitors The Deloitte Middle East Hospitality Sentiment survey conducted
between July and September 2020. The top five source markets in September 2020 suggests that the market recovery to 2019
include India (80.8%), Pakistan (41.4%), Egypt (34.5%), United levels is not expected until the end of 2023, or later. Many
Kingdom (32.4%) and Kazakhstan (14.7%). hospitality companies are using this downtime to revise their
business strategy and build resilience towards the new normal.
In addition, the conferencing and events sector has restarted This includes a review of management contracts, building and
with a number of events adopting a hybrid approach that amenities design, food and beverage offerings, and other services
combine physical and virtual sessions, including the Arabian within the hotel.
Hotel Investment Conference 2020, the Middle East Retail Forum
and the Hotelier Awards. There were other large planned events The Dubai hotel market has experienced a major shock and
towards the end of 2020 including Gitex 2020 which ran from has had to adapt during a very difficult period. With the
December 6 – 10 at the Dubai World Trade Centre. vaccine currently being rolled out and Expo rescheduled to
start on the 1st October 2021, it is hoped that a rebound will
occur and performance will return to much healthier levels.
Dubai market performance vs. regional markets, January to September 2020
-62%
-65%
200 -11% -30% -45% -12% 190 80%
-58% -58% 161
-54% 148
Occupancy (%)
150 58% 61% -63% 124 136 60%
-64% 112
ADR (US$)
-66% 131 49%
100 77 89 94 45% 40%
57 79 36%
27% 30% 26% 28% 27%
50 24% 21% 20%
- 0%
Sharm Casablanca Doha Abu Cairo Muscat Dubai Amman Manama Riyadh Jeddah Beirut
El Sheikh Centre Dhabi and Giza
ADR (US$) Occupancy (%) Year-on-year % change in RevPAR
Source: STR
Dubai market performance vs. international markets, January to September 2020
-51% -63% -67%
-45%
200 -60% -58% 144 -62% 156 189 60%
-76% -62% 124 -71%
121 -75% 147
51%
Occupancy (%)
-63% -64% 97 147 50%
150 93 101 45% 45%
43% 130
ADR (US$)
92 41%
35% 36% 37% 36%
100 33% 30%
29% 29%
72 23%
50 15%
- 0%
Beijing Buenos Hong Berlin Madrid Sydney Dubai Rome Los London Tokyo New Paris
Aires Kong Angeles York
ADR (US$) Occupancy (%) Year-on-year % change in RevPAR
Source: STR
9Middle East Real Estate Predictions: Dubai| 2021
Dubai’s residential market
Tenants remain in the driving seat as rents decline by 10% as of Q3 2020.
Review of 2020 performance Transaction volume has declined by 16% YTD September
Average sales prices for residential property in Dubai declined 2020 when compared to the same period in 2019. Demand
by approximately 7% between Q3 2019 and Q3 2020. Average for secondary market properties has outpaced transaction
rents also declined by approximately 10% over the same period, volumes for off-plan units whilst cash transactions continue to
and the average price per sq ft for apartments declined from dominate, making up 74% of the total transactions. Meanwhile
AED 1,090 in 2019 to AED 1,011 as of September 2020. developers are offering discounts, fee waivers and rent-to-own
incentives as an attempt to attract buyers.
Many tenants have chosen to migrate to larger units with
superior amenities, which have now become more affordable.
Despite the continuing decline in prices, project handovers
in Dubai continue in the lead up to Expo 2020. Based on
consultations with key industry stakeholders, it is estimated
that a total of 24,000 to 25,000 residential units were handed
over in the first nine months of 2020.
Dubai residential sales prices, Q3 2014 to Q3 2020
1,500
1400
(AED per sq ft)
1300
Sales price
1200
1100
1000
Jul-17
Jul-18
Jul-19
Jul-20
Jul-14
Jul-15
Jul-16
Jan-19
Jan-20
Jan-17
Jan-18
Jan-15
Jan-16
Sep-20
Sep-17
Sep-18
Sep-19
Sep-14
Sep-15
Sep-16
Nov-19
Nov-17
Nov-18
Mar-19
Mar-20
Nov-14
Nov-15
Nov-16
Mar-17
Mar-18
Mar-15
Mar-16
May-20
May-17
May-18
May-19
May-15
May-16
Villa Apartment Residential
Source: REIDIN
Dubai residential rents, Q3 2014 to Q3 2020
120
(AED per sq ft per year)
100
Residential rents
80
60
40
Jul-14
Jul-15
Jul-16
Jul-17
Jul-18
Jul-19
Jul-20
Jan-15
Jan-16
Jan-17
Jan-18
Jan-19
Jan-20
Sep-14
Nov-14
Mar-15
Sep-15
Sep-16
Sep-17
May-15
Nov-15
Mar-16
Nov-16
Mar-17
Nov-17
Mar-18
Sep-18
May-16
May-17
May-18
Nov-18
Mar-19
Sep-19
May-19
Nov-19
Mar-20
Sep-20
May-20
Villa Apartment Residential
Source: REIDIN
10Middle East Real Estate Predictions: Dubai| 2021
Dubai residential sales prices by location, Q3 2020
Palm Jumeirah Villas
AED 1,661
N
Dubai Marina
AED 1,082
Palm Jumeirah Apartments
AED 1,187
Jumeirah Lakes Towers
AED 843
Downtown
Dubai Sports AED 1,646
City
AED 572
Business
Dubai South Discovery
Bay
AED 675 Gardens Dubai Land
AED 1,288
AED 466 AED 866
Al Furjan
AED 825 Mohammed Bin
Rashid City
AED 1,408 Dubai Creek Harbour
Arabian Ranches Villas AED 1,488
AED 813
International
City
AED 502
Source: REIDIN – Illustration by Deloitte
Note: Sales prices are quoted in AED per sq ft
Metric Apartment rent Apartment sales Villa rent Villa sales price Dubai average Dubai average
price rent sales price
AED 75 per sq ft AED 1,090 per AED 56 per sq ft AED 1,054 per AED 71 per sq ft AED 1,090 per
Q3 2019
per year sq ft per year sq ft per year sq ft
Trend
-13% -8% -7% -7% -10% -7%
AED 65 per sq ft AED 1,011 per AED 52 per sq ft AED 983 AED 64 per sq ft AED 1,011 per
Q3 2020
per year sq ft per year per sq ft per year sq ft
Source: REIDIN, Deloitte
11Middle East Real Estate Predictions: Dubai| 2021
Dubai’s office market
The impact of COVID-19 on business performance is expected to be the primary
driver for change in office space requirements.
Review of 2020 performance Dubai employment in financial and business services,
Office space usage has faced disruptions as a result of the 2015 to 2021f
remote working model necessitated by the COVID-19 pandemic,
600 15%
first during the 24 hour lockdowns in April 2020, and since then
with varying ‘return to work’ policies across companies. 500
Persons (thousands) 10%
400
Growth (%)
Changes in spatial needs are likely to be promoted when leases 300 5%
expire or when companies may choose to downsize or even
200
expand their facilities. Meanwhile, office rents registered an 0%
100
average decline of 8% as of Q3 2020 compared to 2019.
0 -5%
The addition of approximately 900,000 sq ft of office space 2015 2016 2017 2018 2019 2020 2021f
through the handover of ICD Brookfield Place in DIFC is
Employment in financial and business services
expected to increase competition among prime assets in the
Year-on-year growth (%)
financial district, while owners in other areas are expected to
f: forecast
face downward pressure on rents.
Source: Oxford Economics
Dubai average office rents, Q1 2015 to Q3 2020
129
128
140
127
127
127
126
Average rent (AED per sq ft per year)
121
120
118
117
116
117
115
115
114
114
112
112
110
108
120
106
103
101
100
80
60
40
20
-
Q2 2019
Q3 2019
Q4 2019
Q4 2018
Q1 2019
Q1 2018
Q2 2018
Q3 2018
Q3 2017
Q4 2017
Q1 2017
Q2 2017
Q2 2016
Q3 2016
Q4 2016
Q3 2015
Q4 2015
Q1 2016
Q1 2015
Q2 2015
Q1 2020
Q2 2020
Q3 2020
Source: REIDIN
Note: Above rents are exclusive of service charge
12Middle East Real Estate Predictions: Dubai| 2021
Dubai average office rents, Q3 2020
N
WTC/SZR** Deira
AED 108 AED 86
DIFC
AED 216
TECOM Downtown
AED 146 AED 160
JLT*
AED 71
Al Barsha Business
AED 77 Al Garhoud
Bay AED 75
AED 84
Bur Dubai
AED 90
Source: REIDIN – Illustration by Deloitte
Note: Rents are quoted AED per sq ft per year
Rents are average achieved rents for shell and core offices exclusive of service charges
*Jumeirah Lakes Towers; **World Trade Centre/Sheikh Zayed Road
Area DIFC Bur Al Deira WTC / SZR Al Business Down- TECOM JLT Dubai
Dubai Garhoud Barsha Bay town average
Q3 2019 219 98 85 93 110 85 98 162 165 80 110
Trend
-1% -8% -11% -8% -2% -9% -15% -1% -11% -12% -8%
Q3 2020 216 90 75 86 108 77 84 160 146 71 101
Source: REIDIN, Deloitte
13Middle East Real Estate Predictions: Dubai| 2021
Dubai’s retail market
The reduction in international visitors due to COVID-19 travel restrictions impacted
footfall and spending at bricks and mortar stores.
Review of 2020 performance UAE retail sales volume growth, 2015 to 2024f
The EIU estimates that the total UAE retail sales volume will
6%
contract by approximately 10.3% in 2020, with sales expected
Retail sales volume growth (%)
4.1%
to increase by 2.6% a year on average over the remainder of the 4%
2.5% 2.8%
forecast period. 1.9% 2.2% 2.6% 2.6%
2% 1.3%
0.3%
0%
Emaar Malls, which owns and operates 6.6 million sq ft of retail
-2%
gross leasable area (GLA), registered a 27% decline in revenue
during the first nine months of 2020, when compared to the -4%
-7.8%
same period in 2019. Meanwhile average occupancy for the -6%
Emaar portfolio, which includes Dubai Mall, Dubai Marina Mall,
-8%
Gold & Diamond Park, Souk Al Bahar and other community 2015a 2016a 2017a 2018a 2019a 2020a 2021e 2022f 2023f 2024f
retail centres stood at 91% as of September 2020. Source: EIU a: actual, e: EIU estimate, f: EIU forecast
The impact of COVID-19 on retailer revenues has led to many Dubai expectations on disposable income
tenants seeking turnover-linked rents in their contracts.
Meanwhile certain mall owners have provided temporary 2020 compared to 2019 2021 compared to 2020
incentives in the form of rent relief launched soon after
COVID-19 lockdown measures in March 2020 and in certain More
cases extended until the end of 2020. 25.8% More
Same Same 42.0%
52.4% 44.6%
Less
21.7% Less
Dubai resident mall preferences, 2015 vs. 2020
13.4%
100%
Source: grmc
90% Note: Percentages may not total 100 due to rounding
80%
70% Dubai resident shopping preferences
60% The Dubai Mall and Mall of the Emirates have historically been
50% the most popular malls with tourists, collectively capturing 51%
of total tourist retail demand in 2019. Demand from tourists
40%
was impacted in 2020 due to travel restrictions and majority of
30%
the retail centres have relied on resident footfall and spend. For
20%
residents, ‘Other Malls’, which include smaller community centres
10% and convenience retail, as well as ‘Non Mall’ outlets continue
0% to dominate in 2020 due to their convenience and proximity to
2015 2020
residential areas.
Residents
Mobility restrictions have also forced residents to make more
Dubai Mall Mall of the Emirates Dubai Festival City Mall
online purchases in 2020, including setting up online accounts
Deira City Centre Mirdif City Centre Other Malls Non Mall
across multiple platforms and familiarising themselves with
Source: grmc the payment and return process, among others. This trend is
Note: Percentages may not total 100 due to rounding expected to continue even when restrictions on movement ease.
Multi channel retail formats that incorporate online shopping
preferences, alongside F&B concepts and experiential retail
in brick and mortar offerings are expected to drive consumer
preferences in the medium term.
14Middle East Real Estate Predictions: Dubai| 2021
Dubai’s industrial and logistics market
The expanding adoption of e-commerce, particularly resulting from mobility
restrictions due to COVID-19, has proved beneficial for the logistics sector in 2020.
Review of 2020 performance UAE imports and exports, 2018 to 2024f
Logistics and distribution, e-commerce and cold storage
services continue to drive demand for warehouse space in 500
Dubai. Warehouse rents for newly built facilities developed
to international standards, which are primarily located in free 400
zones, ranged from AED 30 to 35 per sq ft per year during 2020.
Meanwhile Grade B offerings and older stock continue to face US$ billion 300
downward pressure on rents.
200
Liquidity considerations due to the constrained business
environment during 2020 has meant that a number of small and 100
medium enterprises are now seeking annual lease contracts
and yearly rental escalation in comparison to three or five
-
year terms for their industrial units. Additionally, multinational
2018 2019e 2020f 2021f 2022f 2023f 2024f
occupiers are increasingly exploring asset-light models, thus
presenting greater opportunities to participate in the industrial Imports US$bn Exports US$bn
market through sale and leaseback structures, among others. Source:BMI Note: f:forecast
Dubai key logistics indicators, 2019 vs 2020f (‘000s)
Period DWC cargo DXB cargo Jebel Ali container Jebel Ali tonnage Road freight
throughput throughput throughput throughput tonnes
2019e 0.88 m 2.49m 14.11m 7.41m 29.04m
Trend
-5% -1% -3% -2% -1%
2020f 0.86m 2.46m 13.72m 7.23m 28.85m
Source: BMI, Dubai Airports e: estimate f: forecast m: millions
Dubai average warehouse rents, Q3 2020
N
JAFZ
AED 22
DAFZ
AED 30
Dubai South Al Quoz
AED 35 DIP AED 34
AED 25
Source: Deloitte
Note: Rents are quoted AED per sq ft per year; Rents are average achieved rents for purpose built warehouses exclusive of service charges
15Middle East Real Estate Predictions: Dubai| 2021
Emerging
trends
16Middle East Real Estate Predictions: Dubai| 2021
Cash flow management and lending considerations 18
Residential market demand and affordability 20
Changing role of the office 22
E-commerce boost to logistics sector 24
17Middle East Real Estate Predictions: Dubai| 2021
Cash flow management and lending
considerations
Real estate and debt capital have long been synonymous; the impacts of COVID-19
were felt not just by real estate owners and lessors in their capacity as borrowers, but
also the lenders that have provided development and operating capital.
Mitigating the impact of COVID-19 Real Estate as a restructuring lever
Cash flow relief has been well received by the real estate and Scenario planning is critical at this juncture, particularly for the
development sector, affording asset owners and operators the leveraged. Whilst the Targeted Economic Support Scheme is
breathing space and time to respond to the challenge. welcomed, loan payment deferrals are accruing on borrowers’
balance sheets, eroding equity value, but ultimately requiring for
Asset owners in the retail and hospitality space are looking the most part, a consensual restructuring of terms.
critically at their operations, including taking actions such as:
Lenders may approach restructuring differently according to their
• Operating cost reduction including reviewing Hotel Management risk appetite, perceived security cover and status of provisioning,
Agreements (HMAs); but some of the mainstay restructuring approaches are being
implemented.
• Pro-active tenant management to support a robust customer
base; and
Tenor extensions Allocating principal repayments over a
• Facilities Management (FM) optimisation across their portfolios.
longer period of time in line with ability
of assets to service the loan.
Furthermore, the challenges in the construction sector have
been publicly documented following some high-profile distressed
Back-ended Deferral of significant principal balances
situations. Invariably, some developers are taking steps to protect
payment structures to final year bullets, which may accrue
themselves from any potential contagion as a result of delayed
interest and be settled through
construction progress.
refinancing or an asset sale.
Performance bonds have typically played the role of a deterrent
Performing / non- Splitting loan principal and pricing
to underperformance, but in more recent times, their intended
performing multi- to reflect an asset’s ability to service
role as a ‘last resort’ source of finance is becoming more common,
tranche structures debt whilst maintaining rights to
evidenced by developers seeking to recapitalise their projects,
principal in the event of any disposals of
maintain progress and avoid any spiraling costs of delays.
performance upsides.
Despite the pressures, and driven by a sense of optimism that
Principal In some cases, reducing debt to
markets have come through the worst of COVID-19, asset owners
forgiveness vs. maintain a reasonable interest return if
are assessing recovery options that will unfold in the medium
interest pricing the tenor required is beyond the bank’s
term.
horizon. Similarly interest rate reduction
can enhance the ability to service
principal.
Real estate assets / Real estate asset contributions being
equity sweetener to utilised in restructuring to further
enhance asset cover underwrite debt. First charge security is
now highly favoured.
Source: Deloitte
18Middle East Real Estate Predictions: Dubai| 2021
Sources of finance
Real estate has typically been an attractive asset class for Despite the marginal declines, the overall banking sector liquidity
lenders to deploy capital, though the current data from is at similar levels as 2019, with a desire to deploy for the right
the UAE Central Bank suggests that the real estate and projects. Furthermore, opportunistic investors, particularly in the
construction sector lending has marginally decreased from commercial sector, are looking to deploy costlier mezzanine and
2019 to 2020. term loan B capital, potentially with a degree of subordination to
senior lending structures.
Lending to the real estate and construction sector, The demonstration of the following is key to secure this finance:
YTD September 2019 and 2020
• A clear purpose and requirement for debt, which is not directed
900,000 at filling valuation shortfalls, operating losses or to cover
819,734 overheads;
801,272
800,000
700,000
• A clear pathway to repayment from operational or disposal
AED in millions
600,000
proceeds; and
500,000
400,000 • F irst ranking asset security based on credible valuations - asset
300,000 cover ratio requirements are increasing.
213,451 209,724
200,000
The above factors are not new to the UAE market, but the
100,000
level of scrutiny being applied within the sector by debt and
-
equity investors alike has elevated. There is an opportunity for
Construction Real Estate
prospective developers and investors to refocus their strategies
on more bankable projects that can fulfil funding obligations and
YTD Sept 2019 YTD Sept 2020
offer medium to long term growth prospects.
Source: UAE Central Bank
19Middle East Real Estate Predictions: Dubai| 2021
Residential demand and affordability
The pandemic has impacted global investment sentiment and as such capital
protection has been the priority for the majority of real estate investors in 2020.
Decline in capital values and rents for residential property
Dubai residential sales, 2014 to YTD September 2020
in Dubai has continued into 2020 from the last market peak
observed in Q2 2014. A combination of factors including new
stock additions averaging 15,000 to 20,000 units per annum in 90 30%
the last five years has contributed to this trend. 27%
80 78.5
Total value of transactions (AED billion)
21% 20%
71.2
70
The adjacent chart shows data on transaction value over this 64.3
69
period. The total value of residential transactions has declined 60 57 10%
by 16% year-on-year between YTD September 2019 and YTD 50.8
50
Change (%)
September 2020. 0%
40 37.1
Top buyer segments
30 -9% -10%
COVID-19 caused a disruption in transaction activity from Chinese
buyers in Dubai, the fastest growing segment among residential 20
property buyers in Dubai in the recent years. -20% -20%
10
-26%
To offset the decline in transactions from Chinese buyers, - -30%
developers have renewed their focus on local market segments 2014 2015 2016 2017 2018 2019 YTD Sep.
2020
including young Emirati buyers, GCC nationals, Indian, Pakistani
and Russian expatriates, amongst others. Total (AED bn) Year-on-year % change
Source: REIDIN
20Middle East Real Estate Predictions: Dubai| 2021
Resident home ownership
Mortgage transaction value, 2015 to YTD September 2020
More than 90% of Dubai’s population are expatriates and their
participation in the residential market is a key determinant of
housing demand in the Emirate. Data on expatriate residents’ 30 25%
participation in the Dubai residential market as buyers is 22%
Total mortgage transactions (AED billion)
26.2 20%
unavailable at the time of reporting, however, if we consider 25 26.9
23.2 23.1 15%
the mortgage transaction volumes as a proxy for evaluating 22.1
13%
expatriate home ownership, it is clear that there is an opportunity 20 10%
to attract a wider base of buyers from this segment.
Change (%)
15.6 5%
15
As shown in the adjacent chart, mortgage transactions for 0%
0%
residential properties averaged 39% of total transactions
10 -5%
between 2015 and 2019.
-10%
The Central Bank of UAE issued a decree in March 2020 allowing 5
-15%
banks to increase the loan-to-value (LTV) for first time buyers by -16%
5% for both expatriates and UAE nationals, thus increasing the 0 -20%
LTV to 80% and 85% respectively. 2015 2016 2017 2018 2019 YTD Sep.
2020
Further, incentives and offers from banks such as a reduction Total (AED bn) Year-on-year % change
or waiver of loan arrangement fees, in addition to a low interest
Source: REIDIN
rate environment, presents an opportunity for developers to
encourage a wider base of residents to become home owners. Note: Mortgage values may represent mortgage component of the sales or
refinance amount.
From January to September 2020, residential mortgage
transactions totaled AED 15.6 billion in value, a decline of 17%
over the same period in 2019.
Looking ahead, an improvement in transaction volumes
is predicated on demographic and economic factors
alongside targeted offerings from developers and banks to
enhance participation from both the investor and resident
owner/occupier segments.
21Middle East Real Estate Predictions: Dubai| 2021
Changing role of the office
The office of the future will blend the virtual and physical environments to enhance
employee, contractor and key stakeholder engagement through collaboration tools
and dynamic work locations.
In a survey conducted by Deloitte in October 2020 among Future of work transition
companies across the Middle East, more than 70% of the The following practical steps can aid companies in evaluating
respondents stated that they do not expect a change in their future workplace requirements:
office space requirement once their office lease expires. For those
considering a reduction in office space in the future, reduction in
Use existing tools and practices to assess remote
staff numbers due to the COVID-19 business impact was noted as
working capabilities and develop team norms.
the primary reason.
As companies were pushed to test remote working during
the lockdown, varying models of work from home and onsite Undertake a firm-wide digital assessment to develop
presence are expected to emerge in the return to work. a long term vision of necessary tools, systems and
practices.
Increased flexibility
Pre-allocation of space is expected to make way for more ad hoc Run an employee experience study to understand
arrangements that increase the opportunities of collaboration what it would take to develop a great workplace for
and communication. Offices will be reconfigured to allow more staff and business partners, irrespective of location.
ideation and team discussions, while independent activities
will move online, provided there are enhancements in digital
infrastructure to support remote working as needed. Drive investment in technology, people, practices and
real estate based on learnings to reduce any future
threats.
Workplace design and planning needs to evolve and Measure impact and value of the changes made on a
incorporate on-demand, user centered models that remain continuous basis to fine-tune real estate usage and
dynamic and easy to adapt to the changing requirements digital capabilities.
of the organisation. For asset managers, technology and
data analytics will become essential tools to assess building
usage and peak versus average facilities/utilities demand. Source: Deloitte
22Middle East Real Estate Predictions: Dubai| 2021
Productivity has been rated as the most important reason for staff attending the
office as companies in the Middle East returned to work after COVID-19 restrictions
were lifted.
The relative importance of having traditional office space versus Resizing of a firm’s footprint is largely dependent on existing
a remote working model is expected to vary by industry. It is leases or the amount of owned office space. The extent of
possible that companies may gravitate towards a hybrid model reconfiguration or changes in office space will depend on a
combining the core leased/owned space and additional on- combination of factors including technology readiness, company
demand flexible offices, while incorporating a higher ratio of work culture and expected benefits of real estate savings.
from home policies than pre COVID-19.
The workplace plays a pivotal role in attracting talent and
retaining employees, and companies will also need to factor the
behavior and feedback of this brand of customers in all future
strategies.
Interconnected universe of key workplace functions
Employee
well-being and
productivity
Technology Client
and innovation interface
Future of
work
Collaboration and Creativity/
communication inspiration
Company
culture
Source: Deloitte
23Middle East Real Estate Predictions: Dubai| 2021
E-commerce boost to the logistics
sector
Growth in the e-commerce segment has increased the requirement for storage and
fulfilment centres, thus boosting the demand for warehouses.
The challenges posed by lower spending and fewer shoppers Online shopping preferences among Dubai residents,
in bricks and mortar retail stores has driven faster adoption of 2019 to 2021
digitisation and online sales among many retailers.
2019 2020 2021
In Dubai, e-commerce players such as Amazon, Noon and Namshi Can’t say
Can’t say
already occupy fulfilment facilities and warehouses in locations Same Can’t say Same 18.4% Same
15.8%
such as Dubai South, Dubai Investment Park and Umm Ramool. 30.2% 20.0% 29.1% 35.3%
Notably, the e-commerce market in the Middle East and Africa is Less More More
More Less
2.2% 50.4% Less 39.2%
expected to reach USD 26 billion in 2022, with the UAE accounting 47.5% 2.1%
9.7%
for 18% as further expansion in industrial accommodation
footprint is expected from key players.
Source: grmc
Note: Percentages may not total 100 due to rounding
Online retail sales growth
The UAE e-commerce landscape 2020 survey conducted by VISA,
reported that UAE residents are the biggest online spenders of Further expansion from the e-commerce and cargo sector
the Middle East, North Africa and South Asia region, spending occupiers is expected in the short to medium term, with
USD 1,648 annually. The average transaction value was USD 122 more design and build for specific end users as opposed to
in 2019-20, compared with USD 76 in mature markets and USD speculative build.
22 in emerging markets. The survey also showed that online
e-commerce will account for 21.9% of all card payments in the Additionally, next-day or same-delivery options are
UAE in 2020, up from 19.7% in 2019. expected to create a requirement for last-mile delivery
hubs, close to the residential and business districts
24Middle East Real Estate Predictions: Dubai| 2021
Purpose-built e-commerce and logistics facilities Average logistics prime yields in established industrial locations
The dual-bonded 920,000 sq m EZ Dubai logistics zone in Dubai in Europe were 6% pre COVID-19 and averaged 5.3% as of Q3
South and the 195,000 sq m Commercity in Dubai Airport Free 2020. Increasing investor interest in this segment is expected to
Zone have launched in the last 18 months to cater to logistics compress yields, with funds increasing the weightage of industrial
and distribution companies. As of September 2020, EZ Dubai is properties in their portfolio.
reported to have achieved an operating rate of 20% within its first
phase, in addition to 27% under development. Meanwhile the In Dubai the shortage of investment stock has historically led to
Commercity logistics cluster consisting of 105 logistics units and a more forward funding investment deals. Moreover, speculative
leasable area of 53,000 sq m is expected to have staged openings development is expected to be slower with construction finance
until the project is completed in 2023, with the first phase opened becoming harder to obtain.
in November 2020.
In addition to standard specification warehouses, the growth of
segments such as online groceries is also expected to increase The positive demand side factors and limited availability
the requirement for cold storage facilities. of international grade assets is expected to enhance
investment opportunities for properties where occupier
covenant strength can be demonstrated by parent
company guarantees for 15+ year lease terms.
25Middle East Real Estate Predictions: Dubai| 2021 Key Contacts Robin Williamson David Stark Partner Partner Head of Real Estate Head of Restructuring Services Deloitte Middle East Deloitte Middle East rwilliamson@deloitte.com dastark@deloitte.com Oliver Morgan Tom Bullock Head of Real Estate Development Restructuring Services Deloitte Middle East Deloitte Middle East omorgan@deloitte.com tombullock@deloitte.com Dunia Joulani Head of Travel, Hospitality and Leisure (EMEA) Deloitte Middle East djoulani@deloitte.com Manika Dhama Real Estate Development Deloitte Middle East mdhama@deloitte.com 26
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