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UAE Market Research – January 2019 REPORT Savills Research The Property Report
Foreword
First Overview of CONTENTS
UAE property market
analysis and forecasts
the UAE Property 4
Economic Growth
Market
Insight on the global
economic growth and the
economic recovery of the
UAE.
The UAE Property Report is Savills first comprehensive view
of the United Arab Emirates, assessing the state of the current 7
real estate market across the country. The report provides the Summary of the
latest overview across residential, commercial and industrial Property Market in
sectors, with research and insight from the Savills team which 2018
operates across three offices in the heart of the UAE. The general theme during
2018 and the key policy
Savills acquired long-standing regional leader Cluttons changes.
Middle East in June 2018 and after a successful integration
is now ideally positioned to provide investors, corporates,
banks, individuals, families and institutions with the dual 8
benefit of an experienced local team offering the most Abu Dhabi
informed regional advice, combined with the extensive global Overview of residential,
network of one of the world’s leading international real estate office and industrial
advisors. property markets.
The rapid development and progression of the United Arab
Emirates has been one of the great success stories of the 12
Middle East, bringing together an increasingly engaged and Dubai
well informed Emirati population with a large expatriate Overview of residential,
community to further the economic, technological, social and office and industrial
cultural vision of its focused Government. property markets.
There is no doubt that 2018 was a challenging year for the
global economy, so it was perhaps inevitable that the UAE 16
would feel a certain ripple effect of pressures beyond its Sharjah and
own borders. Positively, within the nation, the Government Northern Emirates
has taken steps to bolster growth through regulatory Overview of residential
changes, increasing federal budgetary spend and a bold move property market.
towards visa liberalisation. These integral transformations,
contributing towards the UAE Vision 2021 and beyond, have 18
laid the foundations for economic improvement. Through Outlook
attractive incentives for diversification of non-oil industries, The measures and the
the UAE is competing to be a global hub of future-thinking mainstream challenges.
industries.
At Savills, we take the lessons of the past, combined with
analysis of current and progressive trends to provide our
unique outlook and perspective for the future. Within this Steven Morgan
report, we hope you will see that the real estate industry in the CEO Middle East
UAE is very much a place of opportunity for the committed +971 (0) 4 365 7700
investor. steven.morgan@savills.me
3
The Property Report The Property Report
The overall GDP for Middle East and North Africa
(MENA) grew by 2% in 2018 and is expected to further firm
up this year.
Improvement in oil prices support
growth in Middle East
1 The recovery in oil prices
from an average USD 54 per
barrel in 2017 to an average
with strong domestic
demand in major commodity
importing countries, further
4 The region’s two largest
economies, Saudi Arabia
and UAE, grew by 2% and
USD 72 per barrel in 2018 has contributed to the economic 2.3% respectively.
helped reduce fiscal deficits recovery in the region.
across major oil exporting
countries in the region.¹
3 The overall GDP for
Middle East and North
2 Diversification of
economy with the
introduction of 5% Value
Africa (MENA) grew by 2%
in 2018 and is expected to
further firm up this year.
Added Tax (VAT) in the
United Arab Emirates (UAE)
and Saudi Arabia, coupled
Economic recovery underway in the UAE
An increase in oil focus on infrastructure 56.1 in 2017 largely due to a
production during the second development. At an Emirate slowdown in exports. On the
half of 2018 and sustained level, during 2018 the GDP other hand, the introduction
activity in the non-oil sector growth for Abu Dhabi was of VAT in early 2018 had very
led to a 2.3% increase in estimated at 2.7% while for limited or negligible impact
the country’s GDP in 2018 Dubai it was 3.3% and Sharjah on business and investment
compared to a meager 0.8% at 2.7%.² sentiments in the region.
in 2017. The non-oil sector However, private sector As a knee-jerk reaction,
grew by 50 basis points growth witnessed a decline inflation spiked to 3.7% but it
to 3% driven by ongoing as per the Emirates NBD is forecasted to revert to 2.0%
investments attributed to Purchasing Managers’ (observed in 2017) by the end
the upcoming Expo in Dubai Index (PMI). It contracted of 2019.
and the country’s long-term marginally to 55.5 from
¹ Source Oxford Economics, Average price per barrel each month ² Source IMF, Moody’s Investors Service report
Economic growth
World Advanced Economies Euro Area EMDE MENA UAE
Increase in oil
production during
the second half of
6
2018
Global economic growth across advanced economies. In the US, steady Brexit dragged the GDP growth down to 5
has eased growth was recorded due to strong domestic 1.4% from 1.7% in 2017. Growth in Japan also
GDP Growth Rate (%)
According to the World Bank projections, demand and improvement in employment decelerated to 1% in 2018 as high oil prices 4
global economic growth remained flat in numbers. The economy expanded from a and effects of fiscal consolidation measures Sustained activity
3
2018. The year started on an upbeat note with GDP growth of 2.2% in 2017 to around 2.9% slowed the rate of expansion . in the non-oil
strong economic activity recorded during in 2018. In the European Union (EU), growth Among emerging markets, growth in sector led to a
2.3% increase in 2
the first half of the year. However, industrial slipped from 2.7% to 2.2% in the same China edged down to 6.5% on account of
production and trade started to decline period. This was attributed to a slowdown moderation in exports due to increased trade UAE’s GDP
1
because of escalating trade protectionism and in industrial production – the German protectionism among key trading partners.
increasing geopolitical tensions. A slowdown automotive sector in particular - decline in Investment sentiments in India on the other
0
in demand from emerging markets further foreign trade and weaker demand in the EU. A hand have improved and GDP grew by 7.3% 2015 2016 2017 2018
contributed to the loss in momentum. manufacturing slump in the United Kingdom because of a growing middle class and strong AED 9.2 bn
A mixed economic trend was observed (UK) and ongoing uncertainty surrounding domestic demand. allocated to Global GDP Trends
infrastructure
Source World Bank, various government estimates EMDE - Emerging Market and Developing Economies MENA - Middle East and North Africa
development in
2019
Source Savills Research
savills.me/research 4 5
The Property Report The Property Report
The general theme during 2018 can be
Key policy
summarised as one driven by joint ventures,
consolidations and cautious optimism.
changes in the Summary of the UAE
UAE Among the landmark
developments, two of the
largest real estate
Property Market in 2018
developers in the region,
1
Progressive policies at the
2
Global marketing campaigns for
4
Further impetus to the
Emaar Properties and Aldar
Properties, entered into a
Project completion takes
precedence
Supply addition in the
centre to make them more
efficient. Notable example of
this includes the 800,000 sq. ft.
sq. ft. / month. In Dubai, Grade
A rents declined at the National
Industries Park and at Ras Al Khor
Joint Venture (JV) to
vanguard of growth real estate gain momentum manufacturing sector residential sector witnessed warehouse opened by Carrefour among other markets.
The UAE has made steady progress As policies and regulatory framework The contribution of the manufacturing develop AED 30 Bn worth of a y-o-y decline as developers for its regional distribution center
towards diversifying its economy become more conducive for sector in UAE’s GDP has steadily projects. The first two focused on consolidating their at the National Industries Park. Developers offered generous
and achieving its development goals. investments, prominent real estate increased over the last few years. Over developments as part of the operations and completion of incentives
This has been achieved through developers and the Dubai Land the past three years, an average 9.0% of JV are likely to add existing under-construction and Increasing pressure Most of the projects that were
policies that allow it to overcome the Department in particular, have been the country’s GDP was contributed by approximately 9,000 units. launched projects. The majority on pricing launched during early 2014 when
challenges posed by global / regional proactive in promoting the country’s the manufacturing sector. To further of new supply was in the form Existing supply and new launches the market was at an initial stage
This was followed by Aldar
economic and political trends. Further real estate. Recently launched incentivise the sector, the UAE Cabinet of standalone towers or projects had a negative impact on price of recovery are nearing handover.
Properties acquisition of 14
progressive policies and strategies were properties were showcased at various passed a resolution to reduce electricity offering less than 2,000 units levels across most markets. This has led to a buyers / tenants’
announced throughout 2018 which international property shows around consumption fees by 29% for large operating assets from per project. Prominent new Both capital and rental values market with plenty of options
aim to cement the country’s leadership the world. Special promotions targeting factories, and by 10-22% for small and Tourism Development & supply in Abu Dhabi included witnessed a y-o-y decline. Across and ample scope for negotiations.
position as the preferred destination investors from different nationalities medium sized factories. Electricity Investment Company (TDIC) an additional 707 units at Al the residential sector in Abu Developers have responded to
for trade, commerce and leisure. The were set up throughout the year connection fees for new factories has worth AED 3.6 Bn. Aldar Ghadeer 2 by Aldar Properties Dhabi, villas on Saadiyat Island are changing market conditions by
Government has also been ramping to appeal to a wider investor base. also been waived off. also revamped its business and Reflections (192 units) at 11% more affordable compared to offering generous payment plans
up its annual budget as part of its UAE Delegates from the real estate sector Reem Island. In Dubai, Seven December 2017 and rental values with up-to 10 years of post-
model and setup an
Vision 2021 strategy. With a focus on
social development, education and
infrastructure, the 2019 federal budget
of other countries were also invited to
review investment opportunities and
take advantage of a maturing real estate
5
Changes to bank lending laws
investment arm to manage
income producing assets.
Tides Developments launched
Seven City (3 Towers comprising
of 2,617 units) at Jumeirah Lake
for high-end 1Bed apartments on
Al Raha Beach have softened to
an average AED 95,000 / annum
handover payment options and
special schemes to fully or partly
absorb any transaction charges.
was increased by 17.3% to AED 60.3 Bn. market. A cap on real estate lending in the UAE Towers (JLT), Emaar Properties compared to an average AED Landlords on the other hand
Similarly, to encourage more foreign has been lifted by the Central Bank. launched Beach Vista (447 units) 120,000 / annum during Q4 2017. have been open to negotiations
participation in the economy, the
Government issued a new Foreign
Direct Investment (FDI) law in
3
Capital investments into the oil
The previous cap restricted each bank’s
lending to the construction and real
estate sector to a maximum of 20% of
at Dubai Waterfront, and Dragon
Towers (1,142 units) was launched
by Nakheel near Dragon Mart,
Supply and demand mismatch led
to increasing pressure on asset
pricing across Dubai. Both capital
and flexible in terms of the rental
payment and lease terms.
September 2018. The law allows 100% and gas sector set to increase the total deposit. International City. and rental values declined by an
foreign ownership in certain sectors Investments into the hydrocarbon Project launches in the office average 10 - 12% y-o-y across most
and seeks to expand and diversify the
production base, transfer and attract
advanced technology and knowledge in
sector, which constitutes 30% of the
GDP, continue in tandem to the growth
in the non-oil sector. In November, the
6
Further boost to the tourism
sector remained limited, but
handover activity was upbeat.
The last phase of the One Central
markets. In Sharjah, rental decline
was prominent in Al Majaz where
rents for studios dropped by 22%
addition to increasing the flow of FDI. Supreme Petroleum Council (SPC) sector development (742,000 sq. ft.) near y-o-y from an average AED 23,000
This was complimented by a change approved an AED 486 Bn five-year Warner Bros World Abu Dhabi, one of DIFC in Dubai was completed in 2017 to an average AED 18,000.
in the existing visa rules whereby the capital expenditure plan for Abu Dhabi the largest indoor amusement parks in during the year. The opening In the office sector, market
Government has permitted 5 years National Oil Company (ADNOC). As the world was opened during July and of the HSBC headquarters in rents in the CBD of Abu Dhabi,
and 10 years visa for investors and per the plan, ADNOC’s oil production Dubai witnessed the opening of the Downtown, The Opus in Business which comprises of locations such
entrepreneurs (based on the fulfillment capacity is set to increase to 4 million Dubai Frame in January. A new decision Bay and the Lynx in Dubai Silicon as Corniche, Khalifa Street and
of certain investment criteria), barrels a day by 2020, from the current has also been approved to exempt Oasis were among the other Al Maryah Island, declined by an
students (with exceptional grades) 3.5 million barrels, with a future target transit passengers from all entry fees projects to be handed over in average 2% y-o-y. In Dubai, the
and specialists working across a few of 5 million barrels by 2030. This will for the first 48 hours and the visa can be Dubai. In Abu Dhabi, various strongest rental correction was
specified sectors. create the world’s largest refining and extended for up to 96 hours. small-to-medium sized projects observed across Business Bay (15%
Expats over the age of 55 who have petrochemical complex in Ruwais city. by private developers were y-o-y) followed by Dubai Science
an investment in property worth AED 2 completed. Park and Bur Dubai at 11% (y-o-y
mn, savings of not less than AED 1 mn, Across the industrial sector, decline).
or have an active income not less than speculative project launches Rental correction in the
AED 20,000 / month have also been declined. As the market moves industrial sector was observed
included in the scope of the new five- towards maturity, some occupiers at Al Markaz in Abu Dhabi where
year visa policy. committed sizeable investments Grade A rents dropped from AED
into their integrated logistics 33 / sq. ft. / month to AED 28 /
savills.me/research 6 7
The Property Report The Property Report
AS PER OXFORD ECONOMICS, ABU DHABI IS SET
TO BECOME THE SECOND LARGEST CITY IN THE Micro-market Configuration Average Annual Rent (AED) Y-o-Y Change (%)
MIDDLE EAST IN TERMS OF GDP BY 2035.
Villas/Townhouses
Al Reef 4 Bedroom 130,000 -4
ABU DHABI
Hydra Village 3 Bedroom 90,000 0
Golf Gardens 3 Bedroom 195,000 -3
Al Raha Garden 3 Bedroom 150,000 -6
Saadiyat Island 4 Bedroom 350,000 -10
Residential during 2018. Large quantum of ready- an additional 707 units at Al Ghadeer 2 by Apartments
Like the global economic trend, Abu to-move in stock and sizeable upcoming Aldar Properties. IMKAN Properties also
Dhabi started the year on a positive note supply resulted in asset price compression launched 480 units across seven mixed- Al Reef 2 Bedroom 70,000 -13
with the Government earmarking AED across most sub-markets. Demand levels use towers called Pixel at the Makers
50 Bn towards a three-year economic remained low as buyers / occupiers District project on Reem Island. Al Raha Beach 2 Bedroom 120,000 -17
development program. This was adopted a wait-and-watch approach before Sustained supply addition ensued
accompanied by an order to issue dual committing to any new investments. a q-o-q (quarter-on-quarter) price Saadiyat Island 2 Bedroom 185,000 13
licensing for companies operating in Project completions continued to correction across most sub-markets.
the Free Zones. These measures aimed remain strong throughout the year. Close Capital values for apartments on Reem Al Reem Island 2 Bedroom 110,000 -4
at propelling and further diversifying to 6,500 residential units and 2,500 staff Island corrected by an average 18% y-o-y
the economic activity may bode well for accommodation units were completed while they corrected by 11% y-o-y on Al
the city in the long term. As per Oxford across the city. Approximately 70% Raha Beach. Villas on Saadiyat Island
Economics, Abu Dhabi is set to become of the new supply was in the form of are 11% more affordable compared to
the second largest city in the Middle East apartment units while townhouses and December 2017. Rental values corrected
(after Riyadh) in terms of GDP by 2035. It villas constituted the remaining 30%. the most for 1Bed apartments across
is set to achieve an average annual GDP Notable project handovers during the majority of the sub-markets. 1Bed
growth rate of above 3% which will be year include, Marina Bloom (225 units) by apartments on Al Reem Island are now
partly driven by such policy reforms and Bloom Properties at Al Bateen Wharf and leasing for an average AED 55,000 /
investments. Horizon Towers (924 units) by Tamouh annum while rental values for high-end
The impact of such positive measures, Investments at City of Lights, among 1Bed apartments on Al Raha Beach have
however, has not yet trickled into the other projects. come down to an average AED 95,000 /
property market. The general subdued New supply launches also remained annum from an average AED 120,000 /
market sentiment observed across the largely stable as Aldar Properties and annum during Q4 2017.
region was also recorded in the Emirate. other notable developers launched new
Residential real estate performance projects. Prominent new supply includes
remained lackluster across Abu Dhabi Reflections (192 units) at Reem Island and Office
Mid-end Villas / Townhouses Mid-end Apartments High-end Villas / Townhouses Mid-end Apartments
1700
1600
1500
1400
1300
AED / Sq. Ft.
1200
1100
1000
900
800
700
600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015 2016 2017 2018
Abu Dhabi Residential Capital Value Trends
Source Savills Research
savills.me/research 8 9
The Property Report The Property Report
Similar to the residential sector, demand for offer generous parking provisions, shorter various initiatives over the past few years sought-after micro-market for industrial
office space remained subdued across the lease terms, and other incentives such as to promote the role of industries in the activity in the Emirate. It has further
Emirate during 2018. Limited interest from extended rent-free periods, contribution Emirate’s economy. The estimated AED 18 Bn expanded its product offerings with the
companies in the hydrocarbon sector, which towards fit-out cost along with a reduction in In-Country Value (ICV) spend by ADNOC launch of new free zone warehouses and
is among the biggest occupier of space in Abu quoted rental values. in 2018 is further driving investments and Light Industrial Units (LIUs).
Dhabi, was the primary reason. On the other Rental decline was recorded across micro- promoting local manufacturing. As a result, However, during 2018, economic
hand, as an emerging trend, demand from markets with prime rents witnessing the the share of manufacturing in the GDP has weakness, combined with rising stock in
companies from Asia is on the rise. Various biggest decline. Compared to 2017, rents increased from 5.4% in 2010 to an estimated submarkets has led to rental pressure, with
small-to-medium sized space take-up and across Grade A buildings have reduced 6.5% in 2017 with further growth anticipated a growing number of deals closing below
an increase in enquiry levels was recorded by 14%, while Grade B and Grade C rents in the coming years. The Government headline asking rates. Rental rate correction
from infrastructure and logistics companies have scaled down by 12% and 8% y-o-y has also been pro-actively reaching out to was strongest in secondary locations further
throughout the year. respectively. Rental values for buildings in prospective foreign partners for long term from the city. Grade A warehouse rents have
Prominent deals during the year include the Central Business District (CBD) which strategic investments and recent agreements dropped from AED 33 / sq. ft. / annum to AED
space take-up by China COSCO at Khalifa comprises of locations such as The Corniche, with state-owned Chinese firms was a 28 / sq. ft. / annum. In Mussafah, the gradual
Industrial Zone (KIZAD) and market entry Khalifa Street and Al Maryah Island were positive step towards this direction. The introduction of new supply led to a y-o-y
of US financial services firm State Street offered at an average AED 165 / sq. ft. / 50-year agreement with Chinese Jiangsu decline in rents with properties being offered THREE KEY REASONS FOR
Corporation as well as Amsterdam based annum, rents at Outer CBD which includes Provincial Overseas Cooperation and at an average rate of AED 35 / sq. ft. annum. ROBUST DEMAND FOR
asset management company Intertrust. Khalifa City, ADNEC Area, Ministries Area Investment Company (JOCIC) is anticipated Similarly, in KIZAD, values have dropped to INDUSTRIAL SPACE
Despite the steady enquiry levels and and Rawdhat were offered at an average to attract an investment of AED 1.1 billion to an average AED 23 / sq. ft. / annum.
IN THE CITY
deals, vacancy levels across most sub- AED 125 / sq. ft. / month. Rental values for the Khalifa Port Free Trade Zone.
markets have increased as companies look properties Off Island in the North (Al Raha These positive measures have led to robust
to consolidate and optimise their real estate Beach, Masdar, ADAC, Yas Island) declined demand for industrial space in the city.
The estimated AED 18 Bn In-Country
portfolio. Tenant movement from projects by 6% y-o-y and were being offered for an Various small-to-medium sized transactions
Value (ICV) spend by ADNOC in 2018
with Grade B and Grade C specifications average AED 150 / sq. ft. / annum. were observed from Third Party Logistics
is further driving investments and
Providers (3PL) and manufacturing sector
to recently completed Grade A stock was Industrial promoting local manufacturing.
noticed. This led landlords to become companies. KIZAD was one of the most
The Abu Dhabi Government has undertaken
increasingly flexible. They were willing to The Government has been pro-actively
reaching out to prospective foreign
partners for long term strategic
investments
CBD Off Island North Outer CBD Mussafah ICAD 1 ICAD 2 KIZAD Al Markaz Al Mafraq
The 50-year agreement with
250
Chinese Jiangsu Provincial Overseas
45 Cooperation and Investment Company
200 (JOCIC)
40
35
AED / Sq. Ft. / Annum
150
AED / Sq. Ft. / Annum
30
25
100
20
50 15
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0
5
5.4% to 6.5%
2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
The share of
Abu Dhabi Office Rental Value Trends
2017 2018
manufacturing in the
Abu Dhabi Industrial Rental Value Trends GDP has increased
Source Savills Research
from 5.4% in 2010 to an
ICAD - Industrial City of Abu Dhabi KIZAD - Khalifa Industrial Zone Abu Dhabi estimated 6.5% in 2017
with further growth
Source Savills Research
anticipated in the
Despite the steady enquiry levels and deals, vacancy levels coming years.
across most sub-markets have increased as companies look to
consolidate and optimise their real estate portfolio. Khalifa Port Free Trade Zone to attract an investment
of AED 1.1 billion
savills.me/research 10 11
The Property Report The Property Report
CLOSE TO 87% OF THE TOTAL TRANSACTIONS IN Micro-market Configuration Average Annual Rent (AED) Y-o-Y Change (%)
2018 WERE OBSERVED FOR APARTMENTS.
Villas/Townhouses
Al Furjan Villas 4 Bedroom 145,000 -9
DUBAI
Springs - Townhouses 3 Bedroom 125,000 -9
Mira – Townhouses 3 Bedroom 110,000 -8
Jumeirah Park Villas 3 Bedroom 160,000 -3
Arabian Ranches 1 –
4 Bedroom 220,000 -8
Alvorada Villas
Residential VAT on ready unsold inventory and Jumeirah in Dubai West, Business Bay
Dubai’s residential real estate market was Apartments
the IFRS 15 (International Financial and Downtown Dubai in Dubai Central
firmly in a correction phase during 2018. Reporting Standards) standard for were among the other active markets
Downtown Dubai 1 Bedroom 80,000 -11
Inventory levels piled up across micro- revenue recognition were among the for transactions in 2018. Close to 87%
markets as large schemes launched during primary factors driving the generous post- of the total transactions were observed
Business Bay 2 Bedroom 90,000 -18
2014 – 2016 were handed over to the handover payment plans. This has led to for apartments. Studios and 1Beds
market. A slowdown in global trade and the creation of a third and progressively constituted 70% of the total demand Jumeirah Lake Towers 2 Bedroom 110,000 -8
financial markets also weighed down on popular type of segment along with off- across apartments while 3Bed and 4Bed
demand. Uncertainty surrounding Brexit plan and secondary sales. units were the sought-after villa and Dubai Marina 2 Bedroom 135,000 -7
and a 12 – 14% y-o-y currency devaluation New project launches were limited to townhouse configuration.
of key source markets such as India and small and medium sized schemes. Supply Supply and demand mismatch led The Greens 3 Bedroom 120,000 -11
Pakistan were the other major factors addition was led by eminent developers to increasing pressure on asset pricing
impacting demand during the year. As with proven track records. Among other across the emirate. Both capital and rental
a result, transaction activity declined projects which were introduced to the values declined across most sub-markets.
by approximately 22% y-o-y and buyers market, Emaar Properties launched Beach Across established locations, capital
adopted a wait-and-watch approach. Vista (447 units) at Dubai waterfront, values for apartments fell by 9.5% y-o-y
Off-plan (58% share) dominated Seven Tides Developments launched on the Palm Jumeirah and by 5 – 7% y-o-y
transactions, however, its popularity in Seven City (3 towers comprising of 2,617 across Dubai Marina and JLT. Capital
overall demand has declined from 67% units) at Jumeirah Lake Towers (JLT) values for apartments in Downtown
in 2017. On the other hand, demand for and Dragon Towers (1,142 units) was were down by 16% while values in the
ready-to-move properties increased launched by Nakheel near Dragon Mart, Burj Khalifa are 12% lower than the 2017
due to the spike in project completions International City. average. Across the villa and townhouse
over the last twelve months. Developers Dubai South East (DSE) was the most segment, capital values on an average were
offered generous post-handover payment preferred market for occupier demand. down by 9% in Arabian Ranches, 12% in
plans and other incentives such as partial Close to 48% of the total transactions Meadows and Palm Jumeirah and around
or full waiver of associated fees to spur were concluded across sub markets in 14% at Jumeirah Park when compared to
interest across completed properties. DSE such as Emaar Hills, Dubai Hills December 2017.
Dwindling sales, regulations surrounding and Meydan. Dubai Marina and Palm
Mid-end Villas / Townhouses Mid-end Apartments High-end Villas / Townhouses Mid-end Apartments
2400
2300
2200
2100
2000
1900
1800
1700
AED / Sq. Ft.
1600
1500
1400
1300
1200
1100
1000
900
800
700
600
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015 2016 2017 2018
Dubai Residential Capital Value Trends
Source Savills Research
savills.me/research 12 13
The Property Report The Property Report
Office & existing). Incentives include rent free levels. Tenant profile of the micro-market Industrial retailers. Notable space take-up during the by 21% y-o-y at Ras Al Khor. Al Quoz was
periods, additional parking allocation, further improved in 2018, as YouTube Demand for good quality industrial and year include the 800,000 sq. ft. warehouse another market to witness a rental decline
Dubai’s office market witnessed diverging
delayed rental escalations and in some cases opened a 6,000 sq. ft. incubator space, while warehousing stock across the city remained opened by Carrefour for its regional during 2018. Rentals for Grade A properties
trends across its various sub-markets.
fit out contribution. London-based architectural firm Design largely stable throughout 2018. There was distribution centre at the National Industries have dropped by 18% y-o-y. Dubai Investment
Select micro-markets and certain buildings
There has been an emphasis on serviced International opened its first office in the a notable increase in enquiry levels driven Park, Souq.com opened an approximately Park (20% y-o-y) and Dubai Industrial Park
witnessed an increase in enquiry levels and
office space, with serviced office providers Middle East. Dubai Media City was another by ‘flight-to-quality’ requirements. Supply 250,000 sq. ft. fulfillment centre at Dubai (13% y-o-y) were the other markets to witness
a marginal uplift in occupancy rates while
being extremely proactive in 2018 with a preferred market for occupiers as Riot addition also spiked as speculative projects South and FMCG importer Truebells opened rental correction during the year.
vacancy levels have increased across projects
number of new centres opening up, as well as Games, Fashion TV and Virgin Hyperloop launched during 2015 and 2016 were handed a 270,000 sq. ft. distribution centre at Dubai
offering secondary space and inefficient
new partnerships with Free Zones and joint One marked their Dubai entry by opening an over, largely concentrated towards the Dubai Industrial Park (DIP). Demand for cold
floor plans. The rental premium achieved by
ventures with landlords. office in the micro-market. South micro-market. However, transaction storage warehousing facility remained largely
projects offering a freezone license was also
The Government’s vision of embracing DAFZA has seen several key corporates closures across such speculative supply limited, apart from Al-Futtaim Logistics that
rationalised (due to dual licensing) thereby
technology and creating an efficient expand, consolidate and renew within the remained limited. Renewal activity on the opened a cold storage warehousing facility at
expanding the available options for tenants.
platform for business, garnered interest Free Zone with Smiths Medical & Boeing all other hand increased as landlords became Jebel Ali South Free Zone.
Demand was driven by consolidation
from emerging technology start-ups and it occupying substantial office space within the flexible on rental expectations and lease Mismatch in the supply / demand
and space optimisation strategy across
was also observed in the office space take- Free Zone. terms in a bid to compete with the newly equilibrium has created a tenant’s market
sectors as requirement for new large office
ups during the year. Among the prominent Despite continued leasing and renewal completed supply. in Dubai for the last few years. New project
space remained limited. Space take-up was
projects has been a partnership between activity, rental values witnessed a decline In terms of occupier profile, demand completions during the year led to a further
concentrated across established markets
Astrolabs, DMCC Free Zone, IBM & Google across a few markets as supply continued was observed from Fast Moving Consumer deterioration in rental values across most
with support infrastructure and easy access.
providing a coworking community and to outstrip demand; a trend which has Goods (FMCG) companies, automobile micro-markets. Grade A rents for National
Transaction activity was mainly observed
learning academy for digital technology been observed over the past few years. The manufacturers, e-commerce companies and Industries Park declined by 27% y-o-y and
from technology-media and the telecom
sector, legal consultants and education companies in Dubai. strongest rental correction was observed
& healthcare firms. There was also an Demand from financial services and across Business Bay (-15% y-o-y) followed
increase in demand from boutique gyms fintech firms also remained stable and was by Dubai Science Park and Bur Dubai at
towards leasing space within commercial concentrated across the Dubai International 11% (y-o-y decline) each. On the other
office buildings. Landlords were receptive Financial Center (DIFC). Omni Bridgeway, hand, values remained stable across office JAFZA DIP Dubai Industrial Park Dubai South Al Quoz Jebel Ali Industrial Zone National Industries Park Ras Al Khor / Al Awir
to this type of occupier taking advantage a global litigation and arbitration funder, properties in DAFZA, Dubai South, Dubai
of affordable rents rather than previous Singapore-based fintech start-up WeInvest Silicon Oasis and Al Barsha.
preference for ground floor retail units. and Berkshire Hathaway Specialty Insurance
were among the firms that leased space at 70
On the whole, tenants were cost conscious
and postponed any significant spend on DIFC.
capital expenditure. This drove demand Across other micro-markets, occupier 60
for high quality CAT A & secondary demand remained strong across Dubai
fitted space. Landlords were receptive to Design District (D3). Most of the buildings
50
offering incentives to secure tenants (new in D3 had very limited or negligible vacancy
AED / Sq. Ft. / Annum
40
30
Old Dubai Central Dubai DIFC New Dubai Dubai Fringe
20
300
250 10
AED / Sq. Ft. / Annum
200 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
150
2017 2018
100
Dubai Industrial Rental Value Trends
50
JAFZA - Jebel Ali Free Zone DIP - Dubai Investments Park
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Source Savills Research
2017 2018
Dubai Office Rental Value Trends
Source Savills Research Renewal activity increased as landlords
became flexible on rental expectations and
lease terms.
savills.me/research 14 15
The Property Report The Property Report
THE SAVILLS SHARJAH RESIDENTIAL INDEX
DROPPED FROM 95% IN JANUARY TO AROUND 90%
BY DECEMBER 2018.
SHARJAH AND NORTHERN EMIRATES
Residential January to around 90% by December 2018. while 2Bed and 3Bed apartments are on
Sharjah benefits from a competitive Rising vacancy levels by the second half an average 9% and 15% more affordable
advantage over other Emirates due to its of the year prompted property owners compared to 2017. New supply is likely
low-cost cost of living and doing business. and management firms to actively offer to remain strong, which may result in
It has established itself as an affordable discounted rentals in order to retain further rental moderation in the coming
alternative to its neighbouring Emirate and attract tenants. Alternative leasing few years. There are more than 60 projects
of Dubai. A sizeable number of employees incentives now also form a key part which are currently in the planning
working in Dubai, prefer to live in Sharjah of property leasing strategies. Whilst or under-construction across various
due to the comparative rental advantage charging for parking is now a rarity, a established and emerging sub-markets.
and developed social infrastructure. This growing number of properties are offering Close to 80% of this upcoming supply is
has helped foster demand for residential 1-2 months rent free and in some cases the form of apartment buildings while the
projects across prominent micro-markets owners are accepting to pay agency fees to remaining 20% is expected to be villa /
in the past, a trend which was observed leasing agents so as to compete with those townhouse projects.
in 2018 as well. Occupancy levels across properties that are “direct from owner”. Residential real estate across Ajman
most of the mid-to-high-end buildings The existing dynamics led to rental and Ras Al Khaimah followed a similar
remained high during the start of the correction across most sub-markets. trend as Sharjah. Rental values declined
year. However, fluctuations to property Rental decline was prominent in Al Majaz across segments, with high-end properties
prices in Dubai has a visible impact on the where rents for studios dropped by 22% witnessing a steep correction. At the
residential demand in Sharjah. y-o-y from an average AED 23,000 in end of 2018, residential developments in
As a result, a y-o-y decline in rental 2017 to an average AED 18,000 in 2018. Ajman were the most affordable in the
values in Dubai (driving reverse migration Similar to Al Majaz, rents for studios in UAE. The current market dynamics in
of expats into Dubai) during 2018 along Al Qasimia dropped by 20% y-o-y to AED the Northern Emirates has made it more
with other socio-economic factors led 16,000 and by 18% y-o-y at Butina, Al affordable to upgrade to lager unit size or
to a decline in occupancy levels across Nabaah to AED 14,000 / annum. Rental move into a villa or townhouse.
properties in Sharjah. The Savills Sharjah values for 1Bed apartments declined by
Residential Index dropped from 95% in an average 12% y-o-y across markets
Note The Savills Sharjah Residential Occupancy Index reflects the average monthly occupancy
levels across mid-end and high-end apartment and villa projects managed by Savills
Micro-market Configuration Average Annual Rent (AED) Y-o-Y Change (%)
Apartments
Al Muwaileh 2 Bedroom 70,000 -13
Al Majaz 3 Bedroom 52,000 -15
Al Khan 2 Bedroom 42,000 -11
Abu Shagara 2 Bedroom 30,000 -14
Al Qasimia 2 Bedroom 38,000 -3
Butina, Al Nabaah 2 Bedroom 28,000 -10
Alternative leasing incentives now also form a key part of
property leasing strategies.
savills.me/research 16 17
The Property Report
Outlook
1 The various proactive measures adopted
by the Government in 2018 will have a
positive impact on housing demand and
to influence asset pricing over the next
twelve months. This will help in improving
occupancy levels across assets, with
There is a growing trend towards more
contemporary building designs based
on market generated data. Developers
help the maturing real estate market. This demand drivers likely to remain divergent offering more modern and well thought
will be supplemented by a recovery in the across the emirates. Companies from the out properties, are experiencing clear
local economy which is projected to grow non-oil sector are likely to drive demand for advantages upon completion, often
by 2.9% in 2019. The completion of ongoing office space in Dubai, while Abu Dhabi may outperforming the market. A number of key
infrastructure projects, upcoming supply of witness steady demand from infrastructure new projects, that are likely to complete
investment grade developments and work and logistics companies and benefit from in 2019, depart from traditional design
surrounding the upcoming EXPO 2020, any projected improvement in oil prices. and specifications. These projects vary
will have a lasting, sustainable and positive Across warehousing projects, demand in their offerings and therefore may be
impact on the region. is likely to be driven by companies from able to achieve sizeable occupancy upon
the manufacturing, trading, e-commerce completion.
2 Along with mainstream investors
comprising Emiratis, Indians,
Pakistanis and British, we anticipate
and retail sector. It is anticipated that
companies will capitalise on the subdued
rental sentiments and enter into long term 5 The Government’s focus on
digitalisation, with measures such as
demand from other nationalities such as partnerships with developers for their the Ejari smart application, which enable
Chinese, Americans and others to increase regional distribution centers. landlords to register and renew lease
on the back of Dubai Land Department’s contracts and digitally send contracts to
investor outreach program.
4 Across the Emirates, a correction in
asset pricing will create opportunities
tenants for approval and vice versa, will
improve transparency and further cement
3 Challenges surrounding supply and
demand mismatch may continue
and advantages for developers that invest
more at the design stage of development.
the regions leadership position as preferred
place to live, work and invest.
savills.me/research 18The Property
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