UAE MARKET REVIEW AND FORECAST 2020 - Research - Cityscape Intelligence
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Research UAE MARKET REVIEW AND FORECAST 2020
The annual review and forecast of the UAE real estate market UAE MARKET REVIEW AND FORECAST 2020
economic growth rate is expected to slow from As at December 2019, gross yields in Abu Dhabi’s As at December 2019, gross yields in the
1.9% in 2018 to 1.5% in 2019 before strengthening to mainstream market registered on average at 6.7%, mainstream market registered on average at 6.6%
2.1% in 2020. Over the same period Abu Dhabi GDP up from 6.6% a year earlier. and 5.8% in the prime market.
is forecast to grow by 3.3% and 3.2% respectively.
UAE MARKET
Looking ahead, the UAE’s GDP is expected to pick
up momentum and record a growth rate of 2.2% Dubai residential market UAE residential market
in 2020, before tapering slightly to 2.1% in 2021
review outlook
according to data from Oxford Economics. Expo
2020, existing stimulus packages and expansionary Dubai’s residential market is showing very early The delivery of upcoming supply in Abu Dhabi
signs of recovery as we begin to see a sustained and much more so in Dubai is the most significant
REVIEW AND
budgets are set to underpin these stronger rates of
growth. increase in transaction volumes. Initial data headwind facing the UAE’s residential market
releases show that residential transaction volumes over the coming year. In 2020 over 8,500 units are
in 2019 have increased by 26% compared to 2018. expected to be delivered in Abu Dhabi, the most
since 2013. In Dubai, almost 62,500 units are due
This increase in demand is despite average prices
Abu Dhabi residential for completion in 2020. Whilst we are unlikely
FORECAST
still softening, with mainstream prices falling by
market review 6.0% in the year to December 2019, down from the
to see this entire pipeline come to fruition, the
quantum of stock set to be delivered is likely to be
8.6% decline witnessed in the year to December
Residential sales prices in Abu Dhabi fell on the highest since 2008.
2018. In 2019, apartment prices fell by 8.2% and
average by 7.5% in 2019. Over this period, average
villa prices by 7.3%. Whilst in the short to medium term this influx
prices for apartments in the capital fell by 7.6% and
of supply will continue to put pressure on prices
2020
average villa prices by 7.4%. Prices remain under pressure primarily as a result
and rents, there are a range of measures which
of the level of supply which has been delivered
Residential rental rates softened in 2019 on average have been implemented and will contribute to the
in 2019, where total new supply was estimated at
Macroeconomic overview by 6.2%; this rate of decline has moderated from
35,171 units.
strong fundamental offering of the UAE’s property
9.6% a year earlier. In the year to December 2019, market.
Initial estimates from the UAE Central Bank show The UAE’s Purchasing Managers’ Index (PMI), average apartment rents softened by 6.5% and Dubai’s prime residential market has outperformed
First and importantly for Dubai, there have been a
that the UAE’s GDP increased by 2.3% in 2019, which tracks the country’s private non-oil average villa rents by 5.3%. the mainstream market in relative terms over
range of measures announced by the government
up from the 1.7% growth recorded in 2018. This economy, has recorded its lowest reading since the same period with prices softening by 0.7% in
Whilst performance in Abu Dhabi’s residential to help balance supply and demand in Dubai.
stronger rate of GDP growth has been primarily 2009. As at January 2020, activity in the UAE’s the year to Q4 2019. Prime transaction volumes
market remains subdued as a result of an increase His Highness Sheikh Mohammed bin Rashid Al
driven by the hydrocarbon sector, which is private sector shrank as the index fell to 49.3, down increased in the key prime areas of Palm Jumeirah,
in launches and deliveries – where new supply Maktoum, the Vice President and Prime Minister
expected to record growth of 4.9% in 2019, up from from 50.2 in December 2019. This latest reading is Emirates Hills and Downtown Dubai by 61% in
in 2019 was estimated at 6,586 units – and a of the UAE and Ruler of Dubai, has instructed for
2.8% in 2018. The non-oil sector has seen relatively markedly below its three-year average of 55.1. 2019.
weaker economic backdrop, we are witnessing a the creation of a higher committee to undertake
muted growth in comparison with growth in 2019
In Dubai, business sentiment also remains moderation in price and rental rate declines. Given the influx of supply in the mainstream the development of a comprehensive and
expected to register at 1.4%, up marginally from
subdued. The Emirates NBD Dubai Economy market, rents have fallen by 8.1% in 2019. As strategic plan for all of Dubai’s upcoming real
1.3% in 2018. The softening of prices has improved affordability
Tracker Index (DET) eased from 53.5 in November the vast majority of new supply has been in the estate projects. To help in executing this, we have
in Abu Dhabi’s residential market, which
Over the course of 2019, the UAE’s oil and non-oil 2019 to 52.3 in December 2019, the lowest reading mainstream segment of the market and not the seen regulatory changes to Dubai’s Real Estate
combined with the introduction of freehold
forecast GDP growth rate has been revised down since August 2019. Overall, the Dubai PMI indicates prime segment, prime rents fell at a slower pace of Regulatory Agency (RERA). As one of RERA’s
ownership has resulted in growing demand from
on the back of regional geopolitical tensions, OPEC a strong slowdown in demand over the course 2.1% over the same period. objectives is now to contribute to the development
owner-occupiers.
led production cuts and escalations in global trade of the second half of 2019. As a result, Dubai’s
wars.
TAIMUR KHAN
Associate Partner
“Looking ahead, the UAE’s
UAE GDP, y-o-y % change Abu Dhabi, Residential mainstream Abu Dhabi, Residential mainstream Abu Dhabi, Residential mainstream
GDP is expected to pick up price performance rental performance gross yields
8.00
momentum and record a 12-month 6-month 3-month 12-month 6-month 3-month
All properties Apartments Villas
6.00 % change % change % change % change % change % change
growth rate of 2.2% in 2020, 0.0% 0.0%
-7.5%
-3.8%
-6.2%
-3.5%
before tapering slightly to
4.00 -1.0% -1.0%
Dec-18 6.6% 6.9% 5.6%
-2.0%
2.1% in 2021. Expo 2020,
-2.0%
-1.7%
2.00
-2.3%
-3.0% -3.0%
existing stimulus packages - -4.0% -4.0%
Dec-19 6.7% 7.0% 5.8%
and expansionary budgets -2.00
-5.0% -5.0%
-6.0%
are set to underpin these -4.00
-6.0%
-7.0% -7.0%
stronger rates of growth”. -8.0% -8.0%
-6.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020(f) 2021(f) 2022(f)
UAE GDP Y-o-Y % Change Oxford Economics forecast
Source: Knight Frank Research, REIDIN Source: Knight Frank Research, REIDIN Source: Knight Frank Research, REIDIN
Source: Knight Frank Research, Macrobond and the Central Bank of the UAE
Please refer to the important notice at the
end of this report.
UAE MARKET REVIEW AND FORECAST 2020 UAE MARKET REVIEW AND FORECAST 2020
of the real estate sector and enhance its weak, we continue to witness sustained demand ft/p.a.) as at Q4 2019, down 9.6% compared to the UAE office market outlook within asset grades; best in class stock is likely to
contribution to the wider economy, coupled with from occupiers for space in Abu Dhabi Global same period a year earlier. Prime office vacancy see moderation in the rate of rental declines, this
the creation of a higher committee, this latest Market on Al Maryah Island, particularly from remains relatively low compared to the wider Over the course of 2020, the trend of outlook is expected to be driven by regulatory
development is likely to help contribute to and government and semi-government related market, which currently stands at an estimated consolidation and a flight to quality is likely to changes and the delivery of new supply.
enforce more thought-out developments and entities. 19%. continue across the UAE, driven by softer market
conditions and regulatory changes, such as the As at 2019, Dubai’s total GLA totalled 10.05
communities. This in turn will enhance long-
In the year to Q4 2019, citywide rents in Abu The decline in Grade A rental rates continues to million square metres by 2025. We estimate
term confidence from developers and investors. 100% foreign ownership law and dual licencing.
Dhabi fell by 13.5% to an average of AED 988 accelerate, with Grade A rents falling by 9.7% in that this will total 11.3 million square metres, an
More so, in 2019 a range of regulatory changes (sqm/p.a.). Prime rents fell by 7.0% over the same 2019 compared to 3.0% a year earlier. As at Q4 In Abu Dhabi we expect rental rate declines increase of 12.5%. MATTHEW DADD
to moderate, however the market is likely to Partner,
came into play, including the announcement of period and now register on average at AED 1,569 2019, Grade A rents registered at AED 136 (sq.
In 2020, Knight Frank estimates delivery of over Occupier Services & Commercial Agency
100% on-shore business ownership, easing of (sqm/p.a.). ft/p.a.) on average. Citywide office rents declined remain favoured towards occupiers. As this trend
comes to fruition we expect to see longer term 280,000 square metres of commercial space in
visa regulations, the introduction of the golden by 8.2% in 2019 to an average of AED 108 (sq.
card residency scheme and Abu Dhabi’s freehold
As at Q4 2019 average Grade A rents in Abu
ft/p.a.). commitments from corporate occupiers, with Dubai. The take up of such space is likely to be “Given a weak market
Dhabi registered at AED 1,371 (sqm/p.a.), down driven by relocations rather than new market
ownership law. These measures are likely to
2.3% from the same period a year earlier. This These softer market conditions are another
average lease lengths likely to shift towards the
entrants, which is expected to put further
backdrop, Abu Dubai’s
drive additional demand to the UAE’s property five-year mark.
market, particularly given that many of the
relative outperformance in the Grade A market factor which is underpinning relocation activity pressure on rental rates within locations where office market is balanced
is underpinned by the lack of Grade A stock in in the city, with occupiers using this as an Over the next three years, we expect over this additional supply is being delivered.
changes in visa regulations are linked to property
Abu Dhabi. opportunity to upgrade their office space. More 392,000 square metres of supply to be delivered in the favour of occupiers.
ownership.
so, landlords are now more accepting of softer in Abu Dhabi, a 10.6% increase compared to
As a result, landlords are
Finally, interest rate cuts by the UAE Central market conditions, however in return are looking current total stock. However, as the majority of
Bank have also led to a fall in the cost of to secure longer-term income. As a result, we are this stock is in non-core locations or is built-to- willing to remain flexible in
borrowing, where the six-month EIBOR rate has Dubai office market review witnessing average lease lengths increase. suit for owner occupation, we do not anticipate
order to retain occupiers,
fallen from highs of 3.14% to 2.01% in 2019. This that this additional supply will have a material
Despite a sustained increase in licence
alongside reforms in banking regulations relating impact on market performance. alongside other incentives
issuances, net cumulative total, commercial and
to real estate lending may provide greater professional business licence issuance increased The short to medium term outlook for Dubai’s in the case of attracting
access to cheaper financing options, thereby in the year to Q3 2019 by 12.4%, 4.1% and 39.4% commercial market remains negative with
encouraging activity in the UAE’s residential
new occupiers.”
respectively compared to the same period a year rents expected to continue to decline across all
sector. earlier, we have seen limited activity from new segments. However, we are likely to see the office
market entrants in Dubai’s corporate occupier market begin to fragment - by area and even
market.
Abu Dhabi office market The vast majority of activity in the corporate
occupier sector stems from relocation activity.
review
However, this activity is underpinned by changes
Activity in Abu Dhabi’s occupier market remains in regulations rather than purely by economic GCC office market outlook
subdued with the vast majority of activity pressures to consolidate operations. As a result of
originating from government related entities and these regulatory changes we continue to witness Kuwait Manama
small and medium enterprises, the latter have a greater levels of demand for space in Free Zones
limited requirement for space. which are offering dual licencing. Doha LANDLORD
BALANCED
Whilst demand in the wider market remains Prime rents on average registered at AED 222 (sq.
Dubai TENANT
Dubai, Residential mainstream price Dubai, Residential mainstream rental Dubai, Residential mainstream
performance performance gross yields Muscat
12-month 6-month 3-month % 12-month 6-month 3-month % All properties Apartments Villa
Riyadh
% change % change change % change % change change Market Pendulum
0.0% 0.0%
-6.0%
-8.1%
-5.5%
-3.0%
Abu Dhabi
-1.0% -1.0%
-2.0% -2.0%
6.6% 6.9% 5.2%
Dec-18
Jeddah
-1.7%
-2.3%
-3.0% -3.0%
-4.0% -4.0%
-5.0% -5.0%
TENANT LANDLORD
-6.0% -6.0%
Dec-19 6.4% 6.7% 5.4% BALANCED
-7.0% -7.0%
-8.0% -8.0%
-9.0% -9.0%
Source: Knight Frank Research
Source: Knight Frank Research, REIDIN Source: Knight Frank Research, REIDIN Source: Knight Frank Research, REIDINUAE MARKET REVIEW AND FORECAST 2020 UAE MARKET REVIEW AND FORECAST 2020
UAE retail market review
Weaker levels of consumer confidence, an
Abu Dhabi average office rents (AED/ sq m/ p.a.) ever-maturing e-commerce market alongside Dubai office supply
2,500 a material increase in supply across the UAE 12,000,000
has meant the retail sector continues to witness
2,000 considerable headwinds. 10,000,000
Estimated supply, miilion sq m of GLA
More so, the US Dollar, to which the Dirham is
8,000,000
1,500 pegged, registered strong growth from May 2014
to December 2016; this has proved to be a strong
6,000,000
1,000 headwind for the UAE’s economy and its retail
sector, particularly for tourism spending. From
4,000,000
January 2018 to December 2019 we have seen the
500
Dirham strengthen again by 5.8%. This is another
2,000,000
key factor, which is exerting pressure on retail
0
Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019
assets in the UAE. 0
2000
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2025
These trends have meant that on average
Prime office rents Grade A office rents Citywide office rents Source: Knight Frank Research
rental rates across the UAE’s retail market
Existing office supply Forecast office supply Source: Knight Frank Research
have softened considerably. Non-prime assets
in secondary locations have seen significant
double-digit declines. Prime assets in prime
locations, which have significant demand
Abu Dubai office supply
drivers, have seen low single digit to low double-
Abu Dhabi retail supply
4,500,000 digit declines in rental rates over the course of
3,000,000
4,000,000 2019.
3,500,000
Estimated supply, miilion sq m of GLA
2,500,000
Estimated supply, miilion sq m of GLA
3,000,000
UAE retail market outlook 2,000,000
2,500,000
Whilst there will be an impact on retailers
2,000,000 1,500,000
margins as we see greater levels of penetration
1,500,000 from e-commerce and as of more recently
1,000,000
e-retailers, physical retail space in the UAE,
1,000,000
particularly that which is focused around 500,000
500,000 destination and entertainment focused
0 developments will attract both retailers and 0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
consumer demand.
1992
1999
2000
2001
2007
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Existing office supply Forecast office supply Source: Knight Frank Research However, looking at the pipeline of upcoming
Existing retail supply Upcoming retail supply Source: Knight Frank Research
developments in Abu Dhabi and more so in
Dubai, we expect further pressure to be exerted
on retail assets of all grades across the UAE.
“Weaker levels of Dubai average office rents (AED/ sq ft/ p.a.) In Dubai, over the five years to 2025 retail stock
300 is expected to increase by 56% to 5.91 million Dubai retail supply
consumer confidence, square metres, from 3.46 million square metres
7,000,000
an ever-maturing 250 as at Q4 2019. Over 90% of Dubai’s retail offering
is classed as regional or super-regional stock; 6,000,000
e-commerce market
Estimated supply, miilion sq m of GLA
200 almost 83% of the upcoming stock by total area is
alongside a material
5,000,000
also classed as regional or super-regional stock.
150
increase in supply across In Abu Dhabi, Knight Frank estimates that by 4,000,000
2023 we are likely to see the delivery of over
the UAE has meant the 100
680,000 square metres of retail space, a 36%
3,000,000
retail sector continues 50
increase from the current level of total stock.
2,000,000
Almost 85% of total upcoming stock by total area
to witness considerable is classed as regional or super-regional stock. 1,000,000
0
headwind” These regional or super-regional centres are in
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
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Q3 2014
Q4 2014
Q1 2015
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Q4 2015
Q1 2016
Q2 2016
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Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
0
the main destination and entertainment focused
1994
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offerings and therefore are likely to attract
Prime office rents Grade A office rents Citywide office rents Source: Knight Frank Research
demand, at the expense of older malls which do
Existing retail supply Upcoming retail supply Source: Knight Frank Research
not reposition their offering.UAE MARKET REVIEW AND FORECAST 2020 UAE MARKET REVIEW AND FORECAST 2020
Overall, given the influx of supply due to enter KEY CONTACTS
the UAE retail market, particularly in the regional
and super regional segment of the market, near
Abu Dhabi existing retail supply, Dubai existing retail supply,
established and up and coming residential By type By type
communities we expect that demand is likely
0.4% 1.8% 0.7%
5.5%
to become a lot more localised. Only assets with 0.5% 0.2% 3.0%
significant demand drivers will attract visitors
from broader catchment areas. Furthermore,
non-prime assets in secondary locations are
likely to undergo repurposing as a result of the
delivery of new stock. This is a trend we are
already witnessing with such stock now being HEAD OF MIDDLE VALUATION & ADVISORY RESEARCH
utilised as offices or as co-working spaces.
97.1%
90.8% EAST & AFRICA SERVICES
James Lewis, MRICS Stephen Flanagan, MRICS Taimur Khan
Finally, with the emergence of destination and Managing Director Partner Associate Partner
entertainment led retail developments emerging Mall Strip Mall Mall Special purpose +971 50 2265 368 +971 50 8133 402 +971 56 4202 312
in Abu Dhabi, this may also reduce demand for
james.lewis@knightfrank.com stephen.flanagan@me.knightfrank.com taimur.khan@me.knightfrank.com
retail in Dubai from Abu Dhabi residents. Souk Type Community Mall Open Air Centre Community Mall
Special purpose
UAE hospitality market Source: Knight Frank Research Source: Knight Frank Research
review
Much like 2018, 2019 was characterised by
softening performance across the UAE’s
UAE hospitality key performance indicators, 2019 vs 2018
hospitality sector. On an aggregate basis, this
OCCUPIER SERVICES & MENA RESIDENTIAL MEDIA & MARKETING
was largely driven by a fall in average daily OCC ADR RevPAR Room Rev Room Avail Room Sold COMMERCIAL AGENCY
rate (ADR), which, despite a marginal uptick in
Matthew Dadd, MRICS Maria Morris Thomas Farmer
occupancy caused revenue per available room United Arab Emirates 0.3% -9.4% -9.7% -3.5% 6.8% 6.5%
Partner Partner Associate Partner
(RevPAR) to fall by 9.7%. +971 56 6146 087 +971 56 4542 983 +971 56 6116 368
Abu Dhabi 2.3% 4.8% 7.2% 11.8% 4.3% 6.7% matthew.dadd@me.knightfrank.com maria.morris@me.knightfrank.com thomas.farmer@me.knightfrank.com
The cause has not been visitation, which has
been on the rise with Dubai attracting 16.73 Dubai -0.9% -12.2% -13.0% -5.5% 8.6% 7.6%
million and Abu Dhabi city reaching almost 4.5
Ras Al Khaimah 2.4% -14.8% -12.8% -12.5% 0.4% 2.8%
million visitors in 2019, up 5.1% and almost 1.0%
respectively from the previous year. Despite Sharjah -4.5% -10.0% -14.1% -13.5% 0.7% -3.9%
this positive momentum, performance almost
universally declined, with citywide RevPARs Fujairah -7.8% -10.9% -17.8% -9.3% 10.4% 1.8%
falling between 6.5% and 14.8%, with Abu Dhabi
Ajman 0.6% -6.5% -5.9% -3.5% 2.6% 3.2%
being the sole exception where RevPAR increased
by 7.2%. Source: STR Global
REAL ESTATE STRATEGY HOSPITALITY & LEISURE MEDIA & MARKETING
In Abu Dhabi, a series of high profile corporate & CONSULTING
and leisure events alongside the opening of own right, but also have a sizeable pipeline. That
“Despite a positive P.P. Varghese Ali Manzoor Noor Chehayber
demand generators such as Qasr Al Watan have said, recent government initiatives such as the
Partner Partner PR Coordinator
strengthened the market. In general, in the UAE easing of visa regulations and five year multi-use momentum in visitation +971 56 1766 588 +971 56 4202 314 +971 54 4488 536
we are witnessing an increasing proportion of tourist visas alongside a growing number of
numbers, performance pp.varghese@me.knightfrank.com ali.manzoor@me.knightfrank.com noor.chehayber@me.knightfrank.com
price sensitive visitors, which, alongside an varied leisure and cultural demand drivers will
influx of supply, is forcing hotels to compete help ease this pressure. almost universally
heavily on price in order to maintain market
Finally, as new and more diverse demand drivers declined in the UAE’s
share.
come to fruition, development opportunities
hospitality sector, with
remain in certain sub-markets, but can only be
fully exploited with a very well differentiated citywide RevPARs falling Knight Frank Research Reports
are available at
Important Notice
UAE hospitality market value proposition, and cash optimisation driving
between 6.5% and 14.8%, KnightFrank.ae/Research
© Knight Frank 2020 - This report is published for general information only and not to be relied upon in any way. Although high
standards have been used in the preparation of the information, analysis, views and projections presented in this report, no
the build phase.
outlook with Abu Dhabi being
responsibility or liability whatsoever can be accepted by Knight Frank for any loss or damage resultant from any use of, reliance
on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of
Knight Frank in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without
Looking ahead, whilst Expo 2020 will certainly
the sole exception where prior written approval of Knight Frank to the form and content within which it appears.
help bolster the market, in the medium to Knight Frank UAE Limited (Dubai Branch) Prime Star International Real Estate Brokers (PSIREB RERA ORN: 11964 trading as Knight
long term both developers and operators are RevPAR increased by Frank with registration number 653414. Our registered office is: 5th Floor, Building 2, Emaar Business Park, PO Box 487207,
Dubai, UAE.
concerned about certain micro markets that not
7.2%. ” @KnightFrankME @KnightFrankMiddleEast @KnightFrankMiddleEast
only have become extremely competitive in their
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