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The UAE’s property market’s recovery from the Covid-19 pandemic is picking up pace, driven by improved economic performance driven by high oil prices and an increase in relocations, especially from Russia, according to a report by Fitch Ratings.
Still, some sectors, including the Dubai office market, may take years to fully recover due to oversupply.
UAE real estate market softens during pandemic: Dubai’s population fell by an estimated 8% in 2020 as many expats, who make up about 90% of the population, had to leave after losing their jobs.
In addition, economic pressures have affected carbon and non-carbon sectors, including tourism, hospitality and retail. However, an effective vaccination program has resulted in one of the highest coronavirus coverage rates in the world, allowing the country to reopen for international business and tourism earlier than most.
In addition, government initiatives to promote growth and competitiveness, including relaxation of visa and residency rules, have helped increase the population, it added.
These moves have contributed to a recovery in Dubai’s real estate sector in 2021, with an estimated 2% population increase. The country’s economy and real estate market will be further boosted by rising oil and gas prices in 2022, especially driven by the Russia-Ukraine war and the consequent redirection of global hydrocarbon trade flows.
The industry has further benefited from the influx of Russian skilled workers and wealthy people into the UAE due to Russia’s neutral stance on invasion and the relative ease of obtaining UAE visas for Russian nationals. This inflow led to an 81% year-on-year increase in residential property purchases in Dubai in the first quarter and a 125% increase in the total value of transactions.
Fitch warned that despite much improvement in residential and tourism, some parts of the UAE’s real estate market, particularly office space in Dubai, remain oversupplied and prices and occupancy rates could take years to recover.
Approximately 138,000 sqm of new office space was completed in 2021, bringing the total market to nearly 9.1 million sqm, and supply will continue to increase in 2022.
In 2021, Dubai’s average office occupancy rate will be around 80%. High-quality Grade A buildings typically have higher occupancy rates and rental growth, driven by the quest for quality in many EMEA markets.
Although there were some new office tenants entering the market in 1Q22, most of the office real estate activity came from existing businesses consolidating the space and seeking to improve its quality. According to CBRE Group and the Dubai Land Department, lease renewals accounted for 68.9% of the total office space registered under commercial office lease contracts in 1Q22.
This is a positive for established suppliers with high-quality office space, such as UAE REITs, especially its largest asset, Index Tower, although the company’s ‘C’ rating reflects immediate refinancing risk, as The company’s sukuk is due in December 2022.
The UAE retail real estate market is also oversupplied, but its performance has been steadily improving post-pandemic. The Dubai Mall is seeing a steady increase in foot traffic, with visits 6.7% higher than pre-pandemic levels.
According to Fitch, the performance of prime mall operators such as Majid Al Futtaim (MAF) is benefiting from a recovery in foot traffic and retail tenant sales, especially as MAF can capture rental increases due to relatively short weights on average. The expiring lease term is 2.5 years.
MAF also benefited from improved performance in its hotel portfolio, with occupancy rates approaching 100%.
Emaar Properties focuses on high-quality residential developments and shopping malls (primarily The Dubai Mall) and is experiencing the same high growth. Consolidated revenue rose more than 50% in 2021 and ebitda more than doubled, supported by particularly strong residential property sales.arab trade news agency
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