Asteco Q1 2022 Real Estate Report: UAE Market Robust and Positive

The Q1 2022 UAE Real Estate Report, published by property management experts Asteco, reported that real estate     market activity in Abu Dhabi and Dubai remained strong in the first three months of the year as a result of Government initiatives, economic growth and improved market sentiment.

Abu Dhabi Residential and Office Real Estate Market

Approximately 3,800 residential units were delivered in Q1 2022, spread across different areas of Abu Dhabi including Al Raha Beach, Al Reem Island, Yas Island and Saadiyat Island and several other residential areas. According to the report, numerous residential and mixed-use projects located within the Investment Zones are expected to start construction in 2022 and a large majority of Abu Dhabi developers are now considering developing new residential and mixed-use projects in different areas of Abu Dhabi as a result of the general positive market sentiment.

The villa rental market continued to achieve good levels of demand across the board, particularly for the well-developed villa communities on Saadiyat and Yas Islands. However, there are still some discrepancies in the apartment market with positive and negative rental growth for various buildings within communities and across different areas, depending on the building’s age and quality.

Average villa rental rates grew by 2% in Q1 2022, with some developments recording increases of close to 10%. Average annual increases stood at 5%. Office rental rates remained stable over the first quarter, with a marginal annual decline of 1% on average.

When it comes to sales prices, residential sales market activity continued on strong footing in the first three months of the year with high levels of demand for new off-plan villa projects, as well as completed villas, particularly within well-developed communities.

Sales prices for high quality villas on Saadiyat Island and Yas Island increased by up to 4% to 7% over the quarter and up to 15% compared to the same period last year. Apartment sales prices rose marginally by 2% in Q1 2022 and 4% annually. High quality off-plan projects offered at attractive sales prices and payment plans generated the most interest, which translated into a higher number of transactions.

Dubai Residential and Office Real Estate Market

In Dubai, new apartment supply picked up significantly in the first quarter of 2022 with the handover of 6,250 units, compared to less than 4,000 in the previous quarter. However, the villa market lagged behind considerably with only 250 units completed and handed over.

The report also indicated that new supply for 2022 in Dubai is likely to fall short of earlier estimates. Delivery is now expected to reach a total of 29,000 apartments and 3,250 villas by year-end, with several projects likely to be delayed and to spill over into 2023.

New supply, current and future, is scattered throughout Dubai with deliveries in established communities, such as Dubai Marina and Business Bay, as well as in upcoming developments including Port De La Mer, MBR City, Dubai Hills Estate, Damac Hills 1 and 2. New project launches (off-plan, under construction and completed developments) continued to be well received by investors and end-users.

When it comes to the leasing market in Dubai, rental rates across all major asset classes are expected to increase further for good quality properties, albeit at a slower rate. Average apartment and villa rental rates continued to grow in Q1 2022, particularly in quality developments, with quarterly increases of 4% and 5%, respectively.

Villas continued to be the predominant focus of demand and the limited number of new handovers translated into higher rental and occupancy rates. Annual rental growth in the villa market was rather significant at 25%, while average apartment rental rates rose by 14%.

Office rental rates also grew by 4% on average over the last three months, although net effective rents may have been influenced by additional incentives. Annual changes stood at 6%.

Sales prices recorded a significant spike, particularly in regard to villas, with average quarterly and annual increases of 5% and 40%. The strong demand in villas has also impacted apartment sales prices, which grew by 5% compared to Q4 2021 and 22% over the year.

Asteco expects the momentum of growth to continue in 2022, a trend underpinned by anticipated developments stemming from Government initiatives such as new visa programmes and regulations to attract foreign direct investment (FDI), as well as the continued easing of COVID-19 restrictions.

Expo2020 Impact

Expo 2020 Dubai was widely regarded as a resounding success. The international event overcame unprecedented challenges caused by the COVID-19 pandemic to deliver a showcase event that demonstrated the best of Dubai. At a time when many countries were closing their borders, the six-month exhibition provided a timely and unequivocal demonstration that Dubai and the UAE are still open for business and tourism.

Even before the first visitors arrived at Expo 2020, the benefits were being felt, particularly in the real estate sector. The awarding of Expo in November 2013 provided a much-needed boost to the real estate market. Dubai’s success in securing the event has frequently been cited as one, if not the primary, catalyst in Dubai’s real estate rally, recorded from Q1 2014.

While the financial benefits of Expo2020 are still being quantified, the qualitative benefits are clear. What is known; Expo 2020 attracted 24 million visitors, providing a significant boost to the tourism sector and FDI. According to the latest data released by STR, hotel occupancy in Dubai reached 91.7% in March 2022, the highest level in 15 years, while revenue per available room (RevPAR) stood at AED 817.9 (highest since December 2015).

The Dubai Chamber of Commerce (the Official Business Integration Partner at EXPO 2020 Dubai) hosted 98 events with more than 25,078 attendees from 130 countries, facilitated 1,500 B2B meetings between UAE and international companies / investors and received 3,350 government and business leaders from 60 counties. While the monetary value of Expo 2020 has yet to be quantified, the boost in business sentiment is clear (according to the Dubai Chamber of Commerce, Business Confidence rose in Q4 2021 to its highest level since Q1 2015). The event also generated new jobs and stimulated significant capital investment, not only in developing the 4.4 km project area, but more critically wider infrastructure, including the Red Line metro extension and road upgrades.

The positive benefits of Expo 2020 will no doubt be felt across a wide range of sectors for many years. The tangible benefits resulting from infrastructure upgrades and the repurposing (legacy) of the site for start-up companies is apparent. However, perhaps the most important legacy will be in the new business partnerships created, increased tourism and the refocusing of Dubai towards the Digital Economy, not to mention, the continuing strides Dubai is making to facilitate this transition.

District 2020 will retain more than 2.8 million sqft of Gross Floor Area of LEED Gold and Platinum structures from Expo 2020 Dubai. These will be transitioned in phases into residential, commercial, and cultural neighbourhoods, with a population of 145,000 at full capacity. In addition, 108 serviced land plots of residential, hospitality, commercial, and mixed use will become available for sale at a later date. The total GFA planned for build out is 28 million.

 Al Ain and the Northern Emirates

Apartment rental rates across the Northern Emirates improved marginally with average increases of 2% over Q1 2022 and 1% annually.

Sharjah office rental rates, for the first time in nearly 5 years, recorded positive quarterly and annual growth of 3% on average. Nonetheless, landlords will continue to offer incentives in the form of rent discounts and flexible payment terms.

Sales transaction activity in Sharjah, as well as Ajman, remained strong, particularly pertaining to the villa market. Sharjah apartment sales prices remained more or less unchanged over the last quarter and annual increases averaged 8%.

The real estate market in Al Ain remained relatively stable over the last six months with modest improvements in demand and activity across all sectors. Although average residential rental rates were broadly unchanged over Q1 2022, landlords continued to offer discounts and incentives including flexible payment terms. Annual changes were still adverse with apartment and villa rental rates softening by 1% and 2%, respectively.

Existing good quality residential communities with supporting facilities continued to be the most sought-after, thus achieving high occupancy rates. Despite a marginal uptick in demand for offices, net effective rental rates remained more or less unchanged compared to 2020/2021.