• 29,000 units handed over in 2022, lower than initial forecasts as supply chain issues impact deliveries.
  • Pace of price rise starting to slow down. City-wide villa prices up by 11% and apartments by 9% year-on-year.
  • Affordability concerns loom as rents rise sharply with citywide villa rents up by 25%  and apartments by 27% y-o-y.
  • Growing disparity in rental levels between new leases and renewals
  • Gross yields are at a seven-year high, with apartment yields at 7.2% & villa yields at 5.7%
  • As office demand intensifies and outstrips supply, citywide office rents spike by 29% year-on-year.
  • 2022 saw city-wide office occupancy rise to 87% from 78% in 2021, resulting in the absorption of 9 million sq. ft.

Dubai, UAE: According to CORE’s Annual Report 2022/2023 report, “With record transaction volumes and unprecedented gains witnessed across all performance indicators over 2022, it is interesting to see Dubai’s continued resilience in the backdrop of intensifying global recession concerns and rising interest rates. While Dubai isn’t immune to these conditions, it has greatly pivoted itself into a preferred gateway city due to the government’s robust response to the pandemic, pioneering policies, thus attracting and retaining investment and talent.”

Prathyusha Gurrapu, Head of Research and Advisory at CORE says “Significant changes in visa regulations and the pro-business sentiment are underpinning the strong market performance. With over 151,000 golden visas issued since inception, the introduction of retirement visas and a raft of property-linked visas are drawing residents and investors alike. With a steady population increase across income segments, in line with the 2040 target of 5.8 million residents, Dubai is driving long-term demand.”

Residential Market

Residential Supply: Only 29,000 residential units were handed in 2022, lower than initial forecasts of over 35,000 units and the lowest number of handovers witnessed in Dubai since 2019 as supply chain issues impact realization rates and delivery timelines. Most deliveries continue to be in the apartment segment (83%) while villas constituted only 17%, creating a supply deficit in the villa market and persistent upward pressure in villa rents and sales prices.”

Project Launches: Prathyusha says “We have seen a sharp rise in project launches as developers are keen to capitalize on the positive market sentiment. However, most of the new announcements are skewed towards the apartment segment as apartment launches spiked 120% while new villa project launches saw just a 5% year-on-year increase. As most project launches and handovers continue to be in the mainstream apartment segment, we foresee apartment sales prices to plateau as supply and demand equilibrium is expected to be achieved by the end of 2023.”

Transaction Trends: Prathyusha adds “2022 was the best year in Dubai’s residential transaction market with the highest-ever secondary and off-plan market transactions recorded both in terms of volumes and values transacted. Secondary market transactions in 2022 saw a 50% increase compared to 2021 while the off-plan market saw a massive 84% rise, mostly due to the higher number of off-plan launches and inventory available compared to previous years.”

The prime market has seen unprecedented demand over 2022, with secondary market transactions above AED 10 million witnessing a 62% year-on-year increase while off-plan transactions, due to more offerings now available in this price segment, saw a staggering 113% rise. 2022 also broke records for the ultra-prime segment with over 24 residential transactions recorded above the AED 100 million mark compared to 5 in 2021.

Prathyusha says, “With growing UHNI demand for luxury properties, particularly on the waterfront, we foresee this segment to remain relatively  insulated from the global recession, interest rate hikes and inflationary pressures as most of these transactions are cash purchases.”

Sales Prices: The upward trajectory in sales prices continues across districts although the pace has started to slow-down compared to previous quarters. Capital values across most districts are well above pre-pandemic levels with average citywide villa sales prices up by 11% and apartments by 9% year-on-year.

Prathyusha says “While overall market sentiment remains positive, affordability is a growing concern for the low to mid-market segment. Although we don’t foresee the sharp rises witnessed in 2022 to continue in 2023, we believe the market will see a steady rise albeit at sustainable levels as the gap between ask and bid prices rises with end-users being priced out of the market along with global recession fears and rising interest rates deterring a segment of buyers.

Residential Rents: The rental market is witnessing steeper rises compared to sales prices across districts leading to yields reaching a seven-year high.  Gross apartment yields are at 7.2% and villa yields at 5.7%, while citywide villa rents are up by 25% and apartments by 27% year-on-year.

Prathyusha says “Although, from a low base, drastic rises in rents have caused a significant upheaval in the rental market over the last few quarters with most tenants receiving rental escalation notices. Tenants are preferring to stay in existing units as rental increases during renewals are considerably lower than new leases and are regulated by the RERA rental index. Furthermore, despite the high sales prices and interest rate hikes, a section of tenants is becoming end-user buyers to avoid frequent renewal negotiations or relocations.”

RESIDENTIAL MARKET FORECAST 2023

  • Transaction volumes in both the secondary and off-plan markets are expected to witness a sustained uptick in 2023 as demand continues from local and international buyers.
  • Sales prices are to witness a gradual yet continued rise, particularly in prime villa and apartment districts
  • Rental rises and high occupancy levels are expected to continue in 2023, however, with a growing disparity between rents in new leases and renewals.
  • High construction costs and supply chain issues are expected to impact realization rates.

Office Market

Office Demand: Robert Thomas, Head of Agency at CORE says “Occupancy levels have increased sharply with city-wide occupancy now at around 87% compared to 78% in 2021, resulting in the absorption of nearly 9 million sq. ft of office space over 2022”

Various policy amendments to accelerate economic growth and diversification, including full company ownership to foreign investors and the overall pro-business environment, has played a key part in the robust recovery of the office market seen over 2022.

Robert Thomas says “We have seen a sharp rise in enquiries and lease registrations over 2022 compared to 2021 due to strong demand from both new market entrants and existing occupiers looking to expand. As most firms are completely back to the office or have employees work a greater number of days in the office in a hybrid model, we are witnessing a rise in office demand.”

Office Supply: Total Dubai office stock currently is nearly 107.2 million sq. ft, with no new supply handed over in Q4 2022. Delivery of Uptown Tower in Jumeirah Lake Towers is pushed to 2023 while other major projects expected in 2023 are the office component of One Zabeel, Innovation Hub One in DIFC and the next phases of Dubai CommerCity. 6 Falak in Dubai Internet City and TECOM’s Innovation Hub phase 2 are both witnessing strong pre-leasing activity and are expected to be handed over in 2024.

Robert says “It is important to note that most of the office supply pipeline is already pre-leased, therefore offering very limited availability upon delivery. While freezones such as Dubai South, Expo district, and outer TECOM clusters have some existing office inventory, DED-licenced central locations are short on supply. Many single landlords (with a land portfolio) and freezones are looking to activate new office projects or upgrade/repurpose existing office stock. However, as it would be at least a two-three-year construction cycle, we expect to have an office supply crunch in the near term, therefore creating further upward pressure on rents and occupancy levels.’’

Office Rents: Areas including Downtown Dubai and Sheikh Zayed Road (Trade Centre to Dubai Mall) and JLT, have seen the sharpest rise of circa 50%, albeit from a very low base of 2021. All office district rents are well above pre-pandemic levels and nearly at par with 2014 peak values. With no new major office developments expected in centrally located established office districts, we expect continued upward pressure on office rents over the foreseeable future.

Robert Thomas adds “While demand for office spaces remains strong, we cannot ignore global recession fears, hiring freezes, and job losses across the international tech and banking sectors and their impact on Dubai’s office market. This is expected to slow international first-phase expansions and potentially bring some secondary market stock back to the market as a few firms may downsize. While regional markets are doing well, they aren’t immune to global conditions, however, UAE government initiatives are offsetting these headwinds by creating a range of demand drivers to sustain economic growth.”

OFFICE MARKET FORECAST 2023

  • Office demand to continue outstripping supply
  • Developers and freezones are expected to initiate the next phases of new office projects to cater to the rising demand, resulting in a strong pre-leasing activity.
  • Re-purposing existing retail assets and upgrading older office stock to address rising demand.
  • Rising global recession fears and mass lay-offs may impact a section of international occupier demand.

The report concludes “We remain optimistic for 2023 as Dubai is expected to see a continued uptick in prices, rents and occupancy levels across asset classes, however, in the backdrop of increasing concerns around affordability and challenging global conditions.”