Residential and commercial rent declines in Dubai are likely to “intensify”, while market conditions in Abu Dhabi could “worsen” with declining demand due to the coronavirus pandemic.

In its latest market analysis, Asteco, a real estate consultancy firm, cautioned against a rise in the repatriation of expatriates, as well as an increase in tenants downsizing, which could both have a negative impact on demand for accommodation.

So far, leasing rates for apartments, villas and offices in Dubai plunged by 13 percent, 10 percent and 13 percent, respectively, in June compared to a year earlier.

“This pattern is likely to prevail, or even intensify due to the expected volume of additional supply, combined with a potentially sharp drop in demand in the short to medium term due to the impact of COVID on employment,” Asteco said.

In Abu Dhabi, villa rents dropped by 7 percent year-on-year, while apartments saw a 5 percent decline. Demand for office space in the UAE capital is expected to be “particularly hard-hit” over the short to medium term, with many residents more likely to either downsize or leave the UAE, according to Asteco.

“Market conditions in Abu Dhabi have proven challenging over recent years. In the wake of the COVID-19 pandemic, these conditions are anticipated to worsen with increased vacancy and declining rental rates,” Asteco said.

It cited that the limited business or employment growth, as well as the job losses, and salary and housing allowance cuts will continue to put pressure on the real estate market.

Slowing conditions have been evident across the property market since the pandemic begun.

In the UAE, where approximately more than 800,000 employees are expected to lose jobs and several others have had their salaries cut, landlords are offering concessions for tenants to keep units occupied.

According to Oxford Economics, an exodus of jobless expatriates is expected to happen in the short term, particularly after the lifting of restrictions.

Given the huge number of residents leaving the country, the overall population size will consequently shrink, and this may not sit well with the market where there is ample stock of properties for rent.

“We expect an increase in tenants downsizing, together with a rise in repatriation once travel restrictions are relaxed,” Asteco said.

The UAE market has recently reopened its borders in a bid to reactivate its tourism-dependent economy. Airlines in the country have redeployed more aircraft on international routes, which is also providing more options for stranded jobless expatriates in the UAE to return home.

Resurgence in demand

Other reports have claimed that there has been a resurgence in demand for properties for sale in the UAE. Nakheel reported last week that it managed to sell hundreds of completed housing units in just a few months.

Elaine Jones, executive chairman and founder of Asteco, noted that the latest recorded rental declines in the UAE were broadly in line with the first-quarter results, and are thus indicative of “surprising level of resilience” of the market in the face of serious challenges created by COVID-19.

However, this might just be a case of “the calm before the storm,” according to Jones, citing that there could be a lag in real estate market trends to events that have already unfolded and that the full impact of the pandemic has yet to be felt.

“Despite a number of positive reports suggesting that the economy is moving into a recovery phase, it is widely perceived that the full economic impact has yet to be felt. Rather, there is considerable risk that the economic unwinding from the pandemic has yet to begin in earnest,” Jones wrote in the report.

“With an increased probability of business downsizing and potential job losses, there is a high risk that demand for real estate (rental and sales) will weaken further. This potentially sharp drop in decline is set to coincide with the continued delivery of pre-pandemic committed supply,” Jones added.

According to Oxford Economics, the UAE’s construction sector alone could lay off close to 200,000 employees, while 165,000 others will be axed in the retail sector.

Some 141,000 expatriates employed in households could also be displaced, as well as 122,000 workers in the hotel and restaurants business.

A survey earlier found that 70 percent of businesses in Dubai expect to close within the next six months.

(Reporting by Cleofe Maceda; editing by Seban Scaria)

cleofe.maceda@refinitiv.com

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