UAE Real Estate 2016 mid-year market review — Knight Frank

UAE Real Estate 2016 mid-year market review — Knight Frank

Against a backdrop of global and regional uncertainties, the real estate sector in the UAE witnessed sluggish growth during the first half of 2016. However Knight Frank’s outlook for the sector in the long-term remains positive on the back of the government’s commitment to infrastructure spending and development projects, stronger growth forecasts (IMF), and the UAE’s safe haven status making it a favourable destination to live in, invest and visit.

Dubai Commercial Market

Growth in the commercial market (office and industrial) was muted in the first half of 2016, as corporates and industries continued to scale back expansion plans amid increasing economic uncertainties.

With the industrial and logistics sectors being a main pillar of Dubai’s non-oil economy, the sluggish performance of global trade market is likely to reflect on the performance of the industrial sector in the short-to-medium term. Consequently, rents are expected to remain stable as occupier demand softens. In Abu Dhabi, while demand has slowed significantly on the back of the decline in oil prices, the limited supply of quality industrial space is expected to keep the market stable.

In the long-term, the UAE’s commitment to diversifying its economy through continued investment in developing the sectors’ supporting infrastructure (e.g. Jebel Ali Port & KIZAD) and enhancing legislation is likely to boost the industry further.

Dubai Hotel Market

Many of the challenges seen in 2015 are expected to continue throughout 2016, which will invariably impact demand levels – and in turn profitability – in the short term.

However in the medium-to-long run our outlook for the hospitality sector remains positive for both cities, and will be rooted in the delivery of major demand generators that will help drive tourism demand – particularly from the leisure segment. These demand drivers are underscored by the continued investment in airline infrastructure, which will further increase the accessibility of both emirates.

From a supply side, and despite notable recent openings, both markets remain underserved in terms of mid-market and budget hotel offerings. The introduction of more affordable hospitality options will ultimately balance the hotel supply, which is heavily weighted towards the top end of the market in both emirates, and will widen the country’s tourist base.

Dubai Retail Market

The retail market in Dubai & Abu Dhabi is expected to see slower growth levels over the second half of the year, as economic uncertainty and unfavourable currency exchange rates continue to impact both tourist and domestic spending.

In the long-term and as global uncertainties begin to ease and confidence in the market picks-up, we expect to witness another growth cycle for the retail market associated with growth in the hospitality and tourism industry. However, we believe retailers will have to diversify their offerings and introduce new products, technologies and marketing strategies to remain competitive in the market.

Dubai Residential Market

The residential market in Dubai maintained its stability in the year-to-April 2016, with the General REIDIN sale price index remaining relatively flat on a monthly basis. The prime market continued to outperform the market average. Encouragingly prices in the prime segment increased 2% on a quarterly basis between Q4 2015 and Q1 2016. In Abu Dhabi, sale prices remained relatively stable on the back of a shortage in quality residential supply.

The residential market in the UAE is expected to soften over the second half of the year. While it’s difficult to predict when the next growth cycle will be, we expect the residential market to level out by the end of 2016 before seeing gradual recovery in 2017.

Given Dubai’s position as one of the top 5 global cities that matter to private high net worth individuals, based on Knight Frank’s global Wealth Report, we expect the emirate to continue attracting investments both regionally and globally. However the outlook for the emirate in general and the real estate sector in particular depends on a number of global and regional fundamentals.