Dubai’s real estate market is expected to remain tenant-friendly across most asset classes as a result of softened demand and higher levels of vacancy, according to leading industry experts.
Earlier this week S&P Global Ratings said the emirate’s population dropped by 8.4% last year, the steepest decline in the Gulf region, as expatriate workers were forced to leave amid the economic upheaval wrought by the coronavirus pandemic.
“In residential rental markets, even with employment levels expected to pick up in 2021, we expect that rental rates will continue to decline at material rates,” Taimur Khan, head of Research at Knight Frank Middle East, told Arabian Business.
“In Dubai, due to the influx of supply and existing vacancy, which has increased by 1.8 percentage points over the course of 2020 to 18.3%, the rate of decline is only expected to moderate marginally. Therefore, the market will be heavily tenant-favoured for the foreseeable future particularly as employment is only expected to return to 2019 levels by 2023.”
The population drop in Dubai – the Middle East’s hub for business and tourism – compares with a 4% decline for the six-nation Gulf Cooperation Council, according to S&P estimates.
Edward Macura, partner at Dubai-based Cushman & Wakefield Core, told Arabian Business: “While population and household incomes have contracted and the impact of Covid-19, coupled with oversupply issues have pushed price recovery further ahead, we are starting to see resilience in the market.”
He explained that the emirate’s residential secondary market transactions saw a seven % increase in 2020 compared to 2019 volumes and, in terms of January and February of this year, they were up by 36% compared to the same two-month period of last year.
However, he said off-plan market activity contracted significantly by 32% year-on-year, a trend which he expects to continue this year.
He said: “Overall, we are starting to see stabilisation in average villa sales prices since Q4 2020 with prices showing continued marginal upticks for the first time since 2014. However, apartment districts maintain their downward trajectory and are yet to show signs of plateauing.”
A property glut and faltering demand in the Middle East’s business hub have driven prices down by more than a third since the market peaked some seven years ago.
Property broker JLL said in January that Dubai developers are likely to continue a high supply momentum this year, an increase that means two more years of price declines. The chief of Damac Properties PJSC, one of Dubai’s largest developers, said last month it will take at least one to two years for the real estate market to get out of its downturn.
However, the property market in Dubai may “bottom out” next year after weathering a tough 2020, according to S&P Global Ratings.
“We already had a supply and demand imbalance in the market even before the pandemic, and after Covid-19 the situation just got worse,” S&P analyst Sapna Jagtiani told Bloomberg TV on Tuesday. “Prices of residential and office spaces in the city are expected to “somewhere bottom out in 2022.”
Any impact on the emirate’s real estate industry as a result of the drop in population may be offset by new policy initiatives aimed at supporting the UAE’s residential sector, including Dubai Land Department’s ‘fractional title deed’ scheme, Dubai’s new remote working visa and the launch of a new retirement programme.
“The emirate’s new remote working visa should also ease the impact on rental demand, with Dubai well placed to attract the growing number of professionals seeking to explore relocation options internationally,” said Chris Hobden, head of strategic consultancy, Chestertons MENA.
“With work-from-home policies continuing within the private sector, even if on a part-time basis, tenant demand for more extensive residential accommodation looks set to remain strong, and we expect villa rents to continue to outperform the wider residential average over the year ahead."
Faraz Ahmed, associate, research – JLL MENA, added: "While uncertainty will persist in 2021 and the recovery will vary across sectors and industries, accelerating digital capabilities and focusing on sustainable performance can redefine business success."