- Ready properties continued to dominate demand with a share of 57% of overall transactions in 2021 as people chose to take immediate possession of properties and move into larger homes.
- Strong rebound in activity levels has prompted developers to launch new projects, especially in the high-end to luxury segment with supply expected to ramp up for villas and townhouses.
- As the flight-to-quality approach persists, the majority of the leasing activity in the office space was expectedly concentrated across Grade A and prime office developments with landlords turning firm on their rental expectations.
- Warehousing and industrial activity is starting to mature in this part of the world with sectors including logistics, manufacturing and e-commerce driving demand.
Leading global real estate advisor Savills released its latest research report analysing UAE’s real estate market performance, with a review of 2021 and an outlook for 2022. The report provides a comprehensive snapshot of the residential, office and industrial sectors in Abu Dhabi, Dubai and Sharjah.
The UAE’s property market, a key growth driver for the economy, displayed unwavering strength in 2021, breaking out of multiple years of price declines which was exacerbated by the Covid-19 pandemic.
Bolstered by a far-reaching vaccination programme which has seen over 90% of its population fully vaccinated, the UAE was able to resume economic and social activities relatively quickly compared to its global counterparts. The launch of other business and expat-friendly policies has helped the Emirates enhance its business environment, attract overseas capital and talent, and appeal to companies operating across a range of sectors to set up or expand operations here.
Residential market highlights
Abu Dhabi is undergoing an interesting transformation with the launch and completion of various key hospitality and family entertainment concepts. This pushed higher the demand for residential units across the city and helped in further widening the investor base. Project completions continued to remain strong throughout the year with close to 5,400 residential units completed across the city. New supply launches also remained largely stable compared to 2020, however, they are significantly lower than the 5,500 units launched in 2019. The limited supply addition and strong growth in investment activity have positively impacted capital values across the city. Compared to 2019 and 2020, where prices gradually declined quarterly and annually, prices held relatively steady throughout 2021.
Dubai’s residential market has been the poster child of the rebound in real estate demand in 2021. The total volume of residential transactions recorded in the city during the year grew by 74% y-o-y to 56,600 units. Meanwhile, the total value of transactions reached USD 35 billion, which is the highest recorded since the global financial crisis. Transaction activity was spearheaded by villa/townhouse developments, with deals in this segment increasing 122% compared to 2020. Against the backdrop of limited supply and robust demand with a preference for larger and more open spaces, capital values across the villa/townhouse developments have risen by 21% y-o-y, whilst apartment prices have increased by an average 8% y-o-y across the city.
Ready properties continued to dominate demand with a share of 57% of overall transactions. However, the strong rebound in activity levels has prompted developers to launch new projects, especially in the high-end to luxury segment. There was an 80% y-o-y increase in 2021 in new project launches with almost half of the new launches in the villa/ townhouse segment.
Sharjah’s real estate market recovered strongly in 2021 aided by government measures to counter the effects of the pandemic, including an expansive vaccination programme. According to the Savills Sharjah Occupancy Index, in December 2021, occupancy levels across Sharjah have remained largely unchanged compared to 2020 and stood at 84%. According to the Sharjah Real Estate Registration Department, the value of property transactions in the emirate in 2021 rose to a four-year high of AED 26.2 billion, up 64.9% compared to the previous year. Transaction volumes for 2021 stood at 84,238, an increase of 30.7% compared to the 64,459 deals in 2020. Over the past few years, Sharjah has seen the launch of various retail, hospitality and family entertainment concepts, at various stages of completion, which has increased its appeal as a maturing mid-to-high-end family destination.
Office market highlights
In Abu Dhabi, we were already noticing a gradual shift in composition of the occupier base over the last few years. This trend continued in 2021 as we saw an increase in demand and transactions from companies in the media, life sciences and technology sector. The majority of transaction closures were observed for office spaces in the 2,500 sqm to 5,000 sqm range and inquiry levels and transactions continued for Grade A developments. Despite the steady inquiry levels and deals, vacancy levels across most sub-markets have increased as companies look to consolidate and optimise their real estate portfolios.
The Dubai office market witnessed a strong rebound in activity throughout 2021. The offshoots of growth which were visible since the start of H1 2020, picked up momentum in 2021 with various small to medium-sized transactions concluded throughout the city. Encouraged by the business-friendly policies introduced by the government over the past few quarters, an increasing number of companies, especially from Europe, are exploring office options across the city to either relocate part of their business operations or expand further into a new market. Occupier demand continues to be diverse with companies from banking and financial services, consulting, life sciences, and technology sectors driving the bulk of the demand. Many landlords are being firm on their rental expectations, and as a result, rents have either remained stable or marginally increased in 10 of the 24 micro-markets tracked by Savills.
Industrial market highlights
Throughout the year in Abu Dhabi, leasing activity was witnessed from companies in metals, automotive, chemicals and also data centre operators. Various small-to-medium-sized transactions were observed from Third Party Logistics Providers (3PL) and manufacturing sector companies. ICAD and KIZAD were among the most sought-after micro-markets for industrial activity in the emirate. Collectively, these two markets witnessed 2.2 million sqm of leasing activity during H1 2021, highlighting the sheer demand and resilience of the industrial and warehousing sector in the capital.
Rental quotes and transacted rents across most micro-markets in Dubai witnessed a strong increase on an annual basis with a healthy mix of small, medium and large-sized transactions. Most of these were concluded following the proactive measures implemented by the government such as reducing fees for business incorporation and relaxing FDI norms, among others. Leasing activity was primarily driven by a spike in renewal, relocation and consolidation exercise. The entry of a number of international companies, especially in the engineering and manufacturing sector, and expansion activity by 3PL and e-commerce companies were other factors that contributed to a strong increase in demand. Most of the demand was concentrated across locations such as Dubai South, Jebel Ali Free Zone Authority (JAFZA), Dubai Investment Park (DIP) and National Industries Park (NIP).
Swapnil Pillai, Associate Director, Research, Savills Middle East said: “The UAE has a ‘first-mover’ advantage which will continue to work in its favour in the long run as a preferred hub for trade, leisure and residency in the region. Along with further diversification of the economy, ease of doing business and long-term visa policies, the Government’s vision for the next 50 years is likely to lead a gradual transitioning to a knowledge-based economy. This will promote innovation, research and development and thereby continue to increase employment in the services industry and drive demand for residential units. Meanwhile, a strong recovery in domestic economic activity and bullish business sentiments for 2022 is likely to push demand for office space going forward.”