In 2022, the UAE's real estate market exhibited positive trends across various sectors, including residential, office, retail, and hotel properties. This growth was propelled by several factors, including business reforms and government initiatives such as the 10-year golden visa program for investors, the gradual relaxation of COVID-19 restrictions globally, and the increased trade activity stemming from the FIFA World Cup in Qatar.
Residential Market Trends in Dubai and Abu Dhabi
In 2022, the average house prices in Dubai witnessed a year-on-year increase of 4%. Rental rates also experienced substantial growth, with villa rent rates surging by 22% annually, and the average apartment rental price rising by 15%. While the Dubai market is anticipated to continue growing in 2023, there is a looming concern regarding potential oversupply. The total housing inventory in the emirate has nearly reached 700,000 units, with an additional 6,600 residential units commissioned in the third quarter of the previous year.
The Abu Dhabi market is also experiencing positive trends, with notable demand for villas and townhouses leading to an average rental price increase of 2%, and a 4% rise in luxury villa rentals. The residential sector is witnessing a surge in demand for new housing developments, especially in areas that attract investors. Villa communities are particularly appealing to potential buyers. During the third quarter of the previous year, approximately 1,900 residential units were added in the capital, bringing the total number of housing units in Abu Dhabi to 278,000.
Overall, the real estate market in the UAE is thriving, with prices driven by increasing investor demand. This demand is not limited to new housing but also extends to secondary properties.
New buildings in the UAE
Office Real Estate in the UAE
During the pandemic, there was a significant decline in the demand for office real estate in the UAE. However, the situation has now reversed. In the third quarter of 2022, rental prices for office spaces in the Central Business District (CBD) of Dubai increased by 24% year-on-year. This growth can be attributed to a shortage of new office buildings and suitable storage units.
The commissioning of nearly 53,000 sq. m of office space is expected soon. Offices in the city center are currently at full capacity, with a vacancy rate for rental space standing at just 13%, which is 8% lower than in 2021.
The rental rates in the office sector in Abu Dhabi increased by 9% within a year. In the second quarter of 2022, 63,000 sq. m of new offices were introduced in the capital of the UAE. Despite the eased COVID-19 restrictions, the majority of office real estate in the third quarter of 2022 consisted of coworking spaces and serviced offices, indicating that these hybrid models will continue to be relevant even in the post-pandemic reality. The vacancy rate in Abu Dhabi decreased by 3% in the last quarter of the previous year.
The shortage of modern office space has made the renovation of old B-class buildings an appealing choice. Investors and tenants are evaluating their potential as these buildings are often situated in prime locations with well-established infrastructure. Restoring and renovating these structures is not only economically viable but also more environmentally sustainable compared to demolishing and rebuilding, making it a preferred option for environmentally-conscious international companies.
Development of the Retail Real Estate Segment in the UAE
The relaxation of COVID-19 restrictions has spurred the resurgence of visitors to retail establishments. The waning interest in shopping malls in the Emirates is now a thing of the past. Although neither Dubai nor Abu Dhabi had any malls completed in the third quarter of 2022, in the fourth quarter, 154,000 sq. m of new retail space was brought into operation in Dubai, and 197,000 sq. m in the capital.
In response to the impressive array of options available, potential tenants are adopting a strategic approach to selecting the location for their shops. There has been a moderate increase in rental prices in the retail segment: 3% in Dubai and 5% in Abu Dhabi.
It is likely that in 2023, more developers and landlords will incorporate local flavors into their businesses, especially in the restaurant industry. These changes must align with the demands of both citizens and tourists, as talent from around the world continues to flock to the country.
Hotel Business in the Emirates
2022 was an eventful year for the UAE and an incredibly profitable one for the hotel real estate market. The FIFA World Cup in Qatar, Formula 1, NBA games, and UFC 280 led to a significant influx of tourists.
In the third quarter, an additional 1,000 hotel rooms became available in Dubai, bringing the city's total count to 146,000 rooms. However, Abu Dhabi did not introduce any new hotel rooms during the same period.
The hotel real estate market in the UAE is showing signs of recovery from the impact of the coronavirus pandemic. The contrast between 2021 and 2022 is particularly notable during the summer, which is typically the lowest season in the Emirates. During the same period from June to August, the number of nights spent by tourists in Dubai increased by two and a half times, and in Abu Dhabi, it rose by almost a quarter.
As a result of the increasing tourist influx, there is a demand for both the luxury hotel segment and economy rooms. In Dubai, the hotel occupancy rate exceeded 70% from January to August 2022, marking a 12% increase compared to the previous year. Similarly, the occupancy rate of hotel rooms in Abu Dhabi also experienced a 5% increase.
UAE Real Estate Market Forecast 2023
Prominent consulting and construction firms are predicting a thriving real estate market in the United Arab Emirates in 2023. According to Zoom Property Insights, Dubai property prices are projected to increase by an average of 20%, with premium residential areas like Palm Jumeirah, Emirates Hills, and Jumeirah Bay Island expected to see a growth of 13.5%. Meanwhile, prices in the middle segment are forecasted to rise by 5% to 7%.
The Knight Frank Research Center has ranked Dubai as the top city for the rise in luxury home prices this year, surpassing Miami, Paris, and New York. The number of luxury properties scheduled for completion does not align with the increasing demand, leading to rapid price growth. Analysts are also anticipating a resurgence of Chinese investments in the UAE, driven by the gradual relaxation of the country's COVID-19 restrictions, as affluent individuals seek investment opportunities abroad.
In a Nutshell
Increasing global tax regulations and the recent years' global economic challenges have prompted investors to turn to the UAE, which welcomes them with new laws and golden visas. If the government continues its progressive policies and maintains an attractive environment for foreign capital, the real estate market in the UAE, particularly in Dubai, is poised for sustained long-term growth. The current global economic uncertainty has positioned the Emirates as a safe haven for investors worldwide.