A Quick Look at 2016 Real Estate Activity in the UAEDr. Ehsan Bayat

A Quick Look at 2016 Real Estate Activity in the UAE

Dubai and Abu Dhabi are the main economic hubs in the United Arab Emirates. In 2016, the two emirates saw a decline in GDP growth, though oil dependence impacted Abu Dhabi more. Dubai, with its diversified economy, only experienced a decrease of 1.8 percent. Abu Dhabi tallied a loss of 4.2 percent, closer to the 4.5 decline recorded by the UAE as a whole. Similar patterns also emerged in real estate.

The recent JLL publication, The UAE Real Estate Market 2016: A Year in Review, shows that Dubai is in a better position than Abu Dhabi for prices to rise in the near future. Projected increases in supply also give Dubai an advantage, as investors and developers are focused on preparing for the EXPO 2020. Additionally, rising tourism is expected to give the UAE a collective boost in its retail and hospitality sectors.

Overall, the analyses of real estate in the UAE estate point to a positive future. Here is a look at what happened in each segment of the property markets of Dubai and Abu Dhabi during 2016, followed by observations for the coming months and years.

Office supply on the rise

A total of 343,000 square meters of gross leasable area (GLA) entered the Dubai and Abu Dhabi markets in 2016. The two cities should see continued growth in 2017, with approximately 500,000 square meters of combined office space in the pipeline.

Dubai’s total amount of office real estate is more than double that of Abu Dhabi, but the emirate experienced low levels of demand last year. More downward pressure is expected in 2017, but JLL anticipates that buildings in popular locations will hold their value.

In Abu Dhabi, rents on Grade A properties diminished by 5 percent during 2016. Some of this activity stems from oil sector influence, but other factors, such as lower government spending, have also contributed to the fall in prices.

Uncertainty in residential growth

Both cities added a solid percentage of supply to their residential segments, but upcoming projects have been substantially delayed. Should plans get back on schedule, potentially 36,000 units will reach completion in 2017. Areas like Dubai South, Reem Island, and Al Raha Beach are among the growing sections of Dubai and Abu Dhabi.

As of Q4 of 2016, the residential segment of Dubai is positioned for accelerated growth, while Abu Dhabi has peaked and is looking at decreasing rents for 2017 and possibly beyond. Sales prices are on similar trajectories for each city, as well. Dubai appears stable, but Abu Dhabi saw declines of 11 percent on its villas and apartments.

Stability in retail rents

Rents on retail properties in Dubai either stayed consistent or increased in 2016, and prices in Abu Dhabi remained stable, as well. The main difference between the two was in the vacancy metric, with Dubai rising 9 percent as of Q4.

In terms of supply, Dubai accrued 260,000 square meters of real estate, which outranks the previous five years in output. The most prominent projects of the year included the expansion in Dubai Festival City and the second phase of The Avenue in City Walk. Another 350,000 square meters are planned for 2017.

Abu Dhabi saw no major changes in its retail supply during 2016, and that likely won’t change in 2017. Developers will only pursue a few minor projects in residential communities and existing towers.

Hotels see drop in daily rates

Dubai features a much greater supply of hotels than Abu Dhabi does. However, the two cities shared a statistic in common during 2016. Average daily rates dropped by 10 percent in both cities in the final quarter of the year.

Occupancy rates, on the other hand, remained in the 70 percent range for both emirates, although Abu Dhabi experienced a small decline. The diversity of the economy in Dubai supported its stability in hotel figures, while the oil-dependent Abu Dhabi felt a definite impact.

Hotel supply in Abu Dhabi increased by 1,000 rooms in 2016, and twice as many rooms should enter the market in 2017. New properties in the emirate include the Millennium Bab Al Qasr, the Four Seasons, and the Marriott Executive Apartments Downtown.

As the EXPO 2020 approaches, the number of hotel projects in Dubai will continue to grow. The estimate for room additions in 2017 is 13,900, followed by another 15,000 in 2018, putting the supply at 100,000 rooms.

Opportunity in the UAE

Tourism will likely feed the real estate industry in the UAE for years to come. In 2016, the Dubai Opera opened, and Dubai Safari is nearing its completion date. Abu Dhabi will soon be home to the Louvre Abu Dhabi and a Sea World park.

Along with tourism, other opportunities exist in the education sector. Investors and builders will likely take advantage of the chance to strengthen their portfolios.