Deloitte’s seventh annual Middle East Real Estate Predictions report examines the performance of Dubai’s real estate market in 2020 and forecasts the changes in the hospitality, residential, office, retail, industrial and logistics in 2021.
COVID-19 has caused significant disruption across all real estate sectors in 2020 with owners and occupiers having to make necessary adjustments to business operations in response to the statutory restrictions on capacity and mobility. It remains unknown whether the pandemic will result in structural shifts for different use classes. However, with the expected timeline for the COVID-19 vaccine being available in 2021, the planned Expo starting in October and the 50th National Day in December will provide an opportunity to showcase Dubai in a post-COVID-19 world to both visitors and residents.
Dubai real estate market performance
The Dubai hotel market has experienced a major shock and has had to adapt during a very difficult period. With the vaccine currently being rolled out and Expo rescheduled to start on 1 October 2021, it is hoped that a rebound will occur, and performance matrix return to much healthier levels.
Tenants remain in the driving seat as residential properties rents declined by 10% as of Q3 2020. Also, demand for secondary market properties has outpaced transaction volumes for off-plan units whilst cash transactions continue to dominate.
The impact of COVID-19 on business performance is expected to be the primary driver for change in office space requirements.
The reduction in international visitors due to COVID-19 travel restrictions impacted footfall and spending at bricks and mortar stores. The Economist Intelligence Unit (EIU) estimates that the total UAE retail sales volume will contract by approximately 10.3% in 2020, with sales expected to increase by an average of 2.6% a year until 2024.
Logistics and distribution, e-commerce and cold storage services continue to drive demand for warehouse space in Dubai.
In the short-term, cash management and financing/lender considerations are some of the main priorities across all real estate sectors. Macro-economic and demographic factors as well as related government initiatives are likely to define the shape and pace of recovery for the real estate sectors in 2021.
An improvement in residential property transaction volumes is predicated on demographic and economic factors alongside targeted offerings from developers and banks to enhance participation from both the investor and resident owner/occupier segments.
The relative importance of having traditional office space versus remote working is expected to vary by industry. It is possible that companies may gravitate towards a hybrid model, combining the core leased/owned space and additional on-demand flexible offices, while incorporating a higher ratio of work from home policies than pre-COVID-19.
The growth in the e-commerce segment has increased the requirement for storage and fulfilment centres, which is boosting the demand for warehouses.