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Dubai skyline. Image used for illustrative purpose. Getty Images.
Dubai – CBRE Middle East, the global leader in commercial real estate services and investments, released its latest edition of the UAE Real Estate Market Review for the fourth quarter of 2024.
Dubai’s commercial investment market has witnessed a jump in transactional activity over the past 12 months against the backdrop of cyclical high office occupancy rates and continued rising rental values.
With supply now becoming increasingly tight across prime and secondary locations, leasing volumes are now being constrained with more limited large sized office transactions completed during the final quarter.
As of the end of December, average occupancy rates across assets tracked by CBRE had reached 94%, up from 92%, a year earlier. This trend is expected to prevail through 2025 as new deliveries remain limited and as the non-oil countries grow and generate more employment growth.
Office rentals have continued to move upwards through the fourth quarter with average leasing rates increasing by around 20% respectively year-on-year as compared to Q4 2023.
In Abu Dhabi, recorded real GDP growth reached 4.5% year-on-year during Q3 marking the fastest pace of expansion in the Emirate since Q4 2022. Growth was primarily driven by the non-oil sectors which grew 6.6% year-on-year and 5.9% in year-to-date, supporting continued expansion of the office sector, amidst strong growth in new business licenses and expansion of companies. This has been reflected in the continuation of tenant demand for new office accommodation, with strong lease up trends demonstrated by premium assets.
With occupier demand remaining firm, there has been an increase in construction activity in response, with several new office towers currently being developed across the upper parts of Abu Dhabi Island, predominantly of Grade B/C quality. Average occupancy rates have continued to rise, ending the year at over 94%, with rental rates also moving in the same direction, jumping 15% year-on-year as Landlords have become increasingly bullish with position on new lease terms, in the face of escalating demand and diminishing availability of quality supply.
Looking at the residential market, Dubai delivered a very solid performance in Q4 2024, with average prices registering close to an 18% increase compared to the year prior. This has been underpinned by an 18% rise in average apartment prices and a 20% increase in average villa prices, with average values reaching AED 1,647 and AED 2,024 per square foot, respectively.
Rental contract registrations increased by 7% year-on-year versus the same period in 2023, primarily supported by a 9% rise in renewal contracts and a 5% increase in new registrations. Tenants still broadly favor lease renewals to avoid the higher costs of new contracts, but this gap is narrowing as more new projects are delivered further from the city centre, offering more competitive rates and larger unit sizes.
Transaction volumes also continued to surge, primarily fueled by growth in off-plan sales. In 2024, residential unit transactions marked a 39% increase compared to 2023. In the fourth quarter, off-plan transactions neared AED 82 billion with sales of ready properties hitting AED 37 billion. Overall, Q4 recorded nearly AED 119 billion in residential unit sales, marking a 30% increase as compared to the same period last year. For the full year of 2024, residential transactions amounted to almost AED 434 billion, reflecting a 33% increase.
In Abu Dhabi, residential sales transactions marked a 19% increase as compared to the same period last year. This growth was primarily driven by a significant 59% year-on-year rise in ready sales activity, while off-plan transactions increased by 5%, yet still accounted for more than 66% of total volume. Total residential sales volume, throughout 2024, reflected a 7% increase from the previous year. This was driven by the significant growth in the ready sales market, which rose by around 40%. However, off-plan sales were broadly flat during the same period (although this may change as more units are registered in the coming weeks and months).
Abu Dhabi’s average apartment price saw a year-on-year increase of nearly 11%, with average villa values growing by close to 12% during the same period. In the year to Q4 2024, average apartment rents increased by 12%, whilst average villa rentals grew by a more modest 4%.
Reviewing the hospitality sector, in the 11 months to November 2024, Dubai recorded an increase of around 9% in international visitors as compared to the same period last year. In terms of performance in Dubai, ADRs for the first 11 months increased by 2% compared to 2023, while the RevPAR increased by 3%. Abu Dhabi also saw strong dynamics, welcoming 4.8 million guests in the 10 months to October, 26% higher than the same period in 2023. The Emirate also hosted more than 3.9 million visitors to cultural events and landmarks for the same period, which was up 21%. For RAK, there was a new record with 1.28 million visitors recorded, up from around 1.22 million in 2023.
In UAE’s retail market, supply remains incredibly tight across prime retail assets, with retailers currently struggling to fulfil requirements for new units across tier one assets. Amidst a buoyant non-oil economy, which is being very well supported by the Emirate’s record tourism numbers and a growing domestic population, the country’s retail market continues to go from strength to strength with cyclical high occupancy rates and rents. However, whilst overall performance remains positive, more tenants are now starting to push back on Landlord requests for rental increases, unable to justify new lease terms amidst a highly competitive business environment that is increasingly relying on price discounting to support demand.
Market dynamics have remained consistent through 2024, with demand outpacing supply resulting in sustained rental growth. For Abu Dhabi rents have climbed by around 8% year-on-year, coming from a much lower base, whilst for Dubai, the increase has been close to 4% after seeing massive growth over the past three years, pushing the boundaries of what many tenants are willing to and or able to pay.
The industrial and logistics sector continues to benefit from positive market dynamics and a strong macro environment. This was demonstrated by the success of the Transport and Storage sector in H1 2024, which was recorded as the fastest growing non-oil sector, expanding by 8.4% year-on-year versus the same period in 2023. Trade activities have emerged as the single biggest contributor to non-oil, accounting for 16.5% of GDP, followed by manufacturing at 15%.
Dubai’s warehousing rents have increased by close to 16% year-on-year in Q4 versus the same quarter last year, whilst for Abu Dhabi rents have risen by around 8% during the same period. The rental gap between Grade A and B properties has narrowed to single digits, as the lack of supply has effectively levelled the playing field. Occupancy rates for logistics spaces and industrial lands have risen slightly through 2024, supported by a heavily landlord-favoured market. Whilst developers are slowly starting to address the obvious dearth of supply by building speculative warehouses, new supply is not anticipated to come onstream in any real quantum until H2 2025 at earliest. During the quarter, there was a general shift towards smaller space requirements across the industrial space, likely a wider impact of the limited supply, with occupiers taking short term space requirements to fill the gap.
Matthew Green, Head of Research MENA comments: “The UAE’s real estate market continue to attract rising foreign investor interest, supporting record residential transactional volumes across Dubai and Abu Dhabi during 2024. Commercial sectors also remain buoyant, with demand largely outstripping supply, as reflected in the rising occupancy and rental rates across the office, retail and industrial markets.”
“Amidst these highly positive market dynamics, the UAE government has moved to ensure the long-term sustainability of the real estate market, by implementing several new regulations in recent weeks. These changes have been aimed at improving transparency, through the Dubai Smart Rental Index, expanding the addressable market, via recent changes to Dubai’s designated Freehold areas, and in cooling the off-plan market, through the UAE Central Bank’s amendment to lending regulations on transactional set-up fees.”
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