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Buoyed by strong macroeconomic fundamentals, the real estate sector in GCC economies is on a solid trajectory to witness acceleration in the second half of the year, said Kuwait Financial Centre (Markaz) in its latest report for the UAE and Saudi Arabia.
The reports help investors identify the current state of the GCC real estate market through various economic indicators such as oil and non-oil GDP growth, inflation, new job creation, interest rate, and population growth, among others.
In this report, Markaz analyses the performance of subsectors such as residential, office, retail and hospitality during the first six months and delve into the impact of various new socioeconomic policies and real estate reforms and initiatives on the sector.
Property prices in the UAE continue their upswing momentum in 2022 with average residential property prices rising in both Dubai and Abu Dhabi by 11.3 per cent and 1.5 per cent respectively in the 12 months to March this year.
Office rents for grade A offices in both the cities continue to soar, marking an increase of 9 per cent and 5 per cent respectively Y/Y. In the retail segment, Dubai has witnessed an average rental growth of 10.5 per cent in the first quarter of 2022, whereas Abu Dhabi witnessed a decline in average rental by 7.8 per cent in the same period.
The sector remains positive on the back of increasing demand from new local entrants and international brands. Meanwhile, the hospitality market saw significant growth across all the key metrics including occupancy rates, average daily rate (ADR), and revenue per available room (RevPAR) in the first quarter.
Based on its assessment of various macroeconomic factors, the report forecasts that the real estate sector in the UAE is expected to accelerate in the second half of 2022. However, it pointed out that the Central Bank of UAE had raised interest rates in lockstep with US Fed and warned that higher interest rates were likely to affect consumer spending during the rest of 2022 and 2023.
Various measures taken by the government such as ensuring home ownership for all nationals and mandating regional headquarters for foreign companies have also given new impetus to the real estate sector. In addition, other government initiatives such as Sakani, which enables Saudi citizens to own their first home, and the Wafi off-plan sales and rent programme boosted the demand for affordable homes, it stated.
Also, Saudi Arabia’s new giga projects including Neom, the Red Sea Project, and Riyadh’s Diriyah Gate signal a shift in consumer preferences and real estate development.
Though the real estate price index for Saudi Arabia is still below its 2015 highs, it has stabilized in recent quarters, it added.
Residential transaction volumes fell by 23.4 per cent in Q1 2022 vs Q1 2021 and the total value of the transactions also fell marginally by 1.9 per cent. On the other hand, the office sector’s performance improved across the kingdom in the first quarter of this year, with average rents for Grade A and Grade B office buildings climbing in Riyadh and Jeddah by 8 per cent and 3 per cent respectively.
In the retail sector, however, rents for super regional and regional malls declined by 5 per cent and 7 per cent respectively in Riyadh, and by 1 per cent and 5 percent in Jeddah.
On the back of rising leisure, business and religious visitation, the hospitality sector has been performing well in the Kingdom, especially in Riyadh, and is expected to further improve during the remainder of the year.
Solid growth in the oil sector, the growing domestic investments in non-oil sectors by the country’s sovereign wealth fund Public Investment Fund, stronger private consumption, and an increase in religious tourism due to the easing of travel restrictions are expected to remain major positive drivers for the economy and the real estate sector.
