Dubai and Abu Dhabi real estate market forecast for the coming months

The CEO of real estate services company Asteco talks about key developments in the real estate market in Abu Dhabi and Dubai in the first quarter of the year, as well as forecasts for supply and demand in the coming months.

What are the key points dominating the real estate sector in Abu Dhabi and Dubai? What will be the forecast for the second half of 2023?

During the first quarter of 2023, the growth in rental rates for apartments, villas and offices in Abu Dhabi, Al Ain and Sharjah showed a more moderate annual growth trend, while rental rates in Dubai continued to increase significantly. Thus, rental rates for villas in Dubai surpassed the previous market peak in the second quarter of 2014 by an impressive 3%.

In terms of selling prices, Dubai saw a double-digit increase, while Abu Dhabi saw minimal change. Interestingly, the sales of unfinished projects in both Dubai and Abu Dhabi cost significantly more than finished properties. While it can be difficult to negotiate this premium given the immediate rental income or employment offered by completed properties, it highlights the high demand for off-plan purchases.

In addition, it is important to note that Abu Dhabi sale prices still offer significant competitive prices compared to similar properties in Dubai. This means that Abu Dhabi is of exceptional value to buyers in the market. In general, market dynamics demonstrate positive trends and opportunities available in the real estate sector.

What are the key real estate projects coming to fruition in the second half of 2023 and how will this affect supply in Abu Dhabi and Dubai?

The Abu Dhabi development process shows no signs of slowing down in the remaining half of 2023. While several new projects are currently in the planning and design phase and should be launched within a year, there is still a lack of high-quality holiday villages on the market.

Approximately 4,450 residential units are to be completed by the end of 2023. Major projects include Noya Villas on Yas Island, a range of buildings on Al Raha Beach and Luluat Al Raha Beach, two residential developments in Masdar City, a range of villas on Jubail Island in addition to several buildings at Qaryat Al Hidd on Saadiyat Island. We expect another 35,000 apartments and 6,800 villas to be commissioned in Dubai in 2023. The new offerings will be added to all established areas of the emirate such as Downtown Dubai, Business Bay and Jumeirah Village, as well as upcoming developments including Mohammed Bin Rashid City, Dubai South and Dubai Creek Harbour.

Will rental rates and sales prices rise in the second half of the year?

In Abu Dhabi, rental rates for housing (apartments and villas) are expected to remain largely stable, with slight increases for specific projects. Selling prices will remain broadly stable in 2023, however the lack of “good quality” finished projects/properties available for sale on the secondary market will help increase selling prices in certain developments/locations. Demand for high-quality, well-located and cost-competitive off-plan projects will remain positive.

We expect rent growth to continue in Dubai, albeit at a slower pace, until new supply balances out and rent growth slows down. It is also worth noting that the Dubai government is planning to launch a new rent index in 2023 that will be based on star ratings reflecting quality and amenities rather than location and/or community trends.

Initially, the index will cover only residential buildings, villas will be considered later. According to the new index, four-star buildings (ultralux) will be categorized as "free". This means that there will be no restrictions in terms of rent increases. Buildings with a lower rating will only be allowed to increase rent in accordance with RERA policy upon approval. Realized prices are also expected to follow a similar trend. In general, holiday villages (old and new) in particular will continue to perform well.

Share with us your views on the primary and secondary market?

The Dubai and Abu Dhabi markets are seeing a notable trend in off-plan sales, with real estate generating significant income compared to finished properties. While the trend will continue, it is likely to be short-lived. The cost of real estate in Abu Dhabi is still lower compared to real estate in Dubai. Off-plan first class and high-quality projects in Saadiyat and Yas Islands will keep rates from AED 1,500 to AED 3,800 per square foot/sellable area.

What trends can we expect in the commercial real estate market in Abu Dhabi and Dubai?

Over the past six to twelve months, we have seen some growth in the office segment in Abu Dhabi and Dubai, and this trend is expected to continue in the short to medium term. What matters here is quality or quantity. Well managed private buildings with Class A specifications in strategic locations will perform better and are likely to see an increase in occupancy and productivity.

Significant domestic investment on the back of advanced business reforms and government initiatives has boosted business confidence and new entry into the market, spurring demand for office space, especially class A/B+ in prime locations. Technological advances, telecommuting, collaboration, and virtual offices have made the need for physical office space an option rather than a necessity. This will affect the operation of the office, especially with respect to old stock.

What should potential property investors consider in such a market?

Due diligence is essential here, as both off-plan and ready-to-occupy properties have their own advantages and disadvantages. Before making a final decision, consider the tenure of the property, availability of funds, preferred location, profitability and reputation of the developer, as well as the quality of other completed projects. Choose the option that best suits your current needs. But most importantly, make sure that the property you like has been or will be built by a reliable developer.