March 1, 2021

Sapna JagtianiDirector & Lead AnalystGCC Corporates

Dubai's Property Market In 2021A Tough Year On The Road To Recovery

Dubai's Recovery Will Be Subdued

– As a global aviation and transportation hub, and a major tourism and retail shopping destination, Dubai’s economy has been hit by the impact of COVID-19.

– We expect GDP growth to recover this year from the sharp recession of 2020 triggered by the pandemic and low oil prices.

– Last year, Dubai saw the sharpest population decline in the Gulf Cooperation Council (GCC): 8.4% versus the region average of 4%.

– Expo 2020 will now take place from Oct. 1, 2021 to March 31, 2022, after a delay due to COVID-19, and should provide a platform for a recovery in activity.

– However, we think the 2020 shock will continue to reverberate through the economy, and GDP (in dollar terms) will return to the 2019 level only in 2023, keeping the pressure on most sectors until then.

Dubai in numbers: 2020 estimates

Real GDP down 10.8%

Proportion of GDP from nonhydrocarbon sectors 98%

Total population 3.07 mil.

Proportion of population who are expats 92.1%

GDP per capita $33,650

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Pandemic Impact | Economic Uncertainty Will Continue

– Key sectors in Dubai, particularly real estate, tourism, hospitality, and retail, will likely remain under pressure for the next 12-24 months.

– The United Arab Emirates (UAE) is reportedly leading the vaccination effort in the region, with the immunization rate at 55% -60% of the population, the second highest globally. High vaccination rates could help the UAE's tourism sector recover earlier than others.

– S&P Global Ratings believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects. Vaccine production is ramping up and rollouts are gathering pace around the world. Widespread immunization, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter. However, some emerging markets may only be able to achieve widespread immunization by year-end or later. We use these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic (see our research here: www.spglobal.com/ratings). As the situation evolves, we will update our assumptions and estimates accordingly.

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f--Forecast. Data as of Nov. 1, 2020. Sources: S&P Global Ratings, National Statistical Authorities.

Dubai Annual Real GDP Growth

-12

-10

-8

-6

-4

-2

0

2

4

6

8

2019 2020f 2021f 2022f 2023f

Per

cent

age

chan

ge (%

)

Dubai Real Estate | Current Situation

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*Dubai real estate trends were already constrained by oversupply of properties before the pandemic.

Since the COVID-19 pandemic started in 2020*

– High availability of housing

– Expats' exodus after job losses, which led to increased vacancies

– Movement restrictions

– Low discretionary spending in 2020 that hampered sales

– Staff reduction and cost cutting

– Greater polarization of rent and occupancy

– Travel restrictions that depressed international tourism

– Postponement of Expo 2020 to 2021

Residential

Retail

Office

Hotels

Dubai Real Estate Trends | Recovery Phase

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*Dubai real estate trends were already highly constrained by oversupply of properties before the pandemic. ADR--Average daily rate.

Subsector Key trends 2021-2022Estimated timeframe to return to prepandemic level*

Residential Rental decline, price decline, oversupply2021 2022 Beyond

Retail Rental decline, sales-linked leases, oversupply

Office Rental decline, tenant friendly leases, high vacancy

Hotels Low ADRs, low occupancy rate, high competition

2021 2022 Beyond

2021 2022 Beyond

2021 2022 Beyond

Number Of Sales TransactionsThousands

Dubai Residential Trends | Recovery Phase

The residential real estate recovery would be led by:

– Cutback of new supply, assuming new launches by developers remain minimal

– Low mortgage interest rates that encourage residents to buy property rather than rent

– Declining prices that make investing in Dubai's residential property attractive

We expect:

– Transaction volumes to remain robust because housing units will be cheaper

– Villa prices to be more resilient as people look for larger homes as movement restrictions continue

– Increasing secondary market transaction volumes

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Numbers excluding Donations. Source: Dubai Land Department.

Residential

2021 2022 Beyond

0

10

20

30

40

50

60

70

2012 2013 2014 2015 2016 2017 2018 2019 2020

Sales Mortgages

Dubai TourismTop 7 source markets and total international arrivals

Dubai Retail Property Trends | Recovery Phase

The retail real estate recovery could be curbed by:

– Weak tourism activity, which we don't expect will return to prepandemic levels in 2021

– Slow economic rebound and low consumer confidence depressing discretionary spending

– Increased competition as new malls are delivered

We expect:

– Rent relief measures to continue leading to revenue and EBITDA declines

– Turnover rents to become a more common feature in leases

– Exponential growth in online shopping and omni-channel trade

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Source: Department of Tourism & Commerce Marketing.

Retail

2021 2022 Beyond

13.214.2 14.4

15.8 15.916.7

5.5

0

3

6

9

12

15

18

0%

10%

20%

30%

40%

50%

60%

2014 2015 2016 2017 2018 2019 2020

Mil.

Sha

re

USA RussiaChina OmanUK SaudiIndia Total international arrivals (right scale)

Dubai Office Space Trends | Recovery Phase

Office real estate recovery would be led by:

– Dubai remaining a key business hub in the GCC including through rising demand from fintech companies for office space

– Employees returning to the office faster than in other financial hubs across the globe

– Limited new supply

– Flight to quality led by rental declines

We expect:

– Ongoing polarization of rents and occupancy, with Grade A spaces benefitting relative to the rest of the market

– Continued rationalization of office space as more companies opt for work-from-home for the long term

– Coworking spaces to continue disrupting the market for traditional office space

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Office

2021 2022 Beyond

Dubai Hotel Performance

Dubai Hotel Trends | Recovery Phase

Hotel real estate recovery could be curbed by:

– Continued international travel restrictions

– Limited air traffic recovery due to structurally lower demand

– New supply in 2021-2022 causing a steep increase in competition

We expect:

– Domestic demand to increase but not sufficiently to compensate for loss of international tourism

– Beach front and tourism hotels should fare better than business hotels

– Expo 2020's rescheduling to 2021 to temporarily ease pressures on average daily rates and occupancy

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Source: Department of Tourism & Commerce Marketing.

Hotels

2021 2022 Beyond

79% 77% 79%75% 75%

53%

0

15

30

45

60

75

90

0

100

200

300

400

500

600

2015 2016 2017 2018 2019 2020

%

US

$

Average daily rate Occupancy (right scale)

Dubai Real Estate | The Outlook Bias Is Negative

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*On a scale of 1-6, 1 being the best. e--Estimate. f--Forecast.

Company Rating

Debt to EBITDA (x) 2020e

Debt to EBITDA (x) 2021f

Business profile*

Financial profile*

Business mix

Revenue generated in Dubai

Majid Al Futtaim Holding LLC

BBB/Stable/A-2 4.0-4.5 4.0-4.3 3. Satisfactory 3. Intermediate Retail real estate with substantial retail exposure

– 60%-65% of property business

– 30%-35% of retail business (Carrefour)

Emaar Properties PJSC

BB+/Negative/-- 4.0-4.1 2.0-2.5 4. Fair 4. Significant Majority developer with substantial real estateexposure

– About 70%

Emaar Malls Group LLC

BB+/Negative/-- 2.4-2.5 3.0-3.2 4. Fair 2. Modest Retail real estate – 100% of property business

– 21% of retail business (Namshi)

DAMAC Real Estate Development Ltd.

B/Negative/-- 8.0-8.5 4.5-5.5 5. Weak 6. Highly leveraged

Developer – 95%-98%

Dubai Real Estate | Operational Challenges Will Continue In 2021

– 2020 results will likely be weak, with only marginal improvements in 2021.

– Normalization of relations with Israel, as well as restoration of ties between Qatar and the four Arab countries previously boycotting the country, should support tourism and real estate investments.

– However, we expect real estate companies' profitability to remain under pressure and leverage to be high.

– Absent a substantial recovery in revenue, companies are likely to focus on cost optimization, proactively managing their liquidity, and preserving their cash flows.

– Some companies are expected to reduce or eliminate dividends to conserve cash, and sell assets to reduce leverage.

– Rated Dubai-based real estate companies have good liquidity and access to funding, despite currently trying times.

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Related Research

– Expat Exodus Adds To Gulf Region's Economic Diversification Challenges, Feb. 15, 2021

– GCC Corporate And Infrastructure Outlook 2021: Proceeding With Caution, Feb. 2, 2021

– Industry Top Trends 2021 | Homebuilders and Developers: Credit Quality Improvement Continues Into 2021, Dec. 10, 2020

– Industry Top Trends 2021 | Real Estate: Recovery In The REIT Sector Could Be Long And Uneven, Dec. 10, 2020

– Credit FAQ: Dubai's Already High Debt Burden Set To Worsen Amid A Deep Pandemic-Related Macroeconomic Shock, Sept. 30, 2020

– Twin Shocks Of Low Oil And COVID-19 Mean Double Trouble For GCC Corporates, July 21, 2020

– Three Dubai-Based Real Estate Companies Downgraded On Increased Economic Pressures Stemming From Spread Of COVID-19, July 9, 2020

– COVID-19 Dampens The Prospects Of EMEA Real Estate Developers And Homebuilders, April 22, 2020

– Various Rating Actions Taken On Dubai-Based Real Estate Firms On Economic Pressure And COVID-19 Uncertainty, March 26, 2020

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Analytical Contacts

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Sapna Jagtiani Timucin EnginSenior Director & Cross-Practice Country Coordinator, GCC

timucin.engin@spglobal.com

+971-4372-7152

Director & Lead Analyst, GCC Corporates

+971-4372-7122

sapna.jagtiani@spglobal.com

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