Savills Research REPORT The Property ReportThe Property Report The Property Report Though demand...

REPORT

Savills Research

UAE RESEARCH 2020

The Property Report

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The Property Report

3

UAE RESEARCH 2020

The Property Report

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The Property Report The Property Report

UAE Property MarketThe UAE has been steadily progressing towards setting ambitious goals and achieving individual targets at an emirate level and also collectively as a nation. The emphasis continues on diversifying the non-oil economy, expanding the tourism offering, enabling trade & commerce and positioning the UAE as a preferred choice to live and work. In 2019, we witnessed various policy reforms to enable this transition such as relaxing Foreign Direct Investment (FDI) norms, allowing long-term residency and creating strategic partnerships with key global economies. We anticipate these

policy reforms to have a long-lasting positive impact on existing and future businesses and in attracting talent to the region. As employment in the country grows, the requirement for investment quality real estate will increase in tandem. There is no doubt an imbalance between the current supply and existing demand levels across most real estate asset classes, however, this is a short-to-medium term scenario which is likely to be addressed though supply side interventions and the positive impacts of the below mentioned demand side factors among others.

The Abu Dhabi Investment Office (ADIO) has signed a strategic partnership agreement with China-based Artificial Intelligence (AI) company SenseTime to establish the firm’s EMEA research and development centre in Abu Dhabi while Sorbonne Centre for Artificial Intelligence has been inaugurated at Sorbonne University in Abu Dhabi. In Sharjah, significant digital transformations were witnessed in 2019

such as the implementation of electronic rent contract attestation, and the launch of smart ‘Real Estate Developers Gate’ by Sharjah Real Estate Registration Directorate (SRERD). These developments along with the various other Smart Dubai initiatives indicate a clear drive towards creating a mature knowledge economy in the region.

Anecdotal evidences - based on the interest received by Savills - suggest that the share of first-time property renters in the UAE has gone up in the last twelve months. Close to 30% -35% of total enquiries received for vacant units in Dubai and around 15% in Abu Dhabi were from individuals who have recently moved to these

cities or are planning to relocate in the near future. The recent Global Labour Resilience Index has also ranked UAE first in the Arab world and 21st globally as the most stable labour market. This fares well for the long-term growth of the real estate market in the country.

The total private sector employment in the UAE at the end of Q3 of 2019 was 5.08 million. According to data from the Ministry of Human Resources and Emiratization, total net newly

issued work permits in the UAE increased by 110,912 in the first nine months of 2019 compared to the same period of the previous year.

Strong addition to the labour force

Continued shift towards knowledge economy

New drivers for residential demand

Further boost to transactionsEarly settlement fee on mortgages has been capped to a maximum of 1% of the outstanding balance or AED 10,000 – whichever is less. Previously borrowers had to pay a 3% early settlement fee. This new directive will benefit both buyers and sellers as sellers can

re-mortgage or sell without the high exit fees and buyers can feel more confident knowing that in the future they will have the freedom to sell or explore better deals without the high penalties.

1 2 0 0 1 6 0

A B U D H A B I D U B A I N O R T H E R N E M I R AT E S U A E

1 0 0 01 4 0

8 0 0

8 0

1 0 0

1 2 0

6 0 0

6 04 0 0

4 0

2 0 0

2 0

0 0

WOR K PER MIT AND NET EMPLOYMENT G R OWTH

Source Savills, Ministry of Human Resources and Emiratization

WO

RK

PE

RM

ITS

IS

SU

ED

('0

00

)

NE

T E

MP

LO

YE

ES

AD

DE

D (

'00

0)

N E W C A N C E L L E D N E T

R E S I D E NTIAL

6 7


Though demand side factors have remained stable, the onset of substantial new supply has had a negative impact

on asset pricing across the Emirate. Abu DhabiThe residential real estate market in the capital witnessed various positive developments throughout 2019. The most significant among these was the opening up of the market to foreign investors, allowing them to buy property and land within 15 designated zones. This was further complemented by the long-term UAE residency visa which was introduced in a bid to improve investor confidence and increase investments in the region. Even though the widespread impact of these measures is yet to be seen, positive offshoots and improved sentiments were visible across the market. The first bi-annual report by Abu Dhabi’s Department of Urban Planning and Municipalities reflects this trend as AED 31 bn worth of real estate transactions were recorded during the first half of 2019 and a similar or slightly better transaction level expected for the second half of the year. The region’s largest developer, Aldar Properties, also reported a 128% y-o-y jump (AED 3.0 bn) in its development sales till Q3 2019.

Developers have utilised this policy level push and have further incentivised buyers with attractive payment plans, discounts and innovate schemes such as rent-to-own. This led to stable transaction levels and demand especially across prime freehold locations such as Saadiyat Island, Yas Island, Al Reef and Al Reem Island.

Project completions have also remained stable. Close to 4,700 units were handed over throughout the year. Notable project completions include, Mamsha (461 units), Jawaher (83 units) by Aldar Properties and Soho Square (302 units) and Park View (424 units) by Bloom Properties on Saadiyat Island. New supply addition on the other hand increased and was led by Aldar Properties with the launch of projects such as Al Reeman (1,012 units) and Al Reeman II (557 units) at Al Shamka, Lea (238 units) at Yas Island and Reserve (223 units) on Saadiyat Island. All these projects which were launched in 2019, have already achieved

an average 85% sale (except for Reserve which has sold only 30%) indicating strong investor demand in the market. Capital Views (642 units) and Intercontinental Grand Marina Residences (130 units) by National Corporation for Tourism & Hotels and Al Jurf Gardens (293 units) by Imkan were among the other prominent projects launched during the year.

Though demand side factors have remained stable, the onset of substantial new supply has had a negative impact on asset pricing across the emirate. Both capital and rental values witnessed an average drop of 10 – 12% y-o-y across most residential micro-markets for both apartment and villa developments in the emirate.

MICRO-MARKET CONFIGURATION AVERAGE ANNUAL RENT (AED) Y-O-Y CHANGE (%)

VILLAS / TOWNHOUSES

Al Reef 4 Bedroom 120,000 - 8

Hydra Village 3 Bedroom 80,000 - 11

Golf Gardens 3 Bedroom 170,000 - 13

Al Raha Garden 3 Bedroom 140,000 - 7

Saadiyat Island 4 Bedroom 300,000 - 9

APARTMENTS

Al Reef 2 Bedroom 65,000 - 7

Al Raha Beach 2 Bedroom 105,000 -13

Saadiyat Island 2 Bedroom 120,000 - 14

Al Reem Island 2 Bedroom 110,000 0

1,800

A B U D H A B I R E S I D E N T I A L C A P I TA L VA L U E T R E N D

Q1

2016 2017 2018 2019

Q1 Q1 Q1Q2 Q2 Q2 Q2Q3 Q3 Q3 Q3Q4 Q4 Q4 Q4

1,600

1,400

1,200

AE

D /

SQ

. FT

.

1,000

800

600

400

200

0

HIGH-END VILLAS / TOWNHOUSE HIGH-END APARTMENTS MID-END VILLAS / TOWNHOUSE MID-END APARTMENTS

Abu Dhabi Residential Abu Dhabi Residential

Source Savills Research

8 9


Abu DhabiDemand for industrial and warehousing space remained stable in Abu Dhabi during 2019. Consolidation and relocation exercises were the primary drivers of demand across the emirate as we witnessed a movement in tenant activity to the Industrial City of Abu Dhabi (ICAD) and also Musaffah from Al Mina area on account of the ongoing redevelopment. Demand across the Khalifa Industrial Zone Abu Dhabi (KIZAD) was strong from companies keen on cold storages and temperature-controlled warehouses. The recent announcement to waive charges for over 75% of its services whilst lowering fees for many of the other services has also helped in attracting new tenants to KIZAD.

Companies from the hydrocarbon and infrastructure sectors were among the active occupiers of warehousing space. Manufacturing companies on the other hand preferred long-term land lease to construct their built-to-suit developments. Demand from Food & Beverage (F&B), e-Commerce and 3PL companies also remained stable during the year.

Transaction activity was largely observed for small to medium sized space ranging from 10,000 sq. ft. to 50,000 sq. ft. Among the notable transactions, approx. 19,375 sq. ft. of warehouse space was taken up in ICAD 1 by a construction company associated with

infrastructure projects, while approximately 10,700 sq. ft. was leased by a 3PL firm at Business Hub

Supply addition on the other hand was limited during the year. Only one notable project offering 312,000 sq. ft. was completed in Masdar City. This led to a relative stability in rents across micro-markets such as Musaffah and ICAD 1 and 2, KIZAD and Al Markaz when compared to 2018.

Abu Dhabi office market is undergoing a transformation from being predominantly driven by oil & gas and government related entities to one which is witnessing an increasing demand and space take-up by technology (tech) firms. In the last twelve months, the market has seen a spike in investment and space take-up activity by local tech start-ups catering to a variety of industries such as logistics, financial services, artificial intelligence and e-commerce. This spurt in activity is supported by the AED 535 mn Ghadan Ventures Fund launched by Abu Dhabi Investment Office (ADIO) to support venture capital and promote the start-up ecosystem. Most of these activities are concentrated across Hub71, located in the Abu Dhabi Global Market (ADGM), which now supports 35 start-ups with up to 100 percent free housing, office space and health insurance for two years for seed companies and 50 percent subsidies for emergent companies, for three years. This strong focus by the Government to promote Abu Dhabi as the start-up capital of the Middle East, has had a positive

impact on the office real estate activity.

Demand from the traditional occupiers of office space in Abu Dhabi such as oil & gas companies and government related firms has also remained stable. The setting up of new government entities in the last twelve months as part of the reorganisation of government departments has led to fresh demand for Grade A buildings across locations such as Khalifa Park, Abu Dhabi National Exhibitions Company (ADNEC) and Al Raha. Stable demand from ancillary industries to the oil and gas sectors was also observed which in turn has improved the overall office space take-up in the city.

Demand from oil & gas related companies and ancillary industries was witnessed across the corniche in the CBD and also on Abu Dhabi Island due to the strong presence of Abu Dhabi National Oil Company (ADNOC) and other oil & gas related firms. Across ADGM, leasing activity was observed due to the growing demand from start-ups and companies from the financial services and consulting sector.

Among the notable transactions, BNY Mellon opened a representative office while Swiss private bank, Bank Lombard Odier & Co Ltd started operating from the ADGM. ADNOC also signed a new long-term lease for approximately 88,200 sq. ft. in Sarab Tower. This latest move by ADNOC follows the establishment of its new trading arms, ADNOC Global Trading and ADNOC Trading, both of which are incorporated in ADGM.

Supply addition continued to remain strong across the emirate. Notable project completions during the year include Sadeem (75,000 sq. ft.) on Al Raha Beach, C55 in Al Muntazah and Al Noon (35,000 sq. ft.) on Saadiyat Island. The existing vacancy levels and addition of new supply had a negative impact on asset pricing across the emirate. Rental values across Grade A buildings in the CBD and outer CBD witnessed a correction of approximately 7% and 6% y-o-y respectively. While office projects on Off-Island North witnessed a rental correction of approx. 3% y-o-y.

O F F I CE I N D U S TR IAL

A B U D H A B I O F F I C E R E N TA L VA L U E T R E N D

Q1 Q1Q2 Q2Q3 Q3Q4 Q4

2018 2019

AE

D /

SQ

. FT

. / A

NN

UM

180

160

140

120

100

CBD OFF ISLAND NORTH OUTER CBD

Manufacturing companies preferred long-term land lease to construct their built-to-suit

developments.

Abu Dhabi Office Abu Dhabi Industrial

A B U D H A B I I N D U S T R I A L R E N TA L VA L U E T R E N D

35

40

45


2018 2019

30

25

AE

D /

SQ

. FT

. / A

NN

UM

20

10

15

5

0

MUSSAFAH ICAD 1 KIZADICAD 2 AL MARKAZ

Source Savills ResearchSource Savills Research

10 11


R E S I D E NTIAL

Dubai2019 was an interesting year for the residential real estate market in Dubai. The first half of the year witnessed the absorption of 17,100 units, compared to 16,400 units during the first half of 2018, with transactions increasing by almost 50% in H2 2019 when compared to the same review period last year. Close to 21,800 units were absorbed in H2 2019 which led to overall transactions increasing by 25% y-o-y in 2019.

Demand for off plan units stand out, with a total of 23,700 units sold, constituting close to 60% of the total transactions witnessed during the year. This was facilitated by lucrative payment plans along with other incentives such as partial or full waiver of Dubai Land Department (DLD) fees and also service charges along with other innovative schemes such as offering business licences with the purchase of apartments. Off-plan transactions were concentrated across projects such as Villanova, Liwan, Town Square, Damac Hills, Akoya Oxygen, Mohammed Bin Rashid City (MBR City) and Dubai Creek Harbour among others. With the exception of MBR City and Dubai Creek Harbour, most of these projects are concentred along the

Emirates Road, which has become the hotbed of new project launches in the last few quarters. Demand for secondary sales was estimated at 15,200 units during 2019, with established locations such as Dubai Marina (1,520 units), International City (1,080 units), Jumeirah Village Circle (1,010 units) and Al Furjan (1,010 units) emerging as the most preferred micro-markets for secondary sale transactions.

The increase in transaction levels however, have not had any positive impact on asset pricing across the Emirate. Even though transactions increased by 25% y-o-y, project completions / handovers increased by 39% y-o-y during 2019, resulting in an increase to the existing vacancy levels across the Emirate. Close to 36,700 new residential units were completed across projects located in MBR City (5,000 units), Jumeirah Village Circle (JVC) (3,800 units), Business Bay (3,100 units), Dubai Silicon Oasis (3,000 units) among others. Along with these newly handed over units, an additional 15,100 units were also launched in 2019. The number of new units launched has, however, declined by almost 35% y-o-y indicating a conscious

effort on part of the developers to balance out the current oversupply situation in the market. MBR City again was at the forefront of new supply, as 3,500 units were launched across the micro-market. This was followed by Dubai Creek Harbour (1,900 units) and new phases of Arabian Ranches (1,400 units) as the key projects to witness new supply addition. Around 70% of the new units launched were apartments followed by villas / townhouses.

The current supply / demand dynamics continues to negatively impact capital and rental values across the city. Capital value of apartments in micro-markets such as Remraam, Jumeirah Beach Residence, IMPZ, Dubai Investment Park, Jumeirah Village Triangle and Jumeirah Lake Towers witnessed a price correction of circa 10% y-o-y as compared to 2018. Across villa and townhouse communities, capital values on an average were down by 11% y-o-y. Similarly, rental values for villa / townhouse developments were down by an average 5 – 8% y-o-y while rents across apartment units were down by circa 4 – 8% y-o-y across most sub-markets.


VILLAS / TOWNHOUSES

Al Furjan Villas 4 Bedroom 135,000 - 6.9

Springs - Townhouses 3 Bedroom 115,000 - 8.0

Mira – Townhouses 3 Bedroom 102,500 - 6.8

Arabian Ranches 1 – Alvorada Villas 4 Bedroom 210,000 - 4.5

APARTMENTS

Downtown Dubai 1 Bedroom 75,000 - 6.3

Business Bay 2 Bedroom 84,000 - 6.7

Jumeirah Lake Towers 2 Bedroom 102,000 - 7.3

Dubai Marina 2 Bedroom 126,000 - 6.7

The Greens 3 Bedroom 115,000 - 4.2

2,500

D U B A I R E S I D E N T I A L C A P I TA L VA L U E T R E N D

Q1 Q1 Q1 Q1Q2 Q2 Q2 Q2Q3 Q3 Q3 Q3Q4 Q4 Q4 Q4

2016 2017 2018 2019

2,000

1,500

AE

D /

SQ

. FT

.1000

500

0

HIGH-END VILLAS / TOWNHOUSE HIGH-END APARTMENTS MID-END VILLAS / TOWNHOUSE MID-END APARTMENTS

Dubai Residential Dubai Residential


12 13


I N D U STR IAL

Dubai

Demand for industrial and warehousing space remained low at the start of the year and was largely muted throughout H1 2019. Oversupply in select locations and a limited number of new market entrants to drive fresh demand, were among the key factors for the sluggish market activity. Transaction closures were observed for small-to-medium sized space ranging from 10,000 sq. ft. to 30,000 sq. ft., however limited transactional activity was recorded in the 50,000 sq. ft. and above segment. Renewal activity on the other hand increased as landlords became increasingly flexible on rental expectations and lease terms in a bid to compete with the newly completed supply. However, after a prolonged period of subdued demand levels, which was carried through from 2018, market activity improved during H2 2019 on the back of a spike in renewal, relocation and consolidation exercises. The entry of a number of international companies, especially

in the engineering and manufacturing sector, and expansion activity by 3PL (Third Party Logistics) and e-Commerce companies were the other factors that led to a strong increase in demand during H2 2019. Most of these transactions were under discussion for the last few quarters and were concluded during H2 2019 on account of the various proactive measures implemented by the Government.

The current market dynamics have prompted developers / landlords to reposition their projects to meet current and future demands. Dubai South for example, is positioning itself as the hub for e-commerce players. As part of this objective, it recently launched the EZDubai district which enables occupiers to consolidate their onshore and offshore activities into one facility; thereby benefitting from dual licensing issued by Dubai Economic Department (DED-LLC) and Dubai World Central (DWC-FZE).

This fares well with the prevalent occupier profile as e-commerce companies are among the major drivers of warehousing demand in the city.

Institutional interest for properties with international tenants and long lease terms also spiked during the year and a handful of transaction closures were observed. In terms of end-user demand, occupier interest for automated built-to-suit, temperature-controlled centers with new technologies was strong.

However, similar to the residential and office market in Dubai, rental values continued their downward trend across most micro-markets. Rents across Grade B stocks declined the most compared to good quality investment grade projects.

D U B A I O F F I C E R E N TA L VA L U E T R E N D


2018 2019

300

250

AE

D /

SQ

. FT

. / A

NN

UM

200

150

100

50

NEW DUBAI CENTRAL DUBAI OLD DUBAIDIFC DUBAI FRINGE

O F F I CE The office real estate sentiment remained largely unchanged from 2018. Lease regears, achieving rental savings on renewal, consolidating and right-sizing, were the key theme for the year. Majority of enquiries and transactions were for small and medium sized office space. Demand for new large sized office space remained limited, except in the case of consolidation. Landlords continued to offer flexible commercial terms including generous rent-free periods, additional car parking, lease flexibility through increased break clause opportunities with minimal penalties and even upgraded space (in few limited cases) from shell and core to Category A fit-out (CAT A).

Though the market conditions favoured tenants, many occupiers adopted a wait-and-see approach and committed to shorter lease terms at renewals. However, the positive impacts of recently introduced policies aimed at improving the ease of doing business in the country are starting to be noticed across the city. One such implemented policy was the dual licencing option, which permits companies to have onshore and offshore operations within their designated space. This means that companies will have a larger variety of options to choose from as they are not restricted to specific areas.

As the economy matures and new business sectors are added to the already diversified Dubai economy, there will be steady growth in demand for investment grade office projects. In the longer term, much of the existing vacant stock and upcoming supply does not necessarily meet the quality requirements of global corporates. This has driven several corporates in the region, especially from the banking sector, to consider BTS developments or pre-committing space in some of the upcoming Grade A developments. During 2019, the global financial services company VISA committed to open its built-to-suit (BTS) regional headquarters (HQ) at Dubai Internet City while Ernst & Young has pre-committed office space at ICD Brookfield Place to consolidate most of its office portfolio in the city. Regional bank Mashreq and the London based HSBC have recently opened their BTS office HQ in Dubai.

Supply addition during 2019 increased as projects such as Silicon Park in Dubai Silicon Oasis, One Central (Phase 4 and 5) in the Trade Centre area, Hills Business Park in Dubai Hills Estate among others were completed. The current supply demand dynamics has resulted in a stable or marginal decline in quoted rental values across most micro-markets. Among

the prominent office districts in Dubai, rental corrections were observed across JLT (5% y-o-y), DIFC (4% y-o-y), Dubai Internet City / Media City / Knowledge Village (3% y-o-y), while they have remained largely stable across other micro-markets. Importantly however, the quoted rental values have witnessed marginal correction on an annual basis, the limited demand for office space amidst increasing competition has prompted developers to offer favourable leasing terms, thereby providing substantial rental savings to tenants.

Going forward, we expect that demand across prime buildings will remain consistent which may ultimately stabilise quoted rental rates in the better-quality developments. However, supply will continue to outpace demand which will prompt developers to continue with generous incentives. These incentives also extend to renewals where we have seen landlords not only significantly reduce rents upon renewal but also in some cases offer rent free periods and other incentives to persuade tenants to renew again on a longer-term basis.

Dubai Office Dubai Industrial

D U B A I I N D U S T R I A L R E N TA L VA L U E T R E N D


2018 2019

60

50

AE

D /

SQ

. FT

. / A

NN

UM

40

30

20

10

JAFZA DIP DUBAI SOUTHDUBAI INDUSTRIAL PARK AL QUOZ JEBEL ALI INDUSTRIAL RAS AL KHORNATIONAL INDUSTRIES PARK



14 15


R E S I D E NTIAL

ASSET PRICING ACROSS ESTABLISHED LOCATIONS DECLINED ON ACCOUNT OF THE INTRODUCTION OF NEW SUPPLY IN EMERGING LOCATIONS AT A LOWER PRICE RANGE.

DEMAND ACROSS THESE NEWLY COMPLETED PROJECTS

IN EMERGING SHARJAH IS LIKELY TO IMPROVE AS

OFFICE OCCUPIERS FOLLOW RESIDENTIAL TENANTS IN

THEIR MOVE TOWARDS NEWLY BUILT COMMUNITIES.

INDUSTRIAL AREAS 2-15 CONTINUE TO BE CONSIDERED THE MOST PRIME / DESIRABLE

LOCATIONS.

O F F I CE

I N D U S TR IAL

SharjahThe past twelve months have been watershed for the residential real estate sector in Sharjah. While the city continued to remain a preferred residential destination in the country, we witnessed a gradual shift in housing demand from locations in the erstwhile city centre to emerging residential hubs. According to the Sharjah Real Estate Registration Department, close to AED 16.7 bn worth of residential transactions - accounting for 69.4% of total real estate transactions in the city – were concluded in 2019. Records show that sales transactions of 3,328 properties, 46.3 mn sq. ft. in area, were registered in the Emirate of Sharjah. This strong demand for residential was on account of the availability of ample investment opportunities across projects in emerging areas, as well as Sharjah City, such as Muwailah and Al Khan. Apart from affordability, growing interest in properties across these emerging locations can be attributed to a diverse range of factors. For

example, the availability of gated communities, less traffic congestion and recent development timeline.

Supply addition has remained strong in 2019, with multiple projects being launched including Sharjah Sustainable City (Shurooq & Diamond Developer), The Boulevard and Nest Complex (Arada), and Muwailah Community (Thuraiah Group). Notable project completions on the other hand include the first and second phases of Nasma residences (291 units).

Rental values, however, continued to remain under pressure throughout the year. Asset pricing across established locations declined on account of the introduction of new supply in emerging locations at a lower price range. Also, the decline in rental and capital values across properties in Dubai had a negative impact on the rental values across the residential sector in Sharjah. On an annual basis, rental values

across Al Majaz for studios dropped by 12% y-o-y from an average AED 18,000 in 2018 to an average AED 16,000. Similar to Al Majaz, rents for studios in Al Qasimia dropped by 7% y-o-y to AED 15,000 and by 8% y-o-y at Bu Tina, Al Naba’ah to AED 13,000. Rental values for 1 Bed apartments declined by an average 10% y-o-y across markets while 2 Beds and 3 Beds apartment properties are on an average 9% and 8% more affordable compared to 2018. The impact of the declining market has also resulted in rising vacancy levels, specifically in older properties and those that offer lower quality accommodation. As per the Savills Sharjah Occupancy Index, occupancy levels across residential projects across Sharjah City has dropped from 90% in December 2018 to 88.7% in December 2019. This has led landlords to actively offer discounted rentals and other incentives in order to retain and attract tenants.

Demand for office space was limited in Sharjah throughout 2019. A slowdown in tenant demand coupled with additional supply entering the market, has placed downward pressure on office rents. Recent lease transactions for office units within prime locations in Sharjah have ranged between AED 50 to AED 65 / sq. ft. / annum, while secondary locations have seen rental levels of AED 45 / sq. ft. /annum on average.

Emerging Sharjah, which has witnessed bulk of the residential supply and demand in 2019 has very limited office supply at the moment. As the market is still at a very nascent stage, the rents across these office buildings are almost 20% lower than comparable properties in Sharjah City and range from AED 26 to AED 36 / sq. ft. /annum. With occupancy levels remaining low for most commercial properties, landlords

are offering attractive incentives to commercial tenants, with extended rent-free periods and capital contributions to fit outs becoming more common practice.

Going forward, it is anticipated that demand across these newly completed projects in Emerging Sharjah is likely to improve as office occupiers follow residential tenants in their move towards newly built communities. A positive growth in developments such Sharjah Research, Technology and Innovation park, inauguration of Sharjah Media City, and the construction of Sharjah Healthcare City, as well as other mixed used projects which include commercial elements are expected to improve the overall investment sentiments of the office sector in Sharjah.

Sharjah’s industrial market continues to be a crucial part of the Emirate’s real estate market, with the industrial sector accounting for a third of GDP. Industrial properties accounted for 11.8% of transactions in 2019, totalling AED 2.8 bn.

Despite some improvements in economy, industrial rents, most notably warehousing, continued to decline throughout 2019. Average warehouse rents decreased by an average 12% y-o-y, with areas such as Al Saja’a being impacted the most. Average rents for Industrial Areas 2 – 18 currently range from AED 24 – 30 / sq. ft. / annum, whilst in Al Saja’a they range from AED 18 – 22 / sq. ft. / annum.

Industrial Areas 2-15 continue to be considered the most prime / desirable locations due to their proximity to the centre of Sharjah as well as accessibility to neighbouring Dubai. However, 2019 saw a rise in the number of businesses relocating to projects in Al Saja’a as well as Industrial Area 18, seeking better quality projects, low congestion and lower rents.

On the other hand, Kalba City, is undergoing an expansion of its industrial offering with the construction of 33Kv substation to serve the new industrial zone, which will accommodate more than 1,500 properties.


APARTMENTS

Al Muwailah 2 Bedroom 36,000 - 6

Al Majaz 3 Bedroom 50,000 - 4

Al Khan 2 Bedroom 41,000 - 2

Abu Shaghara 2 Bedroom 27,000 - 14

Al Qasimia 2 Bedroom 35,333 - 8

Butina, Al Nabaah 2 Bedroom 25,333 - 11

We witnessed a gradual shift in housing demand from locations in the erstwhile city centre to

emerging residential hubs.

Sharjah Residential Sharjah Office and Industrial

16 17


TH E FUTU R E I S . . . .

Outlook

. . . S U S TA I N A B L E

The last decade and last year in particular has seen an increase in companies evaluating their environmental footprints and introducing measures to make their business more sustainable. Companies in the UAE are at the forefront of this change, which is led by the government – the Mohammed bin Rashid Al Maktoum Solar Park, is a prime example. Throughout 2019, various real estate developers (including built-to-suit developments) have incorporated some element of sustainability into their projects. Going forward, this focus on sustainability across construction and real estate developments is likely to take centre stage as the long-term impact of built environments are critically evaluated especially in the light of the upcoming EXPO 2020 which has a strong focus on sustainability. The recent launch of a sustainable real estate investment trust (REIT) – the first ‘green’ REIT to be introduced in the UAE – by Masdar is among the various other positive steps taken in this direction.

. . . S U P P LY L A D E N

Various proactive measures have been adopted throughout 2019 to limit the introduction of new supply across all asset classes throughout the country. However, this is likely to have limited impact on the anticipated supply – especially in the residential segment - in the short-to-medium term. Numerous projects which were launched over the past few years are in various stages of construction and are likely to be added to the market over the next twelve to eighteen months.

. . . A T E N A N T ’ S M A R K E T

Approximately 75,000 residential units are projected to complete in Dubai and close to 14,000 units are likely to be handed over in Abu Dubai over the next twelve to eighteen months. With the onset of these new projects into the existing supply, the market will continue to remain favourable towards tenants. Tenants may continue to benefit from a few of the current incentives such as rent-free periods, furnished apartments, multiple cheque payments among others in an already subdued rental environment. The office and warehousing segment are likely to follow a similar trend, with existing incentives being offered by landlords extended over the next twelve months. A strong competition between key landlords / developers to retain / attract existing and new tenants to their buildings is the primary reason for this trend. The oncoming office supply of close to 670,000 sq. ft. in Abu Dhabi and close to 3.2 mn sq. ft. in Dubai is likely to ensure a tenant favoured market in the short-to-medium term.

. . . R E FO R M D R I V E N

The Government’s commitment towards creating a competitive and sustainable economy will lead to more policy reforms and implementation of few of the recent announcements. As more clarity and concrete measures are introduced in the next few months, the overall market sentiment is likely to improve leading to an increase in enquiry and transaction levels. The opening up of the market to foreign investors in Abu Dhabi and the launch of freehold residential projects in Sharjah along with the introduction of long-term UAE residency visa has contributed to significant transaction across these two Emirates in the last twelve months. Going forward few of the key topics to watch-out for include:

The real estate committee Anecdotal evidences suggest that the spike in property transactions in Dubai during the last quarter of 2019 was partially driven by an improvement in investor / end-user confidence post the announcement of the setting up of the real estate committee. The steps taken by this committee will be crucial for the market going forwards as developers evaluate their strategies post EXPO 2020 and beyond.

The roll-out of Real Estate Self Transaction “REST” platform in Dubai Dubai REST is the smart real estate platform for real estate services, it enables both property owners and tenants to manage leases (registration, renewal, and cancellation of the lease), submit rental dispute cases, and follow up on them.

. . . FO C U S E D O N N E W B U S I N E S S S E C TO R S

Vertical farming, cloud kitchen, fintech, start-ups, co-working and co-living are some of the buzzwords that will influence the real estate landscape in the country. In 2019, we have already witnessed medium-to-large sized warehousing spaces taken up by vertical farm operators and cloud kitchen service providers across Dubai Industrial City and Al Quoz respectively. While global co-working operators are evaluating options and strategies to expand their presence in the country. One of the world’s largest co-working operator, Wework opened its first co-working space at the ADGM in Abu Dhabi at a time when the capital is actively promoting the start-up ecosystem in the region. While co-living projects are currently being experimented by leading developers such as Emaar in Dubai and student housing is becoming increasingly popular in Sharjah. This trend is only likely to increase throughout 2020 and beyond.

Outlook Outlook

18 19


TH E FUTU R E . . . .

Outlook

. . . I S O N L I N E

E-commerce as a sector is still at a very nascent stage with less than 5% share of the total retail sales, compared to 12 – 15% in counties such as the United Kingdom and the United States. However, since the internet penetration (at 91%) in the UAE is the highest in the region coupled with a high share of young and educated population, the e-commerce sector is poised for growth. This will support the long-term growth of institutional grade modern warehousing stock. Warehousing in Dubai is likely to benefit from this trend, as the current infrastructure in the city and a significant share of the upcoming warehouse supply is targeted at this sector. In Sharjah, 2020 is predicted to be a year of digital transformation. Within the real estate sector, 2019 saw significant digital implementation such as electronic rent contract attestation, and Sharjah Real Estate Registration Directorate’s (SRERD) launch of its smart “Real Estate Developers Gate”. Going forward, a high digital acceleration is expected to continue in 2020.

. . . W I L L B E I N F LU E N C E D BY I N C R E A S E D T R A D E CO O P E R AT I O N W I T H A S I A N CO U N T R I E S

As the Dubai Silk Road strategy continues to take shape, we anticipate a spike in demand for warehousing and industrial space in the city. The new Dubai Silk Road strategy comprises 9 initiatives and 33 projects that will see the collaboration of Emirates airlines, Dubai Airports, Dubai South, Dubai Free Zones, DFZ, Council, Dubai Maritime City Authority, Dubai Roads and Transport Authority, DP World, Dubai Municipality, Jebel Ali Free Zone. In the capital, The Abu Dhabi Investment Office (ADIO) has signed a strategic partnership agreement with China-based AI company SenseTime to establish the firm’s Europe Middle East and Africa (EMEA) research and development centre in Abu Dhabi.

. . . I S TOWA R D S T H E N E X T 5 0

Declared “2020: Towards the next 50,” next year will witness the biggest national strategy to prepare for the coming 50 years on the federal and local level as the country approaches its Golden Jubilee in 2021.

. . . I S E X P O 2 02 0

The much-awaited EXPO 2020 is just around the corner and the Savills team was fortunate to have a detailed site visit during the last quarter of 2019. The scale and depth of the project is unprecedented, and it will have a lasting impact on the regional economy in the near future. In the next section, we have looked at the EXPO 2020 in details with a focus on its real estate element.

Outlook Outlook

20 21


Expo 2o2oTOTAL G FAOVE R

2 .6 8M I LLIO N SQ M

G FA B R E AK DOWN38% O FFI C E

6% R E S I D ENTIAL H OTEL

4% ED U C ATIO N

4% R E TAI L

3% CO M M U N IT Y FACI L IT I E S

55 800 4,800 108 3,000 NEWB U I LT A SS E TS

CO M M E R C I A L B U I L D I N G S

E XP O 2 02 0

O C TO B E R 2 02 0 TO A P R I L 2 02 1

TR A N S IT I O NA P R I L 2 02 1 TO O C TO B E R 2 02 1

D I S TR I C T 2 02 0O C TO B E R 2 02 1 A N D B E YO N D

M O D E R N R E S I D E N T I A L U N I T S

PA R K I N G S PAC E S

S E RV I C E D L A N D P LOT S F O R R E S I D E N T I A L

H OT E L K E Y ' S ZO N E D F O R

D U B A I E X H I B I T I O N C E N T R E

Expo 2020 Expo 2020

Source District 2020

22 23

The Property Report The Property ReportSavills Middle East

SavillsM I D D L E E A S T

Savills is one of the world’s largest real estate firms. Established in 1855, we now have over 39,000 employees in over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. Through our advice, property management capabilities and transactional services, we help our clients fulfil their real estate needs - whatever and wherever they are.

Formerly known as Cluttons Middle East, Savills has been the regional leader and real estate advisor of choice in the Middle East for over 43 years. With on-ground presence in seven cities across five Middle East countries, Savills has the largest reach of any real estate consultancy in the region. We provide a complete range of property solutions throughout the life-cycle of any real estate asset regionwide.

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USA

New York and Miami continue to be the most internationally invested US cities, but it’s America’s tech hubs – San Francisco, Boston and Austin – that look to be the star performers.

CARIBBEAN

The success of the Caribbean is closely tied to the North American and European markets that feed it.

UK, IRELAND & CHANNEL ISLANDS

London continues to retain its status as a global financial centre, and the prime markets of the UK continue to attract a wide range of buyers from both within the UK and overseas.

EUROPE

European cities are on the rise. Paris residential recorded its best performance since 2011, Madrid is recovering fast, and Berlin is seeing double-digit annual price growth.

AFRICA

Cape Town is known as the ‘digital gateway to Africa’. The Western Cape is home to four top universities, and some 59% of South Africa’s start-ups are born here.

MIDDLE EAST

Middle East enjoys a strategic position bridging East and West, attracting businesses and property buyers, from around the globe.

A SIA -PA C IF IC

China’s residential market has risen to become the most valuable in the world. Shanghai, Beijing and Shenzhen have all emerged as global players.

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Feras IbrahimMarket Analyst+971 6 572 [email protected]

Richard PaulHead of Professional Services & Consultancy+971 4 365 [email protected]

Swapnil PillaiAssociate, Research+971 4 365 [email protected]

Edward CarnegyHead of Abu Dhabi+971 2 441 [email protected]

Suzanne EveleighHead of Sharjah+971 6 572 [email protected]

Murray StrangHead of Dubai+971 4 365 [email protected]

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Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, the UK, continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

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