UAE Market Research – January 2019

REPORT Savills Research The Property Report Foreword

CONTENTS First Overview of UAE property market analysis and forecasts

4 the UAE Property Economic Growth Insight on the global economic growth and the Market economic recovery of the UAE.

The UAE Property Report is Savills first comprehensive view of the , assessing the state of the current 7 real estate market across the country. The report provides the Summary of the latest overview across residential, commercial and industrial Property Market in sectors, with research and insight from the Savills team which 2018 operates across three offices in the heart of the UAE. The general theme during 2018 and the key policy Savills acquired long-standing regional leader Cluttons changes. Middle East in June 2018 and after a successful integration is now ideally positioned to provide investors, corporates, banks, individuals, families and institutions with the dual 8 benefit of an experienced local team offering the most Abu Dhabi informed regional advice, combined with the extensive global Overview of residential, network of one of ’s leading international real estate office and industrial advisors. property markets.

The rapid development and progression of the United Arab Emirates has been one of the great success stories of the 12 Middle East, bringing together an increasingly engaged and well informed Emirati population with a large expatriate Overview of residential, community to further the economic, technological, social and office and industrial cultural vision of its focused Government. property markets.

There is no doubt that 2018 was a challenging year for the global economy, so it was perhaps inevitable that the UAE 16 would feel a certain ripple effect of pressures beyond its Sharjah and own borders. Positively, within the nation, the Government Northern Emirates has taken steps to bolster growth through regulatory Overview of residential changes, increasing federal budgetary spend and a bold move property market. towards visa liberalisation. These integral transformations, contributing towards the UAE Vision 2021 and beyond, have 18 laid the foundations for economic improvement. Through Outlook attractive incentives for diversification of non-oil industries, The measures and the the UAE is competing to be a global hub of future-thinking mainstream challenges. industries.

At Savills, we take the lessons of the past, combined with analysis of current and progressive trends to provide our unique outlook and perspective for the future. Within this Steven Morgan report, we hope you will see that the real estate industry in the CEO Middle East UAE is very much a place of opportunity for the committed +971 (0) 4 365 7700 investor. [email protected]

3 The Property Report The Property Report

The overall GDP for Middle East and North Africa (MENA) grew by 2% in 2018 and is expected to further firm up this year. Improvement in oil prices support growth in Middle East

The recovery in oil prices with strong domestic The region’s two largest 1from an average USD 54 per demand in major commodity 4 economies, Saudi Arabia barrel in 2017 to an average importing countries, further and UAE, grew by 2% and USD 72 per barrel in 2018 has contributed to the economic 2.3% respectively. helped reduce fiscal deficits recovery in the region. across major oil exporting countries in the region.¹ The overall GDP for 3Middle East and North Diversification of Africa (MENA) grew by 2% 2economy with the in 2018 and is expected to introduction of 5% Value further firm up this year. Added Tax (VAT) in the United Arab Emirates (UAE) and Saudi Arabia, coupled

Economic recovery underway in the UAE

An increase in oil focus on infrastructure 56.1 in 2017 largely due to a production during the second development. At an Emirate slowdown in exports. On the half of 2018 and sustained level, during 2018 the GDP other hand, the introduction activity in the non-oil sector growth for Abu Dhabi was of VAT in early 2018 had very led to a 2.3% increase in estimated at 2.7% while for limited or negligible impact the country’s GDP in 2018 Dubai it was 3.3% and Sharjah on business and investment compared to a meager 0.8% at 2.7%.² sentiments in the region. in 2017. The non-oil sector However, private sector As a knee-jerk reaction, grew by 50 basis points growth witnessed a decline inflation spiked to 3.7% but it to 3% driven by ongoing as per the Emirates NBD is forecasted to revert to 2.0% investments attributed to Purchasing Managers’ (observed in 2017) by the end the upcoming Expo in Dubai Index (PMI). It contracted of 2019. and the country’s long-term marginally to 55.5 from

¹ Source Oxford Economics, Average price per barrel each month ² Source IMF, Moody’s Investors Service report

Increase in oil World Advanced Economies Euro Area EMDE MENA UAE Economic growth production during the second half of 6 2018

Global economic growth across advanced economies. In the US, steady Brexit dragged the GDP growth down to 5 has eased growth was recorded due to strong domestic 1.4% from 1.7% in 2017. Growth in Japan also According to the World Bank projections, demand and improvement in employment decelerated to 1% in 2018 as high oil prices 4 global economic growth remained flat in numbers. The economy expanded from a and effects of fiscal consolidation measures Sustained activity 3 2018. The year started on an upbeat note with GDP growth of 2.2% in 2017 to around 2.9% slowed the rate of expansion . in the non-oil strong economic activity recorded during in 2018. In the European Union (EU), growth Among emerging markets, growth in sector led to a 2 the first half of the year. However, industrial slipped from 2.7% to 2.2% in the same China edged down to 6.5% on account of 2.3% increase in UAE’s GDP production and trade started to decline period. This was attributed to a slowdown moderation in exports due to increased trade GDP Growth Rate (%) 1 because of escalating trade protectionism and in industrial production – the German protectionism among key trading partners. increasing geopolitical tensions. A slowdown automotive sector in particular - decline in Investment sentiments in India on the other 0 in demand from emerging markets further foreign trade and weaker demand in the EU. A hand have improved and GDP grew by 7.3% 2015 2016 2017 2018 contributed to the loss in momentum. manufacturing slump in the United Kingdom because of a growing middle class and strong AED 9.2 bn A mixed economic trend was observed (UK) and ongoing uncertainty surrounding domestic demand. allocated to Global GDP Trends infrastructure - Emerging Market and Developing Economies - Middle East and North Africa Source World Bank, various government estimates development in EMDE MENA 2019 Source Savills Research

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The general theme during 2018 can be summarised as one driven by joint ventures, Key policy consolidations and cautious optimism. changes in the Summary of the UAE Among the landmark UAE developments, two of the largest real estate Property Market in 2018 developers in the region, Emaar Properties and Aldar Project completion takes centre to make them more sq. ft. / month. In Dubai, Grade precedence efficient. Notable example of A rents declined at the National 1 2 4 Properties, entered into a Progressive policies at the Global marketing campaigns for Further impetus to the Supply addition in the this includes the 800,000 sq. ft. Industries Park and at Ras Al Khor Joint Venture (JV) to vanguard of growth real estate gain momentum manufacturing sector residential sector witnessed warehouse opened by Carrefour among other markets. The UAE has made steady progress As policies and regulatory framework The contribution of the manufacturing develop AED 30 Bn worth of a y-o-y decline as developers for its regional distribution center towards diversifying its economy become more conducive for sector in UAE’s GDP has steadily projects. The first two focused on consolidating their at the National Industries Park. Developers offered generous and achieving its development goals. investments, prominent real estate increased over the last few years. Over developments as part of the operations and completion of incentives This has been achieved through developers and the Dubai Land the past three years, an average 9.0% of JV are likely to add existing under-construction and Increasing pressure Most of the projects that were policies that allow it to overcome the Department in particular, have been the country’s GDP was contributed by approximately 9,000 units. launched projects. The majority on pricing launched during early 2014 when challenges posed by global / regional proactive in promoting the country’s the manufacturing sector. To further of new supply was in the form Existing supply and new launches the market was at an initial stage This was followed by Aldar economic and political trends. Further real estate. Recently launched incentivise the sector, the UAE Cabinet of standalone towers or projects had a negative impact on price of recovery are nearing handover. Properties acquisition of 14 progressive policies and strategies were properties were showcased at various passed a resolution to reduce electricity offering less than 2,000 units levels across most markets. This has led to a buyers / tenants’ announced throughout 2018 which international property shows around consumption fees by 29% for large operating assets from per project. Prominent new Both capital and rental values market with plenty of options aim to cement the country’s leadership the world. Special promotions targeting factories, and by 10-22% for small and Tourism Development & supply in Abu Dhabi included witnessed a y-o-y decline. Across and ample scope for negotiations. position as the preferred destination investors from different nationalities medium sized factories. Electricity Investment Company (TDIC) an additional 707 units at Al the residential sector in Abu Developers have responded to for trade, commerce and leisure. The were set up throughout the year connection fees for new factories has worth AED 3.6 Bn. Aldar Ghadeer 2 by Aldar Properties Dhabi, villas on Saadiyat Island are changing market conditions by Government has also been ramping to appeal to a wider investor base. also been waived off. also revamped its business and Reflections (192 units) at 11% more affordable compared to offering generous payment plans up its annual budget as part of its UAE Delegates from the real estate sector Reem Island. In Dubai, Seven December 2017 and rental values with up-to 10 years of post- model and setup an Vision 2021 strategy. With a focus on of other countries were also invited to Tides Developments launched for high-end 1Bed apartments on handover payment options and investment arm to manage social development, education and review investment opportunities and 5 Seven City (3 Towers comprising Al Raha Beach have softened to special schemes to fully or partly infrastructure, the 2019 federal budget take advantage of a maturing real estate Changes to bank lending laws income producing assets. of 2,617 units) at Jumeirah Lake an average AED 95,000 / annum absorb any transaction charges. was increased by 17.3% to AED 60.3 Bn. market. A cap on real estate lending in the UAE Towers (JLT), Emaar Properties compared to an average AED Landlords on the other hand Similarly, to encourage more foreign has been lifted by the Central Bank. launched Beach Vista (447 units) 120,000 / annum during Q4 2017. have been open to negotiations participation in the economy, the The previous cap restricted each bank’s at , and Dragon Supply and demand mismatch led and flexible in terms of the rental Government issued a new Foreign 3 lending to the construction and real Towers (1,142 units) was launched to increasing pressure on asset payment and lease terms. Direct Investment (FDI) law in Capital investments into the oil estate sector to a maximum of 20% of by Nakheel near Dragon Mart, pricing across Dubai. Both capital September 2018. The law allows 100% and gas sector set to increase the total deposit. International City. and rental values declined by an foreign ownership in certain sectors Investments into the hydrocarbon Project launches in the office average 10 - 12% y-o-y across most and seeks to expand and diversify the sector, which constitutes 30% of the sector remained limited, but markets. In Sharjah, rental decline production base, transfer and attract GDP, continue in tandem to the growth 6 handover activity was upbeat. was prominent in Al Majaz where advanced technology and knowledge in in the non-oil sector. In November, the Further boost to the tourism The last phase of the One Central rents for studios dropped by 22% addition to increasing the flow of FDI. Supreme Petroleum Council (SPC) sector development (742,000 sq. ft.) near y-o-y from an average AED 23,000 This was complimented by a change approved an AED 486 Bn five-year Warner Bros World Abu Dhabi, one of DIFC in Dubai was completed in 2017 to an average AED 18,000. in the existing visa rules whereby the capital expenditure plan for Abu Dhabi the largest indoor amusement parks in during the year. The opening In the office sector, market Government has permitted 5 years National Oil Company (ADNOC). As the world was opened during July and of the HSBC headquarters in rents in the CBD of Abu Dhabi, and 10 years visa for investors and per the plan, ADNOC’s oil production Dubai witnessed the opening of the Downtown, The Opus in Business which comprises of locations such entrepreneurs (based on the fulfillment capacity is set to increase to 4 million Dubai Frame in January. A new decision Bay and the Lynx in Dubai Silicon as Corniche, Khalifa Street and of certain investment criteria), barrels a day by 2020, from the current has also been approved to exempt Oasis were among the other Al Maryah Island, declined by an students (with exceptional grades) 3.5 million barrels, with a future target transit passengers from all entry fees projects to be handed over in average 2% y-o-y. In Dubai, the and specialists working across a few of 5 million barrels by 2030. This will for the first 48 hours and the visa can be Dubai. In Abu Dhabi, various strongest rental correction was specified sectors. create the world’s largest refining and extended for up to 96 hours. small-to-medium sized projects observed across (15% Expats over the age of 55 who have petrochemical complex in Ruwais city. by private developers were y-o-y) followed by Dubai Science an investment in property worth AED 2 completed. Park and Bur Dubai at 11% (y-o-y mn, savings of not less than AED 1 mn, Across the industrial sector, decline). or have an active income not less than speculative project launches Rental correction in the AED 20,000 / month have also been declined. As the market moves industrial sector was observed included in the scope of the new five- towards maturity, some occupiers at Al Markaz in Abu Dhabi where year visa policy. committed sizeable investments Grade A rents dropped from AED into their integrated logistics 33 / sq. ft. / month to AED 28 /

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AS PER OXFORD ECONOMICS, ABU DHABI IS SET TO BECOME THE SECOND LARGEST CITY IN THE Micro-market Configuration Average Annual Rent (AED) Y-o-Y Change (%) MIDDLE EAST IN TERMS OF GDP BY 2035. Villas/Townhouses

Al Reef 4 Bedroom 130,000 -4

Hydra Village 3 Bedroom 90,000 0

Golf Gardens 3 Bedroom 195,000 -3

ABU DHABI Al Raha Garden 3 Bedroom 150,000 -6

Saadiyat Island 4 Bedroom 350,000 -10 Residential during 2018. Large quantum of ready- an additional 707 units at Al Ghadeer 2 by Apartments Like the global economic trend, Abu to-move in stock and sizeable upcoming Aldar Properties. IMKAN Properties also Dhabi started the year on a positive note supply resulted in asset price compression launched 480 units across seven mixed- Al Reef 2 Bedroom 70,000 -13 with the Government earmarking AED across most sub-markets. Demand levels use towers called Pixel at the Makers 50 Bn towards a three-year economic remained low as buyers / occupiers District project on Reem Island. Al Raha Beach 2 Bedroom 120,000 -17 development program. This was adopted a wait-and-watch approach before Sustained supply addition ensued accompanied by an order to issue dual committing to any new investments. a q-o-q (quarter-on-quarter) price Saadiyat Island 2 Bedroom 185,000 13 licensing for companies operating in Project completions continued to correction across most sub-markets. the Free Zones. These measures aimed remain strong throughout the year. Close Capital values for apartments on Reem Al Reem Island 2 Bedroom 110,000 -4 at propelling and further diversifying to 6,500 residential units and 2,500 staff Island corrected by an average 18% y-o-y the economic activity may bode well for accommodation units were completed while they corrected by 11% y-o-y on Al the city in the long term. As per Oxford across the city. Approximately 70% Raha Beach. Villas on Saadiyat Island Economics, Abu Dhabi is set to become of the new supply was in the form of are 11% more affordable compared to the second largest city in the Middle East apartment units while townhouses and December 2017. Rental values corrected (after Riyadh) in terms of GDP by 2035. It villas constituted the remaining 30%. the most for 1Bed apartments across is set to achieve an average annual GDP Notable project handovers during the majority of the sub-markets. 1Bed growth rate of above 3% which will be year include, Marina Bloom (225 units) by apartments on Al Reem Island are now partly driven by such policy reforms and Bloom Properties at Al Bateen Wharf and leasing for an average AED 55,000 / investments. Horizon Towers (924 units) by Tamouh annum while rental values for high-end The impact of such positive measures, Investments at City of Lights, among 1Bed apartments on Al Raha Beach have however, has not yet trickled into the other projects. come down to an average AED 95,000 / property market. The general subdued New supply launches also remained annum from an average AED 120,000 / market sentiment observed across the largely stable as Aldar Properties and annum during Q4 2017. region was also recorded in the Emirate. other notable developers launched new Residential real estate performance projects. Prominent new supply includes remained lackluster across Abu Dhabi Reflections (192 units) at Reem Island and

Mid-end Villas / Townhouses Mid-end Apartments High-end Villas / Townhouses High-end Apartments

1700

1600

1500

1400

1300

1200

1100 AED / Sq. Ft. 1000

900

800

700

600 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 2017 2018

Abu Dhabi Residential Capital Value Trends

Source Savills Research

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Office noticed. This led landlords to become Industrial Providers (3PL) and manufacturing sector companies. KIZAD was one of the most Similar to the residential sector, demand for increasingly flexible. They were willing to The Abu Dhabi Government has undertaken sought-after micro-market for industrial office space remained subdued across the offer generous parking provisions, shorter various initiatives over the past few years activity in the Emirate. It has further Emirate during 2018. Limited interest from lease terms, and other incentives such as to promote the role of industries in the expanded its product offerings with the companies in the hydrocarbon sector, which extended rent-free periods, contribution Emirate’s economy. The estimated AED 18 Bn launch of new free zone warehouses and is among the biggest occupier of space in Abu towards fit-out cost along with a reduction in In-Country Value (ICV) spend by ADNOC Light Industrial Units (LIUs). Dhabi, was the primary reason. On the other quoted rental values. in 2018 is further driving investments and However, during 2018, economic hand, as an emerging trend, demand from Rental decline was recorded across micro- promoting local manufacturing. As a result, weakness, combined with rising stock in companies from Asia is on the rise. Various markets with prime rents witnessing the the share of manufacturing in the GDP has submarkets has led to rental pressure, with small-to-medium sized space take-up and biggest decline. Compared to 2017, rents increased from 5.4% in 2010 to an estimated a growing number of deals closing below an increase in enquiry levels was recorded across Grade A buildings have reduced 6.5% in 2017 with further growth anticipated headline asking rates. Rental rate correction from infrastructure and logistics companies by 14%, while Grade B and Grade C rents in the coming years. The Government was strongest in secondary locations further throughout the year. have scaled down by 12% and 8% y-o-y has also been pro-actively reaching out to from the city. Grade A warehouse rents have Prominent deals during the year include respectively. Rental values for buildings in prospective foreign partners for long term dropped from AED 33 / sq. ft. / annum to AED space take-up by China COSCO at Khalifa the Central Business District (CBD) which strategic investments and recent agreements 28 / sq. ft. / annum. In Mussafah, the gradual THREE KEY REASONS FOR Industrial Zone (KIZAD) and market entry comprises of locations such as The Corniche, with state-owned Chinese firms was a introduction of new supply led to a y-o-y of US financial services firm State Street Khalifa Street and Al Maryah Island were positive step towards this direction. The ROBUST DEMAND FOR decline in rents with properties being offered Corporation as well as Amsterdam based offered at an average AED 165 / sq. ft. / 50-year agreement with Chinese Jiangsu INDUSTRIAL SPACE at an average rate of AED 35 / sq. ft. annum. asset management company Intertrust. annum, rents at Outer CBD which includes Provincial Overseas Cooperation and IN THE CITY Similarly, in KIZAD, values have dropped to Despite the steady enquiry levels and Khalifa City, ADNEC Area, Ministries Area Investment Company (JOCIC) is anticipated an average AED 23 / sq. ft. / annum. deals, vacancy levels across most sub- and Rawdhat were offered at an average to attract an investment of AED 1.1 billion to AED 125 / sq. ft. / month. Rental values for markets have increased as companies look the Khalifa Port Free Trade Zone. The estimated AED 18 Bn In-Country properties Off Island in the North (Al Raha to consolidate and optimise their real estate These positive measures have led to robust Value (ICV) spend by ADNOC in 2018 Beach, Masdar, ADAC, Yas Island) declined portfolio. Tenant movement from projects demand for industrial space in the city. is further driving investments and by 6% y-o-y and were being offered for an with Grade B and Grade C specifications Various small-to-medium sized transactions promoting local manufacturing. to recently completed Grade A stock was average AED 150 / sq. ft. / annum. were observed from Third Party Logistics The Government has been pro-actively reaching out to prospective foreign partners for long term strategic investments CBD Off Island North Outer CBD Mussafah ICAD 1 ICAD 2 KIZAD Al Markaz Al Mafraq

The 50-year agreement with 250 Chinese Jiangsu Provincial Overseas 45 Cooperation and Investment Company 200 40 (JOCIC)

35 150 30

25 100 20

50 15

AED / Sq. Ft. / Annum 10 AED / Sq. Ft. / Annum 0 5 5.4% to 6.5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 2017 2018 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 The share of 2017 2018 Abu Dhabi Office Rental Value Trends manufacturing in the

Abu Dhabi Industrial Rental Value Trends GDP has increased Source Savills Research from 5.4% in 2010 to an

ICAD - Industrial City of Abu Dhabi KIZAD - Khalifa Industrial Zone Abu Dhabi estimated 6.5% in 2017 with further growth Source Savills Research anticipated in the Despite the steady enquiry levels and deals, vacancy levels coming years. across most sub-markets have increased as companies look to consolidate and optimise their real estate portfolio. Khalifa Port Free Trade Zone to attract an investment of AED 1.1 billion

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CLOSE TO 87% OF THE TOTAL TRANSACTIONS IN Micro-market Configuration Average Annual Rent (AED) Y-o-Y Change (%) 2018 WERE OBSERVED FOR APARTMENTS. Villas/Townhouses

Al Furjan Villas 4 Bedroom 145,000 -9

Springs - Townhouses 3 Bedroom 125,000 -9 DUBAI Mira – Townhouses 3 Bedroom 110,000 -8 Jumeirah Park Villas 3 Bedroom 160,000 -3

Arabian Ranches 1 – 4 Bedroom 220,000 -8 Alvorada Villas Residential VAT on ready unsold inventory and Jumeirah in Dubai West, Business Bay Dubai’s residential real estate market was the IFRS 15 (International Financial and in Dubai Central Apartments firmly in a correction phase during 2018. Reporting Standards) standard for were among the other active markets Downtown Dubai 1 Bedroom 80,000 -11 Inventory levels piled up across micro- revenue recognition were among the for transactions in 2018. Close to 87% markets as large schemes launched during primary factors driving the generous post- of the total transactions were observed Business Bay 2 Bedroom 90,000 -18 2014 – 2016 were handed over to the handover payment plans. This has led to for apartments. Studios and 1Beds market. A slowdown in global trade and the creation of a third and progressively constituted 70% of the total demand 2 Bedroom 110,000 -8 financial markets also weighed down on popular type of segment along with off- across apartments while 3Bed and 4Bed demand. Uncertainty surrounding Brexit plan and secondary sales. units were the sought-after villa and 2 Bedroom 135,000 -7 and a 12 – 14% y-o-y currency devaluation New project launches were limited to townhouse configuration. of key source markets such as India and small and medium sized schemes. Supply Supply and demand mismatch led The Greens 3 Bedroom 120,000 -11 Pakistan were the other major factors addition was led by eminent developers to increasing pressure on asset pricing impacting demand during the year. As with proven track records. Among other across the emirate. Both capital and rental a result, transaction activity declined projects which were introduced to the values declined across most sub-markets. by approximately 22% y-o-y and buyers market, Emaar Properties launched Beach Across established locations, capital adopted a wait-and-watch approach. Vista (447 units) at Dubai waterfront, values for apartments fell by 9.5% y-o-y Off-plan (58% share) dominated Seven Tides Developments launched on the and by 5 – 7% y-o-y transactions, however, its popularity in Seven City (3 towers comprising of 2,617 across Dubai Marina and JLT. Capital overall demand has declined from 67% units) at Jumeirah Lake Towers (JLT) values for apartments in Downtown in 2017. On the other hand, demand for and Dragon Towers (1,142 units) was were down by 16% while values in the ready-to-move properties increased launched by Nakheel near Dragon Mart, are 12% lower than the 2017 due to the spike in project completions International City. average. Across the villa and townhouse over the last twelve months. Developers East (DSE) was the most segment, capital values on an average were offered generous post-handover payment preferred market for occupier demand. down by 9% in , 12% in plans and other incentives such as partial Close to 48% of the total transactions Meadows and Palm Jumeirah and around or full waiver of associated fees to spur were concluded across sub markets in 14% at Jumeirah Park when compared to interest across completed properties. DSE such as Emaar Hills, Dubai Hills December 2017. Dwindling sales, regulations surrounding and Meydan. Dubai Marina and Palm

Mid-end Villas / Townhouses Mid-end Apartments High-end Villas / Townhouses High-end Apartments

2400 2300 2200 2100 2000 1900 1800 1700 1600 1500 1400

AED / Sq. Ft. 1300 1200 1100 1000 900 800 700 600 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2015 2016 2017 2018

Dubai Residential Capital Value Trends

Source Savills Research

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Office & existing). Incentives include rent free levels. Tenant profile of the micro-market Industrial retailers. Notable space take-up during the by 21% y-o-y at Ras Al Khor. Al Quoz was year include the 800,000 sq. ft. warehouse another market to witness a rental decline Dubai’s office market witnessed diverging periods, additional parking allocation, further improved in 2018, as YouTube Demand for good quality industrial and opened by Carrefour for its regional during 2018. Rentals for Grade A properties trends across its various sub-markets. delayed rental escalations and in some cases opened a 6,000 sq. ft. incubator space, while warehousing stock across the city remained distribution centre at the National Industries have dropped by 18% y-o-y. Dubai Investment Select micro-markets and certain buildings fit out contribution. London-based architectural firm Design largely stable throughout 2018. There was Park, Souq.com opened an approximately Park (20% y-o-y) and Dubai Industrial Park witnessed an increase in enquiry levels and There has been an emphasis on serviced International opened its first office in the a notable increase in enquiry levels driven 250,000 sq. ft. fulfillment centre at Dubai (13% y-o-y) were the other markets to witness a marginal uplift in occupancy rates while office space, with serviced office providers Middle East. Dubai Media City was another by ‘flight-to-quality’ requirements. Supply South and FMCG importer Truebells opened rental correction during the year. vacancy levels have increased across projects being extremely proactive in 2018 with a preferred market for occupiers as Riot addition also spiked as speculative projects a 270,000 sq. ft. distribution centre at Dubai offering secondary space and inefficient number of new centres opening up, as well as Games, Fashion TV and Virgin Hyperloop launched during 2015 and 2016 were handed Industrial Park (DIP). Demand for cold floor plans. The rental premium achieved by new partnerships with Free Zones and joint One marked their Dubai entry by opening an over, largely concentrated towards the Dubai storage warehousing facility remained largely projects offering a freezone license was also ventures with landlords. office in the micro-market. South micro-market. However, transaction limited, apart from Al-Futtaim Logistics that rationalised (due to dual licensing) thereby The Government’s vision of embracing DAFZA has seen several key corporates closures across such speculative supply opened a cold storage warehousing facility at expanding the available options for tenants. technology and creating an efficient expand, consolidate and renew within the remained limited. Renewal activity on the South Free Zone. Demand was driven by consolidation platform for business, garnered interest Free Zone with Smiths Medical & Boeing all other hand increased as landlords became Mismatch in the supply / demand and space optimisation strategy across from emerging technology start-ups and it occupying substantial office space within the flexible on rental expectations and lease equilibrium has created a tenant’s market sectors as requirement for new large office was also observed in the office space take- Free Zone. terms in a bid to compete with the newly in Dubai for the last few years. New project space remained limited. Space take-up was ups during the year. Among the prominent Despite continued leasing and renewal completed supply. completions during the year led to a further concentrated across established markets projects has been a partnership between activity, rental values witnessed a decline In terms of occupier profile, demand deterioration in rental values across most with support infrastructure and easy access. Astrolabs, DMCC Free Zone, IBM & Google across a few markets as supply continued was observed from Fast Moving Consumer micro-markets. Grade A rents for National Transaction activity was mainly observed providing a coworking community and to outstrip demand; a trend which has Goods (FMCG) companies, automobile Industries Park declined by 27% y-o-y and from technology-media and the telecom learning academy for digital technology been observed over the past few years. The manufacturers, e-commerce companies and sector, legal consultants and education companies in Dubai. strongest rental correction was observed & healthcare firms. There was also an Demand from financial services and across Business Bay (-15% y-o-y) followed increase in demand from boutique gyms fintech firms also remained stable and was by Dubai Science Park and Bur Dubai at towards leasing space within commercial concentrated across the Dubai International 11% (y-o-y decline) each. On the other office buildings. Landlords were receptive Financial Center (DIFC). Omni Bridgeway, hand, values remained stable across office JAFZA DIP Dubai Industrial Park Dubai South Al Quoz Jebel Ali Industrial Zone National Industries Park Ras Al Khor / Al Awir to this type of occupier taking advantage a global litigation and arbitration funder, properties in DAFZA, Dubai South, Dubai of affordable rents rather than previous Singapore-based fintech start-up WeInvest Silicon Oasis and Al Barsha. and Berkshire Hathaway Specialty Insurance preference for ground floor retail units. 70 On the whole, tenants were cost conscious were among the firms that leased space at and postponed any significant spend on DIFC. capital expenditure. This drove demand Across other micro-markets, occupier 60 for high quality CAT A & secondary demand remained strong across Dubai fitted space. Landlords were receptive to Design District (D3). Most of the buildings 50 offering incentives to secure tenants (new in D3 had very limited or negligible vacancy 40

30 Old Dubai Central Dubai DIFC New Dubai Dubai Fringe

AED / Sq. Ft. / Annum 20 300

250 10

200 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 150 2017 2018 100 Dubai Industrial Rental Value Trends

AED / Sq. Ft. / Annum 50

JAFZA - DIP - Dubai Investments Park 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Source Savills Research 2017 2018

Dubai Office Rental Value Trends

Source Savills Research Renewal activity increased as landlords became flexible on rental expectations and lease terms.

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THE SAVILLS SHARJAH RESIDENTIAL INDEX DROPPED FROM 95% IN JANUARY TO AROUND 90% BY DECEMBER 2018. SHARJAH AND NORTHERN EMIRATES

Residential January to around 90% by December 2018. while 2Bed and 3Bed apartments are on Sharjah benefits from a competitive Rising vacancy levels by the second half an average 9% and 15% more affordable advantage over other Emirates due to its of the year prompted property owners compared to 2017. New supply is likely low-cost cost of living and doing business. and management firms to actively offer to remain strong, which may result in It has established itself as an affordable discounted rentals in order to retain further rental moderation in the coming alternative to its neighbouring Emirate and attract tenants. Alternative leasing few years. There are more than 60 projects of Dubai. A sizeable number of employees incentives now also form a key part which are currently in the planning working in Dubai, prefer to live in Sharjah of property leasing strategies. Whilst or under-construction across various due to the comparative rental advantage charging for parking is now a rarity, a established and emerging sub-markets. and developed social infrastructure. This growing number of properties are offering Close to 80% of this upcoming supply is has helped foster demand for residential 1-2 months rent free and in some cases the form of apartment buildings while the projects across prominent micro-markets owners are accepting to pay agency fees to remaining 20% is expected to be villa / in the past, a trend which was observed leasing agents so as to compete with those townhouse projects. in 2018 as well. Occupancy levels across properties that are “direct from owner”. Residential real estate across Ajman most of the mid-to-high-end buildings The existing dynamics led to rental and Ras Al Khaimah followed a similar remained high during the start of the correction across most sub-markets. trend as Sharjah. Rental values declined year. However, fluctuations to property Rental decline was prominent in Al Majaz across segments, with high-end properties prices in Dubai has a visible impact on the where rents for studios dropped by 22% witnessing a steep correction. At the residential demand in Sharjah. y-o-y from an average AED 23,000 in end of 2018, residential developments in As a result, a y-o-y decline in rental 2017 to an average AED 18,000 in 2018. Ajman were the most affordable in the values in Dubai (driving reverse migration Similar to Al Majaz, rents for studios in UAE. The current market dynamics in of expats into Dubai) during 2018 along Al Qasimia dropped by 20% y-o-y to AED the Northern Emirates has made it more with other socio-economic factors led 16,000 and by 18% y-o-y at Butina, Al affordable to upgrade to lager unit size or to a decline in occupancy levels across Nabaah to AED 14,000 / annum. Rental move into a villa or townhouse. properties in Sharjah. The Savills Sharjah values for 1Bed apartments declined by Residential Index dropped from 95% in an average 12% y-o-y across markets

Note The Savills Sharjah Residential Occupancy Index reflects the average monthly occupancy levels across mid-end and high-end apartment and villa projects managed by Savills

Micro-market Configuration Average Annual Rent (AED) Y-o-Y Change (%)

Apartments

Al Muwaileh 2 Bedroom 70,000 -13

Al Majaz 3 Bedroom 52,000 -15

Al Khan 2 Bedroom 42,000 -11

Abu Shagara 2 Bedroom 30,000 -14

Al Qasimia 2 Bedroom 38,000 -3

Butina, Al Nabaah 2 Bedroom 28,000 -10

Alternative leasing incentives now also form a key part of property leasing strategies.

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Outlook

The various proactive measures adopted to influence asset pricing over the next There is a growing trend towards more 1by the Government in 2018 will have a twelve months. This will help in improving contemporary building designs based positive impact on housing demand and occupancy levels across assets, with on market generated data. Developers help the maturing real estate market. This demand drivers likely to remain divergent offering more modern and well thought will be supplemented by a recovery in the across the emirates. Companies from the out properties, are experiencing clear local economy which is projected to grow non-oil sector are likely to drive demand for advantages upon completion, often by 2.9% in 2019. The completion of ongoing office space in Dubai, while Abu Dhabi may outperforming the market. A number of key infrastructure projects, upcoming supply of witness steady demand from infrastructure new projects, that are likely to complete investment grade developments and work and logistics companies and benefit from in 2019, depart from traditional design surrounding the upcoming EXPO 2020, any projected improvement in oil prices. and specifications. These projects vary will have a lasting, sustainable and positive Across warehousing projects, demand in their offerings and therefore may be impact on the region. is likely to be driven by companies from able to achieve sizeable occupancy upon the manufacturing, trading, e-commerce completion. Along with mainstream investors and retail sector. It is anticipated that 2comprising Emiratis, Indians, companies will capitalise on the subdued The Government’s focus on Pakistanis and British, we anticipate rental sentiments and enter into long term 5digitalisation, with measures such as demand from other nationalities such as partnerships with developers for their the Ejari smart application, which enable Chinese, Americans and others to increase regional distribution centers. landlords to register and renew lease on the back of Dubai Land Department’s contracts and digitally send contracts to investor outreach program. Across the Emirates, a correction in tenants for approval and vice versa, will 4 asset pricing will create opportunities improve transparency and further cement Challenges surrounding supply and and advantages for developers that invest the regions leadership position as preferred 3demand mismatch may continue more at the design stage of development. place to live, work and invest.

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