Middle East Real Estate Predictions: 2021 #RealEstatePredictions

Middle East Real Estate Predictions: Dubai | 2021

Contents

Executive summary 4

Dubai real estate market performance

Hospitality market 8

Residential market 10

Office market 12

Retail market 14

Industrial and logistics market 15

Emerging trends

Cash flow management and lending considerations 18

Residential market demand and affordability 20

Changing role of the office 22

E-commerce boost to logistics sector 24

Key contacts 26

3 Middle East Real Estate Predictions: Dubai | 2021

Executive summary Dubai real estate market performance

COVID-19 has caused significant disruption across all real estate sectors in 2020 with owners and occupiers having to make necessary adjustments to business operations in response to the statutory restrictions on capacity and mobility. It remains unknown whether the pandemic will result in structural shifts for different use classes. However, with the COVID-19 vaccine available, the planned Expo starting in October and the 50th National Day in December there is an opportunity to showcase Dubai during 2021, in a post-COVID-19 world to both visitors and residents.

Hospitality The year to date (YTD) September 2020 occupancy for Dubai hotels averaged 45% in comparison to 73% for the same period in 2019, while the average daily rate (ADR) over this period has declined by 12% year-on-year to AED 455.

Residential Average sales prices for residential properties in Dubai declined by approximately 7% between Q3 2019 and Q3 2020. Average rents have also declined by approximately 10% over the same period.

Offices Office rents registered an average decline of 8% as of Q3 2020 compared to 2019. The impact of COVID-19 on business performance is expected to be the primary driver for changes in office spatial needs.

Retail The reduction in international visitors due to COVID-19 travel restrictions impacted footfall and spending at bricks and mortar stores. The Economist Intelligence Unit (EIU) estimates that the total UAE retail sales volume will contract by approximately 10.3% in 2020, with sales expected to increase by an average of 2.6% a year until 2024.

Industrial and logistics The expanding adoption of the e-commerce industry, mainly due to mobility restrictions, has proven beneficial for the logistics sector in 2020, generally with increasing demand for warehouse space in Dubai.

4 Middle East Real Estate Predictions: Dubai | 2021

Emerging trends

Cash flow management and lending considerations In the short-term, cash management and financing/lender considerations are some of the main priorities across all real estate sectors. Macro-economic and demographic factors as well as related government initiatives are likely to define the shape and pace of recovery for the real estate sectors in 2021.

Residential market demand and affordability The pandemic has impacted global investment sentiment and as such capital protection has been the priority for the majority of real estate investors in 2020.

Changing role of the office The relative importance of having traditional office space versus remote working is expected to vary by industry. It is possible that companies may gravitate towards a hybrid model, combining the core leased/owned space and additional on-demand flexible offices, while incorporating a higher ratio of work from home policies than pre-COVID-19.

E-commerce boost to logistics sector The growth in the e-commerce segment has increased the requirement for storage and fulfilment centres, which is boosting the demand for warehouses.

5 Middle East Real Estate Predictions: Dubai | 2021

Dubai real estate market performance

6 6 Middle East Real Estate Predictions: Dubai | 2021

Hospitality market 8

Residential market 10

Office market 12

Retail market 14

Industrial and logistics market 15

7 Middle East Real Estate Predictions: Dubai | 2021

Dubai’s hospitality market

The inflow of tourists to Dubai has been disrupted due to travel restrictions and lockdown measures that came into effect from March 2020, which had a direct impact on the hospitality sector performance.

Review of 2020 performance Dubai hotel performance percentage change Similar to all major hospitality markets, Dubai’s hospitality January to September 01 vs January to September 00 market has been significantly impacted by the COVID-19 pandemic, with travel restrictions and lockdowns having 0% disrupted the industry in an unprecedented manner. -6.7% (% ) 10%

e The YTD September 2020 occupancy for Dubai averaged 45% g -12.2% n compared to 73% for the same period in 2019, while average a 20% C h ADR over this period has declined by 12% year-on-year to AED 455. This is higher than the majority of the regional and 30% -30.1% international markets, as shown on the following page. -39.4% 40% Rooms available ccupancy ADR RevPAR As shown below, both ADR and occupancy declined dramatically after the announcement of the travel restrictions Source: Business ntelligence and Reporting, Dubai Department of Tourism and lockdown measures in March. Meanwhile occupancy and Commerce (DTCM) increased marginally in May, around the time of the relaxation of measures around mobility and then again in July after international flights resumed.

Dubai hotel market performance January to September 00

1,000 100%

4.4% Travel restrictions and Easing of travel restrictions and 00 lockdown measures resuming international flights 0% 77.1% 663 ED) A ( (% )

600 60%

560 563 y R c A n P a v

45 p e 434 R 400 360 39.5% 40% cc u 37.5% O D R 241 329 A 267 276 33.7% 22 27.7% 25.7% 23.6% 200 172 23.2% 20% 121 111 63 67 71 76

0% January ebruary March April May June July August September

ADR RevPAR ccupancy

Source: STR Global

8 Middle East Real Estate Predictions: Dubai | 2021

New campaigns and market focus These campaigns and events are expected to continue to improve To ensure continued engagement with tourists during the current the hospitality market performance over the short to medium constraints, Dubai Department of Tourism and Commerce (DTCM) term. launched a number campaigns during the pandemic which include digital campaigns such as #TillWeMeetAgain, followed by Revenue per available room (RevPAR) performance in September #WeWillSeeYouSoon and most recently with #ReadyWhenYouAre and October has registered marginal improvement over the as Dubai began welcoming back international flights from 7 July summer period, though primarily around beachfront and resort 2020. properties due to staycation demand.

According to the DTCM, Dubai received 416,700 overnight visitors The Deloitte Middle East Hospitality Sentiment survey conducted between July and September 2020. The top five source markets in September 2020 suggests that the market recovery to 2019 include (80.8%), Pakistan (41.4%), Egypt (34.5%), United levels is not expected until the end of 2023, or later. Many Kingdom (32.4%) and Kazakhstan (14.7%). hospitality companies are using this downtime to revise their business strategy and build resilience towards the new normal. In addition, the conferencing and events sector has restarted This includes a review of management contracts, building and with a number of events adopting a hybrid approach that amenities design, food and beverage offerings, and other services combine physical and virtual sessions, including the Arabian within the hotel. Hotel Investment Conference 2020, the Middle East Retail Forum and the Hotelier Awards. There were other large planned events The Dubai hotel market has experienced a major shock and towards the end of 2020 including Gitex 2020 which ran from has had to adapt during a very difficult period. With the December 6 – 10 at the . vaccine currently being rolled out and Expo rescheduled to start on the 1st October 2021, it is hoped that a rebound will occur and performance will return to much healthier levels.

Dubai market performance vs. regional markets January to September 00

-62% -65% 200 -11% -30% -45% -12% 190 0% -5% -5% 161 -54% 14 ) 150 60% 61% -63% 124 136 (% )

5% -64% 112 y S -66% 131 49% c n U

( 94 45% a 100 77 9 40%

57 79 36% p

D R 27% 30% 2% 27%

A 26% 50 24% 21% 20% cc u O 0% Sharm Casablanca Doha Abu Cairo Muscat Dubai Amman Manama Riyadh Jeddah Beirut El Sheikh Centre Dhabi and Giza

ADR (US) Occupancy (%) Year-on-year % change in RevPAR Source: STR

Dubai market performance vs. international markets January to September 00

-51% -63% -67% -45% -5% 144 -62% 156 19 200 -60% 124 -71% 60% -76% -62% 121 -75% -63% 97 51% 147 50% ) -64% 93 101 147 45% (% )

150 45% 43% 130 y S 92 41% c n U 35% 36% 37% 36% ( a 33% 30%

100 29% 29% p

D R 72 23% A 50 15% cc u O

0% Beijing Buenos Hong Berlin Madrid Sydney Dubai Rome Los London Tokyo ew Paris Aires Kong Angeles York

ADR (US) Occupancy (%) Year-on-year % change in RevPAR Source: STR

9 Middle East Real Estate Predictions: Dubai | 2021

Dubai’s residential market

Tenants remain in the driving seat as rents decline by 10% as of Q3 2020.

Review of 2020 performance Transaction volume has declined by 16% YTD September Average sales prices for residential property in Dubai declined 2020 when compared to the same period in 2019. Demand by approximately 7% between Q3 2019 and Q3 2020. Average for secondary market properties has outpaced transaction rents also declined by approximately 10% over the same period, volumes for off-plan units whilst cash transactions continue to and the average price per sq ft for apartments declined from dominate, making up 74% of the total transactions. Meanwhile AED 1,090 in 2019 to AED 1,011 as of September 2020. developers are offering discounts, fee waivers and rent-to-own incentives as an attempt to attract buyers. Many tenants have chosen to migrate to larger units with superior amenities, which have now become more affordable. Despite the continuing decline in prices, project handovers in Dubai continue in the lead up to Expo 2020. Based on consultations with key industry stakeholders, it is estimated that a total of 24,000 to 25,000 residential units were handed over in the first nine months of 2020.

Dubai residential sales prices 014 to 00

1,500

1400 ) t f e 1300 i c s q r

e r 1200 les p a ED p S 1100 A ( 1000 Jul20 Jul1 Jul1 Jul17 Jul16 Jul15 Jul14 Jan20 Jan1 Jan1 Jan17 Jan16 Jan15 Sep20 Sep1 Sep1 Sep17 Sep16 Sep15 Sep14 ov1 ov1 ov17 ov16 ov15 ov14 Mar20 Mar1 Mar1 Mar17 Mar16 Mar15 May20 May1 May1 May17 May16 May15

illa Apartment Residential

Source: RED

Dubai residential rents 014 to 00

120 )

r a e s

t 100 y n r e e r

p l

t a

i 0 f t n e s q r d e s i 60 e R ED p A ( 40 Jul14 Jul15 Jul16 Jul17 Jul1 Jul1 Jul20 Jan15 Jan16 Jan17 Jan1 Jan1 Jan20 Sep20 Sep14 Sep15 Sep16 Sep17 Sep1 Sep1 ov14 ov15 ov16 ov17 ov1 ov1 Mar15 Mar16 Mar17 Mar1 Mar1 Mar20 May15 May16 May17 May1 May1 May20

illa Apartment Residential

Source: RED

10 Middle East Real Estate Predictions: Dubai | 2021

Dubai residential sales prices by location, Q3 2020

Palm Jumeirah Villas AED 1,661

Dubai Marina AED 1,082

Palm Jumeirah Apartments AED 1,187 Jumeirah Lakes Towers AED 843 Sports AED 1,646 City AED 572

Business Discovery Bay AED 675 Gardens Dubai Land AED 1,288 AED 466 AED 866

Al Furjan AED 825 AED 1,408 Harbour Villas AED 1,488 AED 813 International City AED 502

Source: REIDIN – Illustration by Deloitte

Note: Sales prices are quoted in AED per sq ft

Metric Apartment rent Apartment sales Villa rent Villa sales price Dubai average Dubai average price rent sales price

AED 75 per sq ft AED 1,090 per AED 56 per sq ft AED 1,054 per AED 71 per sq ft AED 1,090 per Q3 2019 per year sq ft per year sq ft per year sq ft

Trend -13% -8% -7% -7% -10% -7%

AED 65 per sq ft AED 1,011 per AED 52 per sq ft AED 983 AED 64 per sq ft AED 1,011 per Q3 2020 per year sq ft per year per sq ft per year sq ft

Source: REIDIN, Deloitte

11 Middle East Real Estate Predictions: Dubai | 2021

Dubai’s office market

The impact of COVID-19 on business performance is expected to be the primary driver for change in office space requirements.

Review of 2020 performance Dubai employment in financial and business services, Office space usage has faced disruptions as a result of the 015 to 01f remote working model necessitated by the COVID-19 pandemic, 600 15% first during the 24 hour lockdowns in April 2020, and since then

s) 500

with varying ‘return to work’ policies across companies. d

n 10% )

s a 400 % (

o u h

Changes in spatial needs are likely to be promoted when leases h 300 t 5% ( s expire or when companies may choose to downsize or even ow t 200 r expand their facilities. Meanwhile, office rents registered an so n r 0% 100 average decline of 8% as of Q3 2020 compared to 2019. P e 0 5% The addition of approximately 900,000 sq ft of office space 2015 2016 2017 201 201 2020 2021f through the handover of ICD Brookfield Place in DIFC is Employment in financial and business services expected to increase competition among prime assets in the Yearonyear growth (%) financial district, while owners in other areas are expected to f: forecast face downward pressure on rents. Source: xford Economics

Dubai average office rents, Q1 2015 to Q3 2020 )

r 140 12 9 12 a 12 7 12 7 12 7 12 6 e 12 1 12 0 11 11 7 11 6 11 7 11 5 11 5 y 11 4 120 11 4 11 2 11 2 11 0 10 r 106 103 e 101 p

100 t f 0 s q r

e 60

ED p 40 A (

t 20 n e

r e 7 7 7 7 6 6 6 6 5 5 5 5 g 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 20 20 1 20 a r 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 e 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 v 4 3 2 1 4 3 2 1 4 3 2 1 4 3 2 1 4 3 2 1 2 1 3 A Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q

Source: RED ote: Above rents are exclusive of service charge

12 Middle East Real Estate Predictions: Dubai | 2021

Dubai average office rents, Q3 2020

WTC/SZR** Deira AED 86 DIFC AED 108 AED 216

TECOM Downtown AED 146 AED 160

JLT* AED 71 Al Barsha Business AED 77 Bay AED 75 AED 84 Bur Dubai AED 90

Source: REIDIN – Illustration by Deloitte Note: Rents are quoted AED per sq ft per year Rents are average achieved rents for shell and core offices exclusive of service charges *Jumeirah Lakes Towers; **World Trade Centre/Sheikh Zayed Road

Area DIFC Bur Al Deira WTC / SZR Al Business Down- TECOM JLT Dubai Dubai Garhoud Barsha Bay town average

Q3 2019 219 98 85 93 110 85 98 162 165 80 110

Trend -1% -8% -11% -8% -2% -9% -15% -1% -11% -12% -8%

Q3 2020 216 90 75 86 108 77 84 160 146 71 101

Source: REIDIN, Deloitte

13 Middle East Real Estate Predictions: Dubai | 2021

Dubai’s retail market

The reduction in international visitors due to COVID-19 travel restrictions impacted footfall and spending at bricks and mortar stores.

Review of 2020 performance AE retail sales volume groth 015 to 04f The EIU estimates that the total UAE retail sales volume will contract by approximately 10.3% in 2020, with sales expected 6% (% ) 4.1% to increase by 2.6% a year on average over the remainder of the h 4% 2.5% 2.6% 2.% 2.6%

ow t 1.9% 2.2% forecast period. r 2%

g 1.3% 0.3% 0% Emaar Malls, which owns and operates 6.6 million sq ft of retail um e o l

v 2% gross leasable area (GLA), registered a 27% decline in revenue s e l 4% during the first nine months of 2020, when compared to the s a -7.% il a same period in 2019. Meanwhile average occupancy for the t 6% e Emaar portfolio, which includes Dubai Mall, Mall, R % Gold & Diamond Park, Souk Al Bahar and other community 2015a 2016a 2017a 201a 201a 2020a 2021e 2022f 2023f 2024f retail centres stood at 91% as of September 2020. Source: E a: actual, e: E estimate, f: E forecast

The impact of COVID-19 on retailer revenues has led to many Dubai expectations on disposable income tenants seeking turnover-linked rents in their contracts. Meanwhile certain mall owners have provided temporary 2020 compared to 2019 2021 compared to 2020 incentives in the form of rent relief launched soon after

COVID-19 lockdown measures in March 2020 and in certain More cases extended until the end of 2020. 25.% More Same Same 42.0% 52.4% 44.6% Less 21.7% Dubai resident mall preferences 015 vs. 00 Less 13.4%

100% Source: grmc 0% ote: Percentages may not total 100 due to rounding 0% 70% Dubai resident shopping preferences 60% and Mall of the have historically been 50% the most popular malls with tourists, collectively capturing 51% of total tourist retail demand in 2019. Demand from tourists 40% was impacted in 2020 due to travel restrictions and majority of 30% the retail centres have relied on resident footfall and spend. For 20% residents, ‘Other Malls’, which include smaller community centres 10% and convenience retail, as well as ‘Non Mall’ outlets continue 0% to dominate in 2020 due to their convenience and proximity to 2015 2020 residential areas. Residents

Mobility restrictions have also forced residents to make more Dubai Mall Dubai estival City Mall online purchases in 2020, including setting up online accounts Deira City Centre Mirdif City Centre ther Malls on Mall across multiple platforms and familiarising themselves with Source: grmc the payment and return process, among others. This trend is ote: Percentages may not total 100 due to rounding expected to continue even when restrictions on movement ease. Multi channel retail formats that incorporate online shopping preferences, alongside F&B concepts and experiential retail in brick and mortar offerings are expected to drive consumer preferences in the medium term.

14 Middle East Real Estate Predictions: Dubai | 2021

Dubai’s industrial and logistics market

The expanding adoption of e-commerce, particularly resulting from mobility restrictions due to COVID-19, has proved beneficial for the logistics sector in 2020.

Review of 2020 performance AE imports and exports 018 to 04f Logistics and distribution, e-commerce and cold storage services continue to drive demand for warehouse space in 500 Dubai. Warehouse rents for newly built facilities developed to international standards, which are primarily located in free 400 zones, ranged from AED 30 to 35 per sq ft per year during 2020. Meanwhile Grade B offerings and older stock continue to face 300 downward pressure on rents.

US billion 200 Liquidity considerations due to the constrained business environment during 2020 has meant that a number of small and 100 medium enterprises are now seeking annual lease contracts and yearly rental escalation in comparison to three or five year terms for their industrial units. Additionally, multinational 201 201e 2020f 2021f 2022f 2023f 2024f occupiers are increasingly exploring asset-light models, thus presenting greater opportunities to participate in the industrial mports Sbn Exports Sbn market through sale and leaseback structures, among others. Source:BM ote: f:forecast

Dubai key logistics indicators, 2019 vs 2020f (‘000s)

Period DWC cargo DXB cargo container Jebel Ali tonnage Road freight throughput throughput throughput throughput tonnes

2019e 0.88 m 2.49m 14.11m 7.41m 29.04m

Trend -5% -1% -3% -2% -1%

2020f 0.86m 2.46m 13.72m 7.23m 28.85m

Source: BMI, Dubai Airports e: estimate f: forecast m: millions

Dubai average warehouse rents, Q3 2020

JAFZ AED 22

DAFZ AED 30 Dubai South Al Quoz AED 35 DIP AED 34 AED 25

Source: Deloitte

Note: Rents are quoted AED per sq ft per year; Rents are average achieved rents for purpose built warehouses exclusive of service charges

15 Middle East Real Estate Predictions: Dubai | 2021

Emerging trends

16 Middle East Real Estate Predictions: Dubai | 2021

Cash flow management and lending considerations 18

Residential market demand and affordability 20

Changing role of the office 22

E-commerce boost to logistics sector 24

17 Middle East Real Estate Predictions: Dubai | 2021

Cash flow management and lending considerations Real estate and debt capital have long been synonymous; the impacts of COVID-19 were felt not just by real estate owners and lessors in their capacity as borrowers, but also the lenders that have provided development and operating capital.

Mitigating the impact of COVID-19 Real Estate as a restructuring lever Cash flow relief has been well received by the real estate and Scenario planning is critical at this juncture, particularly for the development sector, affording asset owners and operators the leveraged. Whilst the Targeted Economic Support Scheme is breathing space and time to respond to the challenge. welcomed, loan payment deferrals are accruing on borrowers’ balance sheets, eroding equity value, but ultimately requiring for Asset owners in the retail and hospitality space are looking the most part, a consensual restructuring of terms. critically at their operations, including taking actions such as: Lenders may approach restructuring differently according to their • Operating cost reduction including reviewing Hotel Management risk appetite, perceived security cover and status of provisioning, Agreements (HMAs); but some of the mainstay restructuring approaches are being implemented. • Pro-active tenant management to support a robust customer base; and Tenor extensions Allocating principal repayments over a • Facilities Management (FM) optimisation across their portfolios. longer period of time in line with ability of assets to service the loan. Furthermore, the challenges in the construction sector have been publicly documented following some high-profile distressed Back-ended Deferral of significant principal balances situations. Invariably, some developers are taking steps to protect payment structures to final year bullets, which may accrue themselves from any potential contagion as a result of delayed interest and be settled through construction progress. refinancing or an asset sale.

Performance bonds have typically played the role of a deterrent Performing / non- Splitting loan principal and pricing to underperformance, but in more recent times, their intended performing multi- to reflect an asset’s ability to service role as a ‘last resort’ source of finance is becoming more common, tranche structures debt whilst maintaining rights to evidenced by developers seeking to recapitalise their projects, principal in the event of any disposals of maintain progress and avoid any spiraling costs of delays. performance upsides.

Despite the pressures, and driven by a sense of optimism that Principal In some cases, reducing debt to markets have come through the worst of COVID-19, asset owners forgiveness vs. maintain a reasonable interest return if are assessing recovery options that will unfold in the medium interest pricing the tenor required is beyond the bank’s term. horizon. Similarly interest rate reduction can enhance the ability to service principal.

Real estate assets / Real estate asset contributions being equity sweetener to utilised in restructuring to further enhance asset cover underwrite debt. First charge security is now highly favoured.

Source: Deloitte

18 Middle East Real Estate Predictions: Dubai | 2021

Sources of finance Real estate has typically been an attractive asset class for Despite the marginal declines, the overall banking sector liquidity lenders to deploy capital, though the current data from is at similar levels as 2019, with a desire to deploy for the right the UAE Central Bank suggests that the real estate and projects. Furthermore, opportunistic investors, particularly in the construction sector lending has marginally decreased from commercial sector, are looking to deploy costlier mezzanine and 2019 to 2020. term loan B capital, potentially with a degree of subordination to senior lending structures.

Lending to the real estate and construction sector The demonstration of the following is key to secure this finance: TD September 01 and 00 • A clear purpose and requirement for debt, which is not directed

00,000 at filling valuation shortfalls, operating losses or to cover 1,734 01,272 overheads; 00,000 700,000 • A clear pathway to repayment from operational or disposal 600,000 proceeds; and 500,000

400,000 • First ranking asset security based on credible valuations - asset AED in millions 300,000 cover ratio requirements are increasing. 213,451 20,724 200,000 The above factors are not new to the UAE market, but the 100,000 level of scrutiny being applied within the sector by debt and equity investors alike has elevated. There is an opportunity for Construction Real Estate prospective developers and investors to refocus their strategies on more bankable projects that can fulfil funding obligations and YTD Sept 201 YTD Sept 2020 offer medium to long term growth prospects. Source: AE Central Bank

19 Middle East Real Estate Predictions: Dubai | 2021

Residential demand and affordability

The pandemic has impacted global investment sentiment and as such capital protection has been the priority for the majority of real estate investors in 2020.

Decline in capital values and rents for residential property Dubai residential sales 014 to TD September 00 in Dubai has continued into 2020 from the last market peak observed in Q2 2014. A combination of factors including new stock additions averaging 15,000 to 20,000 units per annum in 0 30% 27% the last five years has contributed to this trend. 0 7.5 21% 20% 71.2 70 The adjacent chart shows data on transaction value over this 64.3

ED billion) 6 A period. The total value of residential transactions has declined ( 60 57 10% by 16% year-on-year between YTD September 2019 and YTD 50. 50 September 2020. 0% 40 37.1

Top buyer segments Change (% ) 30 -9% 10% COVID-19 caused a disruption in transaction activity from Chinese buyers in Dubai, the fastest growing segment among residential 20 property buyers in Dubai in the recent years. -20% 20%

Total value of transactions 10 -26% To offset the decline in transactions from Chinese buyers, 30% developers have renewed their focus on local market segments 2014 2015 2016 2017 201 201 YTD Sep. 2020 including young Emirati buyers, GCC nationals, Indian, Pakistani and Russian expatriates, amongst others. Total (AED bn) Yearonyear % change

Source: RED

20 Middle East Real Estate Predictions: Dubai | 2021

Resident home ownership Mortgage transaction value 015 to TD September 00 More than 90% of Dubai’s population are expatriates and their participation in the residential market is a key determinant of housing demand in the Emirate. Data on expatriate residents’ 30 25% 22% participation in the Dubai residential market as buyers is 26.2 20% unavailable at the time of reporting, however, if we consider 25 26. 23.2 23.1 15% the mortgage transaction volumes as a proxy for evaluating ED billion) 22.1 A

( 13% expatriate home ownership, it is clear that there is an opportunity 20 10% to attract a wider base of buyers from this segment. 15.6 5% 15 As shown in the adjacent chart, mortgage transactions for 0% 0% residential properties averaged 39% of total transactions Change (% ) 5% between 2015 and 2019. 10 10% The Central Bank of UAE issued a decree in March 2020 allowing 5

Total mortgage transactions 15% banks to increase the loan-to-value (LTV) for first time buyers by -16% 5% for both expatriates and UAE nationals, thus increasing the 0 20% LTV to 80% and 85% respectively. 2015 2016 2017 201 201 YTD Sep. 2020

Further, incentives and offers from banks such as a reduction Total (AED bn) Yearonyear % change or waiver of loan arrangement fees, in addition to a low interest Source: RED rate environment, presents an opportunity for developers to encourage a wider base of residents to become home owners. ote: Mortgage values may represent mortgage component of the sales or refinance amount. From January to September 2020, residential mortgage transactions totaled AED 15.6 billion in value, a decline of 17% over the same period in 2019.

Looking ahead, an improvement in transaction volumes is predicated on demographic and economic factors alongside targeted offerings from developers and banks to enhance participation from both the investor and resident owner/occupier segments.

21 Middle East Real Estate Predictions: Dubai | 2021

Changing role of the office

The office of the future will blend the virtual and physical environments to enhance employee, contractor and key stakeholder engagement through collaboration tools and dynamic work locations.

In a survey conducted by Deloitte in October 2020 among Future of work transition companies across the Middle East, more than 70% of the The following practical steps can aid companies in evaluating respondents stated that they do not expect a change in their future workplace requirements: office space requirement once their office lease expires. For those considering a reduction in office space in the future, reduction in Use existing tools and practices to assess remote staff numbers due to the COVID-19 business impact was noted as working capabilities and develop team norms. the primary reason.

As companies were pushed to test remote working during the lockdown, varying models of work from home and onsite Undertake a firm-wide digital assessment to develop presence are expected to emerge in the return to work. a long term vision of necessary tools, systems and practices. Increased flexibility Pre-allocation of space is expected to make way for more ad hoc Run an employee experience study to understand arrangements that increase the opportunities of collaboration what it would take to develop a great workplace for and communication. Offices will be reconfigured to allow more staff and business partners, irrespective of location. ideation and team discussions, while independent activities will move online, provided there are enhancements in digital infrastructure to support remote working as needed. Drive investment in technology, people, practices and real estate based on learnings to reduce any future threats.

Workplace design and planning needs to evolve and Measure impact and value of the changes made on a incorporate on-demand, user centered models that remain continuous basis to fine-tune real estate usage and dynamic and easy to adapt to the changing requirements digital capabilities. of the organisation. For asset managers, technology and data analytics will become essential tools to assess building usage and peak versus average facilities/utilities demand. Source: Deloitte

22 Middle East Real Estate Predictions: Dubai | 2021

Productivity has been rated as the most important reason for staff attending the office as companies in the Middle East returned to work after COVID-19 restrictions were lifted.

The relative importance of having traditional office space versus Resizing of a firm’s footprint is largely dependent on existing a remote working model is expected to vary by industry. It is leases or the amount of owned office space. The extent of possible that companies may gravitate towards a hybrid model reconfiguration or changes in office space will depend on a combining the core leased/owned space and additional on- combination of factors including technology readiness, company demand flexible offices, while incorporating a higher ratio of work culture and expected benefits of real estate savings. from home policies than pre COVID-19. The workplace plays a pivotal role in attracting talent and retaining employees, and companies will also need to factor the behavior and feedback of this brand of customers in all future strategies.

Interconnected universe of key workplace functions

Employee ell-being and productivity

Technology Client and innovation interface

Future of ork

Collaboration and Creativity/ communication inspiration

Company culture

Source: Deloitte

23 Middle East Real Estate Predictions: Dubai | 2021

E-commerce boost to the logistics sector

Growth in the e-commerce segment has increased the requirement for storage and fulfilment centres, thus boosting the demand for warehouses.

The challenges posed by lower spending and fewer shoppers Online shopping preferences among Dubai residents in bricks and mortar retail stores has driven faster adoption of 01 to 01 digitisation and online sales among many retailers. 2019 2020 2021 In Dubai, e-commerce players such as Amazon, Noon and Namshi Can’t say Can’t say Can’t say 15.% already occupy fulfilment facilities and warehouses in locations Same Same 1.4% 20.0% Same such as Dubai South, Dubai Investment Park and Umm Ramool. 30.2% 29.1% 35.3% Notably, the e-commerce market in the Middle East and Africa is Less More More More Less 2.2% 50.4% Less 39.2% expected to reach USD 26 billion in 2022, with the UAE accounting 47.5% 2.1% 9.7% for 18% as further expansion in industrial accommodation footprint is expected from key players. Source: grmc ote: Percentages may not total 100 due to rounding Online retail sales growth The UAE e-commerce landscape 2020 survey conducted by VISA, reported that UAE residents are the biggest online spenders of Further expansion from the e-commerce and cargo sector the Middle East, North Africa and South Asia region, spending occupiers is expected in the short to medium term, with USD 1,648 annually. The average transaction value was USD 122 more design and build for specific end users as opposed to in 2019-20, compared with USD 76 in mature markets and USD speculative build. 22 in emerging markets. The survey also showed that online e-commerce will account for 21.9% of all card payments in the Additionally, next-day or same-delivery options are UAE in 2020, up from 19.7% in 2019. expected to create a requirement for last-mile delivery hubs, close to the residential and business districts

24 Middle East Real Estate Predictions: Dubai | 2021

Purpose-built e-commerce and logistics facilities Average logistics prime yields in established industrial locations The dual-bonded 920,000 sq m EZ Dubai logistics zone in Dubai in Europe were 6% pre COVID-19 and averaged 5.3% as of Q3 South and the 195,000 sq m Commercity in Dubai Airport Free 2020. Increasing investor interest in this segment is expected to Zone have launched in the last 18 months to cater to logistics compress yields, with funds increasing the weightage of industrial and distribution companies. As of September 2020, EZ Dubai is properties in their portfolio. reported to have achieved an operating rate of 20% within its first phase, in addition to 27% under development. Meanwhile the In Dubai the shortage of investment stock has historically led to Commercity logistics cluster consisting of 105 logistics units and a more forward funding investment deals. Moreover, speculative leasable area of 53,000 sq m is expected to have staged openings development is expected to be slower with construction finance until the project is completed in 2023, with the first phase opened becoming harder to obtain. in November 2020.

In addition to standard specification warehouses, the growth of segments such as online groceries is also expected to increase The positive demand side factors and limited availability the requirement for cold storage facilities. of international grade assets is expected to enhance investment opportunities for properties where occupier covenant strength can be demonstrated by parent company guarantees for 15+ year lease terms.

25 Middle East Real Estate Predictions: Dubai | 2021

Key Contacts

Robin Williamson David Stark Partner Partner Head of Real Estate Head of Restructuring Services Deloitte Middle East Deloitte Middle East [email protected] [email protected]

Oliver Morgan Tom Bullock Head of Real Estate Development Restructuring Services Deloitte Middle East Deloitte Middle East [email protected] [email protected]

Dunia Joulani Head of Travel, Hospitality and Leisure (EMEA) Deloitte Middle East [email protected]

Manika Dhama Real Estate Development Deloitte Middle East [email protected]

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