All real estate sub-segments in the GCC performed better year on year (y-o-y) in 2022, even as commercial spaces witnessed idiosyncratic journeys of growth, says a report.
In the office segment, supply continues to be tailored towards newer sources of demand such as robotics, IT, and healthcare as these sectors drive faster take-up of such spaces, says the Kamco Invest report.
"We reiterate that 2022 will be the new base year for the office real estate demand for both new and existing stock of office spaces. Separately, temperature-controlled spaces, chilled centres and bonded warehouses continue to command premiums of at least 25%-30% at the top end of the industrial warehouse market," it says.
Within the retail real estate market, mall space developers are focusing on the benefits of cross-shopping relationships and its impact on footfalls and consumer spending, when planning and choosing retailer mix.
The strong NOI (net operating income) performance across sub-segments combined with the twin risks of further interest rate hikes and a prolonged period of high rates could potentially have pushed real estate assets in certain geographies into a late-stage expansion phase, says the report.
"Nevertheless, developers remain cautious of these trends, and are expect announce project launches that are likely to cater to a more normalised demand environment going forward," it adds.
Dubai lifts transactions
Real estate sale transactions in the GCC over Jan-Oct 2022 reached $143.1 billion, eclipsing the full year figure of 2021 ($136.9 billion) based on Kamco's analysis of official estimates. UAE (Dubai and Abu Dhabi combined) contributed to over 48% of the aggregate value transacted, while Saudi added 35.6% to the region’s transactions.
The higher transaction activity was driven by value transacted in Dubai that increased almost 81% y-o-y over the period. Strong demand and price gains were witnessed by luxury residential properties, while the affordable segment also witnessed healthy gains. Investors are likely to gauge the residential market more carefully in 2023 due to the higher prices prevalent in the market, which could potentially lead to real estate transactions run-rate plateauing going forward. Price growth could also cool-off, driven by more realistic IRR (internal rate of return) expectations, and with rising mortgage rates, the report says.
The number of transactions in the GCC, however, declined by 6% y-o-y over Jan-Oct 2022 to 511,239 deals despite a jump of over 61% witnessed in Dubai, as other markets such as Saudi, Qatar and Kuwait witnessed lower activity as compared to the same period in 2021.
Further, the average value per transaction achieved for markets such as Saudi Arabia (+35.5%) and Dubai (+12.2%) was significantly higher, pointing towards strong end-user demand and investment appetite. The average value per transaction in GCC in 2022 (~$280,000) also surpassed 2017 average (~$223,000). At the current annualised pace, sales transaction volumes are on course to reach one of its highest levels ever recorded, with strong demand for both off-plan and completed residential assets.
Value transacted in Saudi Arabia and Dubai combined reached $107.8 billion over Jan-Oct 2022 and could potentially reach close to full year figures of the entire GCC from 2021.
Saudi’s residential sector’s demand will continue to be driven by Vision 2030’s target of increasing home ownership to 70% by end of the decade, and as of mid-2022 the Saudi Real Estate Refinance Company estimates home ownership to have reached above 60%. However rising interest rates resulted in lower offtake of mortgages, as the number of mortgages over Jan-Oct 2022 declined almost 17% y-o-y.
Disparities emerge among sub-segments
All real estate sub-segments in the GCC have performed better in 2022 than in 2021 with residential and quality industrial warehouses witnessing strong price and rental increases. Office supply tailored towards newer sources of demand such as robotics, IT and healthcare will continue to see faster take-up of such spaces.
Residential strengthened
Investor sentiment gained momentum in 2022 and resulted in opportunistic buying in select GCC markets and residential product types, similar to trends witnessed in 2021. As a result, prices rose y-o-y across markets such as Dubai (+9%) and Jeddah (+20%) at the end of Q3-2022, as per JLL. Developers continue to provide more flexible payment plans with lower down payments and post completion plans to attract off-plan and first-time buyers, while catalysts and product demand differed across various GCC markets.
Abu Dhabi witnessed a surge in demand for both off-plan and developed villas within established communities in 2022, with certain developments witnessing double-digits gains y-o-y in percentage terms. The rising interest rate environment also pushed mortgage buyers to come earlier to the market to lock-in fixed rates for the longest tenure possible across the UAE.
Rents increased by around 20%-25% y-o-y in Dubai by the end of Q3-2022 based on real estate consultant data, as landlords looked to capitalise on strong market trends. As result, gross rental yields in Dubai expanded by around 70bps by October 2022 from the start of the year despite rising prices based on data from Property Monitor.
The consultant further mentioned that yields for apartments was reportedly at 6.87%, while average townhouse and villa yields were at 5.97% and 5.12%, respectively.
Rents across all key residential markets moved up as Doha (+15.0%), Jeddah (+11%), and Kuwait (+4%) followed Dubai in terms of y-o-y increases at the end of 9M-2022, the report says. - TradeArabia News Service
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