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Press release

5 AUG 2021

UAE commercial property market assets offering fair value for investors

RICS Global Commercial Property Monitor, Q2 2021

  • Capital values and rent predictions turn positive for first time in six years
  • 52% of survey participants now feel the market is in the upturn stage of the property cycle
  • Excess supply and subdued demand hold short term recovery back

The UAE commercial property market is offering at least fair value for investors, according to the latest RICS Global Commercial Property Monitor.

For the first time, since the records began, 85% of survey participants deem the market to be offering at least fair value for investors, with the trend mainly being driven by the increase in capital value expectations. This is a vast improvement from 2018 when 50% of respondents believed the UAE market to be expensive and is the most positive sentiment across the Middle East.

Whilst the market is offering fair value, excess supply and subdued demand continues to be visible across the region. Following a flurry of development starts between 2014 and 2015, the UAE’s commercial property market has had an oversupply. This quarter, 38% of respondents reported an increase in available space in the UAE’s office sector and 36% reported an increase for retail. The country’s industrial sector has the least possible space, with only 13% of respondents reporting a rise.

As demand for the UAE’s commercial property has been falling since Q4 2015, this quarter 31% of respondents saw a fall in occupier demand at the all-sector level, which is the least negative net balance since Q4 2017. The country’s industrial sector returned the least negative net balance (-14%) with the retail (-40%) and office (-38%) sector continuing to lag. Given the available space and subdued demand respondents have pointed to continued increase in the number of incentives on offer across all sectors.

Investment enquiries are still falling this quarter, but as more respondents believe the market to be priced at fair value and with over half (52%) of respondents believing the market to be in some stage of an upturn, the outlook points to a more stabilised market.

Looking at rents, respondents anticipate them to rise over the year ahead. At the headline level rents are predicted to grow by 1.2% being driven by rises in the prime office and prime industrial sectors, 2.1% and 2.3% respectively. This is the first time in six years that respondents have predicted for rents to rise at the headline level.

Like rents, capital value expectations are also set to increase over the coming year, for the first time in five years. At the headline level, capital values are expected to rise by 1.2% with all aspects of the market anticipating growth, apart from secondary retail (-0.2%). Looking more closely, respondents expect the biggest rise in capital values in data centres (4.1%) and hotels (2.0%).

Tarrant Parsons, RICS Economist, said:

“The latest survey feedback is consistent with a steadily recovering picture across the global commercial real estate market. Although industrials/logistics (supported by rapid growth in e-commerce) remains the only mainstream sector seeing an outright uplift in demand at the aggregate level, the negativity surrounding offices and retail has diminished to a significant degree in Q2. The Middle East and Africa is seeing a slight pick-up, there remains a somewhat more noticeable excess of supply over demand in these two regions. Nevertheless, there are some alternative asset classes which display a firmly positive outlook, with data centres, in particular displaying solid capital value expectations for the year ahead.”

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