Residential stays afloat in real estate market shaken by COVID-19 and oil slump: KPMG report
Dubai’s real estate sector has been impacted by a slew of unprecedented events, but residential market sales are surviving the current economic crisis relatively well. This is according to a new KPMG report titled Post-pandemic plans for concrete recovery, which analyzes the prospects for Dubai’s real estate and hospitality sectors in the wake of Covid-19.
According to the report, Dubai’s real estate sector is facing significant challenges in the current environment. While demand may be temporarily saturated, government and industry stakeholder incentives are keeping investors engaged and many developers intend to continue projects as originally planned.
Dubai’s residential supply continues to grow, despite softening market conditions. While total residential supply in the emirate was forecast to reach 671,000 units by 2021, the pandemic may affect deliveries.
Prices are expected to remain soft through 2020 due to Covid-19, with Dubai remaining a buyers’ and renters’ market. Despite transactions being disrupted at the end of Q1 2020, attractive prices and terms may prompt residents and stakeholders to explore investment opportunities. Future handovers, however, may be impacted by the duration of the pandemic, buyer sentiment, easing of restrictions and supply chain issues.
Sidharth Mehta, Partner, Head of Building, Construction and Real Estate at KPMG Lower Gulf, commented: “As Dubai’s economy gradually reopens, the emirate’s world class infrastructure and emphasis on innovation is likely to place it in a relatively strong position with investors and consumers, and may strengthen business confidence. We can expect Dubai’s real estate and hospitality sectors to remain resilient and continue to play a critical part in the nation’s economic growth.”
As remote work becomes part of post-Covid-19 corporate culture, office space requirements are expected to shrink, while Dubai’s commercial gross leasable area (GLA) is forecast to increase to 9.18 million square meters by 2021. Commercial real estate may see a churn with some tenants seeking new commercial spaces offering quality at a competitive rent. However, relocations are likely to dominate – rather than additional office leasing space – in the short to medium term.
The report also analyzes the performance of Dubai’s hospitality sector, a mainstay of its non-oil economy, largely fueled by international tourism. Travel restrictions shrunk average occupancy in May to 27.7%, a year-on-year decline of 46.1%. With recovery dependent upon international and local travel restrictions and traveler sentiment, Dubai hotel operators believe their FY 2020 revenue may contract by more than 50% and anticipate it will take 18-24 months to reach pre-pandemic levels of profitability.
The KPMG report states the UAE’s brick-and-mortar retail, especially malls, were directly impacted by the pandemic – particularly food and beverage (F&B) outlets, high-end retailers and entertainment venues. Businesses that successfully adopted e-commerce options are staying connected to their consumer base, with grocery stores and pharmacies witnessing an uptick in online sales. Companies which had not previously invested in technology are forced by the pandemic to re-evaluate their IT strategy. Digital transformation does not seem to be an option – it has become a critical business need.
Despite current headwinds, the report expects Dubai’s real estate and hospitality sectors to survive the current pandemic as they are fundamental to the UAE’s economic and national identity. Like other markets, the UAE faced challenges during the global financial crisis of 2008. Thanks to UAE government initiatives at the time, the sector has matured and is more resilient in 2020. However, local economic recovery is expected to be prolonged.
Certain segments, such as tourism, aviation and retail, are expected to recover at a slower pace than others. By the end of 2022, however, we anticipate industries to return to pre-Covid-19 levels of activity.