Dubai Residential Market Overview

By Raja Alameddine

With economic uncertainty emerging on a global scale, Dubai remains the preferred choice for homeowners, establishing itself as an attractive residential market for long-term investors seeking to rent or buy property. Dubai’s residential market continues to experience growth as it offers residents enticing incentives and maintains its reputation as one of the safest places to live.

To briefly describe Dubai’s market landscape following its initial growth period, the city launched a secondary expansion that is still ongoing. This expansion has seen the launch of a large number of residential properties situated within Dubailand, including a mix of apartments, townhouses, and villas.

Based on the current preferences of Dubai’s consumers, there is a growing trend of endusers/tenants transitioning from smaller apartments to more efficient units that offer community elements like retail shops, F&B outlets, co-working spaces, schools, and healthcare facilities. This trend is expected to remain in demand.

The market’s performance displayed significant increases in average rent and sales rates. During Q4 2022, there was an increase of around 35.2 percent in apartment average rents compared to the average in 2021. Apartments with good build quality in secondary locations, such as JVC, Sports City, and developments near the Expo 2020 site, also gained popularity and, in turn, an increase in rental performance.

Looking at the average sales rates in the city, the last quarter of 2022 recorded an increase of 18.5 percent in sales rate compared to 2021, with the average such rate reaching AED14,500 per square meter. During Q4 2022, apartment sales rates in prime/high-end areas including Palm Jumeirah, Dubai Marina, and Downtown ranged between AED17,500 – AED19,800 per square meter.

When we look at real estate transactions in the city, according to the latest published figures from Dubai Land Department (DLD), Dubai’s real estate market registered around 55,112 sales transactions worth AED 128 billion in 2022, in addition to 30,433 resale deals worth AED 79.2 billion. This represents an increase of 51 percent in the number of sale transactions compared to 2020 and a 25 percent increase in the number of resale deals. In 2022, the real estate sector showed growth, with massive demand seen from Russian, Asian, European, and American investors, particularly from High-Net-Worth Individuals (HNWIs).

When analyzing demand and supply, we expect the cumulative residential supply to reach over 730,000 units by 2027, with demand almost at the same level. This indicates an opportunity to develop more units at the right price points in the market.

A main driver of demand for residential housing stems from the number of households in the city and its growth momentum, which can be used as an indicator to forecast future movements. With recent initiatives and regulations, including the flexible Golden Visa laws and the Dubai Land Department’s decision to improve transparency in the sector, demand and interest from foreign buyers and expats are also growing.

ESG to become more prominent in UAE real estate

Ethical investing paves way for real-world action

By Neha Bhatia

As ethical investing gains traction, the principles of Environment, Social, and Governance (ESG) are expected to become increasingly important in the construction industry.

The MENA region’s role in mitigating climate risks was emphasized during the COP 27 climate event held in Egypt last year.

In anticipation of the upcoming COP 28 event in Dubai, preparations are shedding light on the UAE’s persistent efforts over the last five years to promote ESG awareness at all levels of the economy. In recent years, the UAE’s real estate and construction sectors have made a concerted effort to adopt ESG principles.

ESG in real estate

Investors and end-users are increasingly calling for a more sustainable built environment, driving the demand for ethical and ESG-compliant investing in the UAE.

According to an October 2022 report by real estate consultancy Knight Frank, commercial buyers and tenants are emphasizing the importance of sustainable office spaces. Respondents believe that actively addressing the climate emergency helps attract and retain talent.

Real estate developers in the UAE have also begun embracing green financing, recognizing the growing role of ESG-compliant investing in the postpandemic economy.

In August 2021, Dubai-based developer Majid Al Futtaim became the first privately owned corporation in Dubai to borrow through a $1.5 billion (AED5.5 billion) sustainability-linked loan. The five-year credit facility includes a gender diversity goal and requires the developer to certify all its malls as LEED Gold or higher facilities.

Similarly, in July 2021, Abu Dhabi’s Aldar signed an $81.7 million (AED300 million) sustainability-linked loan with HSBC, becoming the first real estate company in the MENA region to do so.

The five-year loan adjusts Aldar’s interest margin annually based on targets for energy and water intensity, waste recycling, and worker welfare. The deal also requires Aldar to invest a fixed amount in qualifying ESG projects if it fails to meet annual targets.

In January 2022, Aldar committed to powering all its assets using clean energy sources from Emirates Water and Electricity Company for up to five years.

Supply chain considerations

Widespread support from the construction sector is crucial to drive ESG adoption in the UAE’s construction industry. This will likely involve equipping future professionals with the necessary skills to achieve ESG compliance on projects.

“With the advancement of ESG and sustainability criteria, there’s obviously a shortage of practitioners in that space, whichever element of the sort of supply chain they’re in,” says Saeed Al Abbar, CEO of AESG.

Al Abbar told Economy Middle East the industry is at an “inflection point,” with sustainable construction being prioritized amid government commitments toward netzero and decarbonization.

“These commitments make it very clear that this is the way that the regulations are going to be heading. What’s also been a driver is the flight of capital and finance towards ESG, or Paris Agreement-linked investments. And that’s not just in construction, but across the board,” Al Abbar says.

“What we may also see is third-party verification of sustainability claims and ESG at the highest levels to substantiate claims around, say, carbon emissions. We may also see finance and auditing specialties pivoting towards carbon accounting. There is a lot of rigor and accountability in that space, because there’s going to be financial and legal implications towards carbon emissions,” he adds.

Considering the practical requirements and impact of ESG compliance is crucial from an execution perspective. According to Barry Lewis, Managing Director of Construction at ALEC, despite there being “massive awareness around ESG,” it is essential to integrate these targets into the entire project life cycle. This commitment must be reflected in the project’s design, specifications, and execution parameters, including waste management and defining how contractors measure their carbon footprints.

Outlook

ESG investing is expected to continue its upward trajectory in the MENA region, according to financial services provider Ocorian.

Private clients are leading growth in ESG investments as the region undergoes a generational shift.

“We’re seeing a generational shift which is resulting in farreaching changes in how private clients operate,” says Lynda O’Mahoney, global head of business development for private client division at Ocorian.

This includes “everything from their investment outlook and a rising trend in impact investing and ESG through to how they are structured and a professionalization of the family office,” she says.

“These new trends are very exciting but can also bring new challenges, such as making sure that investments are both achieving target returns as well as the desired ESG credentials.”