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Middle East real estate: Strong performance amid global uncertainties

Strong non-oil sector growth in Saudi Arabia and the UAE fuels real estate industry in the Middle East

Middle East real estate: Strong performance amid global uncertainties

The Middle East economy and real estate sector have shown strong performance despite global uncertainties. This growth has been driven by the expansion of the non-oil sector, particularly in Saudi Arabia and the UAE, where there has been significant economic diversification. Construction and real estate have played important roles in this transition away from oil dependency in both countries.

The UAE is projected to experience a 5% growth in 2024, with the non-oil sector contributing to 73% of the GDP, demonstrating a robust private sector performance that is encouraging to investors. In contrast, Saudi Arabia is expected to see advancements in finance and opportunistic investments in the near future.

Speaking on the research conducted as part of Savills global thought leadership programme impacts, Swapnil Pillai, Associate Director of Research at Savills Middle East, says, “In the Middle East, economic sentiment remains positive against the backdrop of economic uncertainties globally. In the UAE and Saudi Arabia specifically, the non-oil sectors have expanded significantly over the past two years, remained healthy, and are well positioned to grow over 2024, which will benefit the real estate industry.”

Rents outlook                                   

Savills global research anticipates infrastructure-focused developments to drive economic growth in 2024, with the bulk of these forthcoming developments being concentrated in Saudi Arabia and the UAE.

Strong rental growth is expected in the UAE office sector due to low vacancy rates, particularly in Grade-A developments. Vacancy rates are less than 5% in key prime locations, and rental increases are projected to be in double digits in 2023. Limited new supply will further drive prime rent growth, with expectations of up to 20% growth in 2024.

The residential rental sector in the UAE is expected to see a slowdown in growth due to an increase in new property launches and handovers, which will improve supply. Despite this, average prices have risen, and new benchmark prices for luxury properties are likely to remain in place. The surge in development activity in Abu Dhabi, particularly in the luxury segment, is driving this trend, with new master-planned schemes being launched.

In Riyadh, population growth, which is projected to hit 8.5 million by 2030, up from 6.4 million in 2015, has played a major role in increasing the demand for residential properties.

Yields outlook

Looking ahead, anticipated declines in central bank rates are expected to stimulate investment activity, stabilising yields towards the middle of the year, with some downward pressure on prime yields in parts of the market. Logistics yields are expected to remain stable in the first half of 2024 but may experience slight tightening as central banks begin to cut interest rates in the latter half of the year. Despite a lack of liquidity, downward pressure on office sector prices is expected to ease after the first six months, with prime office yields stabilising.

“While we may not be entirely immune to global economic sentiment, various policies by the government and their effort in stimulating growth across market sectors would be advantageous for our region in riding out economic storms,” Pillai concluded.