DUBAI, UAE; Riyadh, Saudi Arabia, 11 February 2023: Deloitte released its ninth annual Middle East Real Estate Predictions 2023 report, which focused on the performance of Dubai and Saudi Arabia’s real estate markets over the past year. The report provides a positive outlook for 2023 and delves into different real estate segments including hospitality, residential, retail, commercial office space and industrial.

Among the key findings, the report reveals the recovery, post-COVID- 19, of tourism in both Dubai and the Kingdom of Saudi Arabia, with the key indicators within the hospitality sector being the increase over the past year in occupancy and average daily rates (ADR). The report also highlights the growth in residential sales across both geographies, as well as the rise of rent prices of commercial office space in Dubai. The significant growth of Saudi Arabia’s gross domestic product (GDP) is making it among the most attractive global destinations for investors.

Stefan Burch, Partner and Head of Real Estate, Deloitte Middle East, said: “As global economies fully re-open post pandemic, we predict continued growth in the Saudi Arabian real estate market throughout 2023. Growth is set to be driven by robust spending across a wide range of government initiatives as well as a strong private sector that is responding to pent-up levels of demand for good quality real estate projects. While 2022 saw record levels of demand for commercial office space, as a result of ‘Programme HQ’, 2023 looks set to be dominated by the delivery of high-quality residential-led mixed-use schemes and a continued focus on tourism, leisure and entertainment projects.”

Oliver Morgan, Partner and Head of Development in Deloitte’s Real Estate team, in the Middle East, said: “2022 has been a prosperous year for residential investors, who had a tough time looking back at more recent trends in Dubai. In Saudi Arabia, there continues to be excess demand across all residential sectors, with more volume housebuilders competing for market share and to differentiate their product. Riyadh and Dubai continue to be attractive commercial markets, as occupiers search for growth away from the Far East and Europe. Investment in infrastructure, plus evolving retail and F&B offers, are a social marketer’s dream which continue to draw record levels of tourists to both locations.”

Speaking of Dubai’s real estate performance, there is pent-up demand from travellers, and increased spending by residents led the post- pandemic recovery of the real estate sector. Inflation remains a concern for consumers and is expected to impact sentiments leading into 2023. The year to date (YTD) November 2022 occupancy for Dubai averaged 72% compared to 63% for the same period in 2021, while the average ADR over this period has increased by 22% year-on-year to AED 674. This is higher than the majority of the regional and international markets.

Further, average sales prices for residential properties in Dubai increased by approximately 10% between 2021 and 2022. Average rents also increased by approximately 21% over the same period. Office rents have recovered to pre-pandemic levels, registering an increase of 12% YTD September 2022 over the same period last year.

Consumer spending growth fuelled the retail sector recovery in both online and traditional mall formats. The Economist Intelligence Unit (EIU) estimates that the total UAE retail sales volume has increased by approximately 4.2% in 2022, with sales expected to increase by 3.9% on average between 2023 to 2026.

Average warehouse rents have continued to recover, as demand from logistics companies remain buoyant and freight movements at the airports surpass 2021 levels by three per cent and five per cent at Dubai International Airport (DXB) and Dubai World Central (DWC), respectively.

Speaking of Saudi Arabia’s real estate performance, the GDP grew by 8.6% in Q3 2022 and is expected to have grown by 8.3% in Q4 2022, before moderating to 3.7% and 2.3% in 2023 and 2024, respectively, according to the World Bank.

The post-COVID recovery of the real estate sector is led by increasing tourist demand and government spending on infrastructure projects, such as the Riyadh Airport expansion, among others. The first three months of the year were the strongest for occupancy performance in Riyadh, reaching 76% in March. Meanwhile, Jeddah hotels recorded the highest occupancy performance in May at 59%.

Sales prices for villas and apartments have increased during the first nine months of 2022, in comparison to 2021, and the demand for apartments from Saudi nationals has remained strong.

Employment forecasts from Oxford Economics indicate the Financial and Business Services segment registered a year-on-year growth of 12% in Saudi Arabia.

The Economist Intelligence Unit (EIU) estimates that the total retail sales volume in Saudi Arabia has increased by approximately four percent in 2022, with sales expected to increase by two per cent a year, on average, between 2023 and 2026.

Rents have remained relatively stable for prime industrial stock due to the limited availability of international-grade warehouse facilities and the increasing demand from logistics companies.