According to BSRIA, the UAE is one of the biggest construction markets in the Middle East. BSRIA said: “The new residential construction market increased its share in the overall AC market.” In 2023, the UAE’s air conditioning market saw notable growth, with the Packaged Air Conditioner (PAC) segment reaching nearly 526,650 units, valued at approximately USD 594 million, BSRIA said, adding that this volume marks a 4.3% increase from the previous year.

BSRIA estimated that in the chiller market, the total value surged to USD 117.2 million, with around 1,021 units sold, up from 861 units in 2022. It added that the air-handling unit (AHU) market also experienced a significant rise, estimated at USD 70 million for about 11,500 units, reflecting an almost 15% increase in value compared to 2022. Additionally, the fan-coil unit market grew by eight per cent, reaching 176,000 units with a total value of USD 45 million in 2023, BSRIA said. These figures highlight an expansion across various segments of the air conditioning market in the region, BSRIA added.

As the UAE continues to undergo rapid urbanisation and economic diversification, the demand for sophisticated air conditioning systems is escalating, BSRIA said. This detailed feature explores the key trends, economic drivers, regulatory influences and future prospects shaping the UAE air conditioning market in 2024, BSRIA said. In 2023, the market was valued at USD 826.9 million and is projected to reach USD 1.25 billion by 2028, BSRIA said.

Market drivers

According to BSRIA, the UAE’s commitment to economic diversification is a major driver of the air conditioning market. As the nation transitions from an oil-dependent economy to a more diversified one, sectors such as construction, tourism and real estate are flourishing, BSRIA said, adding that major projects like Palm Jebel Ali and Dubai Islands are testament to this growth, significantly boosting the demand for advanced HVAC systems.

With ongoing and planned public, housing and real estate projects valued at over USD 350 billion, the construction market faced a slowdown during the COVID-19 pandemic, but has shown a strong recovery, BSRIA said. In 2021, the value of contract awards increased by nearly 14% (USD 10 billion), and in 2022, this surged by 50% (USD 15 billion), BSRIA reported. By the first half of 2023, contract awards had already reached USD 17 billion, surpassing the total for 2022, with an additional USD 10 billion in contracts expected by year-end, BSRIA said. Looking ahead, according to BSRIA, Oxford Economics projects a steady growth for the non-residential construction sector at 3.3% and 3.5% for 2024 and 2025, respectively. Similarly, the residential construction market is estimated to grow by 3.9% in 2024 and 3.7% in 2025, with an overall annual growth rate of almost three per cent for the construction sector between 2026 and 2028, BSRIA said.

BSRIA said that the real estate projects will dominate the UAE’s future construction landscape, with notable developments being the Oasis by Emaar, valued at USD 20 billion; Azizi Venice by Azizi Development, valued at USD 8.2 billion; Ramhan Island by Eagle Hills Development, valued at USD 3.5 billion; Balghaiylam by Aldar Properties; and the Abu Dhabi Housing Authority. valued at USD 2.2 billion.

The UAE’s economy continues to thrive, with real GDP growth estimated at 3.5% in 2023, BSRIA said. According to IMF data, BSRIA said, the real GDP is projected to grow by 4%, 4.2%, and 4.3% in 2024, 2025 and 2026, respectively. The BSRIA study reported that the non-hydrocarbon sector saw growth exceeding four per cent, and is expected to ascend as a result of the ongoing developments in tourism, construction and real estate. Projects like Palm Jebel Ali and the Dubai Islands (formerly Deira Islands) are significant contributors to this expansion, BSRIA said, adding that the introduction of the UAE Golden Visa, which allows long-term residence for foreigners, is anticipated to attract more investors, especially in real estate, further boosting economic growth.

While the hydrocarbon sector experienced slower growth in 2023, due to production cuts, the new increased production quota for OPEC is expected to spur GDP growth in 2024, BSRIA said. High oil prices have also led to fiscal and external surpluses, BSRIA noted. Additionally, BSRIA said, the introduction of a nine per cent corporate tax in June 2023 is set to gradually increase the national income from non-oil sectors. Private consumption is expected to rise, bolstered by the government’s introduction of mandatory unemployment benefits in 2023, BSRIA said. BSRIA added that inflation, which was at 4.8% in 2022, is estimated to decrease to 3.1% in 2023 and remain at two per cent in the coming years.

Regulatory frameworks also play a crucial role, BSRIA said. The UAE has implemented strict energy efficiency standards and sustainability policies, including the Net Zero Energy Building Policy, BSRIA said, adding that the country is making significant strides in energy efficiency and environmental standards for air conditioning. The BSRIA study analysis reported that the Ministry of Industry and Advanced Technology (MoIAT), previously known as the Emirates Authority for Standards and Metrology (ESMA), has updated the implementation dates for the 2019 versions of UAE.S 5010-1:2019 (Household Air Conditioners) and UAE.S 5010-5:2019 (Central Air Conditioners). These regulations, BSRIA said, which focus on labelling energy efficiency for electrical appliances, were initially set to take effect in January 2021 but had been postponed to January 2023.

In August 2023, the Abu Dhabi Quality and Conformity Council (QCC) introduced new specific requirements for certifying ozone-friendly air-cooled unitary air conditioners, BSRIA said. Additionally, BSRIA said, the UAE has committed to the Kigali Amendment to the Montreal Protocol, aiming for an 80% reduction in HFC consumption by 2047. The growth of R32 refrigerants is expected to be limited, especially in higher capacity units, due to the region’s high ambient temperatures and the flammability of R32, BSRIA said.

BSRIA said the Middle East is experiencing climate change at twice the global average rate, leading to higher energy consumption. This climate change has significantly influenced consumer behaviour, driving a preference for more energy-efficient products, as individuals seek to mitigate rising electricity costs and reduce their environmental footprint, BSRIA said. “The negative impact of global warming causes an increase in the consumption of electricity and carbon emissions,” BSRIA said. “Hence, the government focuses on new regulations in order to increase energy efficiency and reduce carbon emissions.”

Introduction of Federal Corporate Tax

In June 2023, the UAE implemented a federal corporate tax (CT) at a standard rate of nine per cent, targeting company incomes exceeding Dh 375,000 (USD 102,110), BSRIA reported. This move marks a significant shift in the UAE’s fiscal policy, with various implications for businesses operating in the region, BSRIA said.

According to the UAE government’s official portal, businesses involved in real estate management, construction, development, agency and brokerage activities are subject to this new tax, along with income from dividends, capital gains, interest, royalties and other investment returns for foreign investors, BSRIA said. However, BSRIA said, certain exemptions are in place, such as companies engaged in the extraction of natural resources are exempt from the CT, as they remain subject to the existing Emirate-level corporate taxation. BSRIA said that the CT applies to all businesses and individuals conducting commercial activities under a UAE license, including free zone businesses, provided they comply with regulatory requirements and do not operate on the mainland. Foreign entities and individuals will also be taxed if they conduct ongoing or regular business in the UAE, BSRIA explained.

The CT does not affect personal income, such as salaries or employment income, nor does it apply to interest or income from bank deposits or savings schemes, personal real estate investments or earnings from personal shareholdings, BSRIA said.

The UAE air conditioning market is led by several key players across different segments, BSRIA said. According to the report, the ductless and ducted splits market is dominated by Mitsubishi Electric, Fujitsu General, Super General, Carrier and Rheem. In the VRF market, Japanese and South Korean brands continue to dominate, with Daikin holding the largest market share, followed by Samsung, LG and Mitsubishi Electric, BSRIA said. It added that the rooftop units segment sees major participation from SKM, Trane, Frimec, Carrier and Rheem, while the chiller market is primarily led by international brands such as Trane, Daikin, Carrier and JCI-York. Meanwhile, BSRIA said, the airside market is dominated by Mekar, Trosten and Euroclima, with significant contributions from Daikin, Carrier, SKM, JCI-York and Trane.

BSRIA said the UAE air conditioning market is on an upward trajectory, fuelled by economic diversification, regulatory support and technological innovation. BSRIA said that as the nation continues to develop and modernise, the demand for advanced HVAC systems will only increase.