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Supply-demand imbalance driving UAE retail rents

Demand remains centered toward quality assets, particularly within core locations

Published: Mon 27 May 2024, 7:45 PM

By
Issac John

A shopping mall in Dubai. — File photo

A supply-and-demand imbalance in Abu Dhabi and Dubai continued to drive rental performance as average retail rents in Abu Dhabi and Dubai rose by 14.7 per cent and 10.5 per cent respectively in Q1 2024.

Abu Dhabi’s retail market experienced a slowdown during the first quarter as rental contracts registered a decline of 8.1 per cent compared to the previous year's 7,779.

“This decline has been primarily driven by a slowdown of 8.8 per cent in renewed rental registrations and a drop of 6.6 per cent in new contracts registered,” CBRE Middle East said in a market analysis.

In Dubai’s retail market, 23,139 rental contracts were registered in Q1 2024, up by 0.2 per cent from the year prior. Over this period, new rental registrations increased by 1.6 per cent, whereas renewed rental registrations declined by 3.4 per cent.

“Although a significant portion of demand continues to originate from the food and beverage sector, we are seeing an increase in the number of global and international retail brands looking to establish or expand in Dubai’s core locations despite the limited availability of stock and elevated occupancy levels,” it said.

Taimur Khan, head of Research of CBRE Mena in Dubai said the strong demand in the UAE’s retail market has resulted in a discernible lack of quality assets.

“Although this is expected to continue to drive rental growth, it will likely slow new market activity, particularly given the scarcity of upcoming developments. Within the UAE’s industrial and logistics market, additional developments are due to come online in the short to medium term; that being said, we do not expect this to negatively impact rates, with rents expected to continue to showcase strong performance. Potential activity within this segment is likely to remain subdued. New high-quality stock is expected to achieve historic figures, whilst the performance of older assets is anticipated to be more fragmented in comparison,” said Khan.

In Abu Dhabi and Dubai demand remains centered toward quality assets, particularly within core locations; that being said, the lack of availability of such stock is still one of the main challenges being faced.

In the industrial market, robust levels of demand were sustained in the first quarter. In Abu Dhabi’s industrial and logistics market, there was a 4.7 per cent increase in the total number of rental registrations compared to the previous year, with new rental contracts registered growing by 9.0 per cent and renewed registrations increasing by 2.0 per cent.

Demand primarily stemmed from the manufacturing sector largely driven by the capital’s relative competitiveness on labour and energy costs. In Dubai, data from the Dubai Land Department revealed that 2,914 rental registrations occurred in Dubai’s industrial market over the first quarter of the year, marking a year-on-year increase of 3.2 per cent. This growth has been supported by a 3.4 per cent increase in new rental registrations and a 3.1 per cent increase in renewed rental registrations. The growing levels of demand have led to a notable improvement in rental performance in the industrial and logistics markets of Abu Dhabi and Dubai.

In the first quarter of 2024, average rents in Abu Dhabi and Dubai have registered a year-on-year increase of 5.1 per cent and 14.3 per cent, respectively. Several new developments are scheduled for delivery over the remainder of the year; however, this is unlikely to exert downward pressure on rental rates. Average rents of new institutional-grade assets are expected to continue their upward trajectory and reach record levels, unlike dated stock, which is expected to register a more subdued performance.