Dubai's Property Market In 2021 A Tough Year On The Road To Recovery - Sapna Jagtiani Director & Lead Analyst GCC Corporates - S&P Global
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Dubai's Property Market In 2021 Sapna Jagtiani
Director & Lead Analyst
A Tough Year On The Road To Recovery GCC Corporates
March 1, 2021Dubai's Recovery Will Be Subdued
– As a global aviation and transportation hub, and a major tourism Dubai in numbers: 2020 estimates
and retail shopping destination, Dubai’s economy has been hit by
the impact of COVID-19.
– We expect GDP growth to recover this year from the sharp
GDP per capita $33,650
recession of 2020 triggered by the pandemic and low oil prices.
– Last year, Dubai saw the sharpest population decline in the Gulf
Cooperation Council (GCC): 8.4% versus the region average of 4%.
Real GDP down 10.8%
– Expo 2020 will now take place from Oct. 1, 2021 to March 31, 2022,
Proportion of GDP from
after a delay due to COVID-19, and should provide a platform for a
recovery in activity. nonhydrocarbon sectors 98%
– However, we think the 2020 shock will continue to reverberate
through the economy, and GDP (in dollar terms) will return to the Total population 3.07 mil.
2019 level only in 2023, keeping the pressure on most sectors until
then.
Proportion of population
who are expats 92.1%
2Pandemic Impact | Economic Uncertainty Will Continue
– Key sectors in Dubai, particularly real estate, tourism, hospitality, and retail, will Dubai Annual Real GDP Growth
likely remain under pressure for the next 12-24 months.
8
– The United Arab Emirates (UAE) is reportedly leading the vaccination effort in the 6
region, with the immunization rate at 55% -60% of the population, the second
highest globally. High vaccination rates could help the UAE's tourism sector 4
recover earlier than others. 2
Percentage change (%)
– S&P Global Ratings believes there remains high, albeit moderating, uncertainty 0
about the evolution of the coronavirus pandemic and its economic effects.
-2
Vaccine production is ramping up and rollouts are gathering pace around the
world. Widespread immunization, which will help pave the way for a return to -4
more normal levels of social and economic activity, looks to be achievable by
most developed economies by the end of the third quarter. However, some -6
emerging markets may only be able to achieve widespread immunization by
-8
year-end or later. We use these assumptions about vaccine timing in assessing
the economic and credit implications associated with the pandemic (see our -10
research here: www.spglobal.com/ratings). As the situation evolves, we will
update our assumptions and estimates accordingly. -12
2019 2020f 2021f 2022f 2023f
f--Forecast. Data as of Nov. 1, 2020. Sources: S&P Global Ratings, National
Statistical Authorities.
3Dubai Real Estate | Current Situation
Since the COVID-19 pandemic started in 2020*
– High availability of housing
Residential
– Expats' exodus after job losses, which led to increased vacancies
– Movement restrictions
Retail
– Low discretionary spending in 2020 that hampered sales
– Staff reduction and cost cutting
Office
– Greater polarization of rent and occupancy
– Travel restrictions that depressed international tourism
Hotels
– Postponement of Expo 2020 to 2021
*Dubai real estate trends were already constrained by oversupply of properties before the pandemic.
4Dubai Real Estate Trends | Recovery Phase
Estimated timeframe to return
Subsector Key trends 2021-2022 to prepandemic level*
Residential Rental decline, price decline, oversupply
2021 2022 Beyond
Rental decline, sales-linked leases,
Retail
oversupply
2021 2022 Beyond
Rental decline, tenant friendly leases,
Office
high vacancy
2021 2022 Beyond
Low ADRs, low occupancy rate, high
Hotels
competition
2021 2022 Beyond
*Dubai real estate trends were already highly constrained by oversupply of properties before the pandemic. ADR--Average daily rate.
5Dubai Residential Trends | Recovery Phase Residential
2021 2022 Beyond
The residential real estate recovery would be led by: Number Of Sales Transactions
– Cutback of new supply, assuming new launches by developers Thousands
remain minimal Sales Mortgages
70
– Low mortgage interest rates that encourage residents to buy
property rather than rent 60
– Declining prices that make investing in Dubai's residential
property attractive 50
40
We expect:
30
– Transaction volumes to remain robust because housing units
will be cheaper 20
– Villa prices to be more resilient as people look for larger homes
10
as movement restrictions continue
– Increasing secondary market transaction volumes 0
2012 2013 2014 2015 2016 2017 2018 2019 2020
Numbers excluding Donations. Source: Dubai Land Department.
6Dubai Retail Property Trends | Recovery Phase Retail
2021 2022 Beyond
The retail real estate recovery could be curbed by: Dubai Tourism
– Weak tourism activity, which we don't expect will return to Top 7 source markets and total international arrivals
prepandemic levels in 2021 USA Russia
China Oman
– Slow economic rebound and low consumer confidence UK Saudi
India Total international arrivals (right scale)
depressing discretionary spending
60% 16.7 18
– Increased competition as new malls are delivered 15.8 15.9
14.2 14.4
50% 15
13.2
We expect: 40% 12
– Rent relief measures to continue leading to revenue and EBITDA
Share
Mil.
30% 9
declines
– Turnover rents to become a more common feature in leases 20% 6
5.5
– Exponential growth in online shopping and omni-channel trade 10% 3
0% 0
2014 2015 2016 2017 2018 2019 2020
Source: Department of Tourism & Commerce Marketing.
7Dubai Office Space Trends | Recovery Phase Office
Office real estate recovery would be led by: 2021 2022 Beyond
– Dubai remaining a key business hub in the GCC including through rising demand
from fintech companies for office space
– Employees returning to the office faster than in other financial hubs across the
globe
– Limited new supply
– Flight to quality led by rental declines
We expect:
– Ongoing polarization of rents and occupancy, with Grade A spaces benefitting
relative to the rest of the market
– Continued rationalization of office space as more companies opt for work-from-
home for the long term
– Coworking spaces to continue disrupting the market for traditional office space
8Dubai Hotel Trends | Recovery Phase Hotels
2021 2022 Beyond
Hotel real estate recovery could be curbed by: Dubai Hotel Performance
– Continued international travel restrictions Average daily rate Occupancy (right scale)
– Limited air traffic recovery due to structurally lower demand 600 90
79% 79%
77%
– New supply in 2021-2022 causing a steep increase in 75% 75%
competition 500 75
400 53% 60
We expect:
– Domestic demand to increase but not sufficiently to
US $
300 45
%
compensate for loss of international tourism
– Beach front and tourism hotels should fare better than 200 30
business hotels
– Expo 2020's rescheduling to 2021 to temporarily ease 100 15
pressures on average daily rates and occupancy
0 0
2015 2016 2017 2018 2019 2020
Source: Department of Tourism & Commerce Marketing.
9Dubai Real Estate | The Outlook Bias Is Negative
Debt to Debt to
EBITDA (x) EBITDA (x) Business Financial Business Revenue generated
Company Rating 2020e 2021f profile* profile* mix in Dubai
Majid Al Futtaim BBB/Stable/A-2 4.0-4.5 4.0-4.3 3. Satisfactory 3. Intermediate Retail real estate – 60%-65% of property
Holding LLC with substantial business
retail exposure – 30%-35% of retail
business (Carrefour)
Emaar Properties BB+/Negative/-- 4.0-4.1 2.0-2.5 4. Fair 4. Significant Majority developer – About 70%
PJSC with substantial
real estate
exposure
Emaar Malls Group BB+/Negative/-- 2.4-2.5 3.0-3.2 4. Fair 2. Modest Retail real estate – 100% of property
LLC business
– 21% of retail business
(Namshi)
DAMAC Real Estate B/Negative/-- 8.0-8.5 4.5-5.5 5. Weak 6. Highly Developer – 95%-98%
Development Ltd. leveraged
*On a scale of 1-6, 1 being the best. e--Estimate. f--Forecast.
10Dubai Real Estate | Operational Challenges Will Continue In 2021
– 2020 results will likely be weak, with only marginal improvements in 2021.
– Normalization of relations with Israel, as well as restoration of ties between Qatar and the four Arab countries
previously boycotting the country, should support tourism and real estate investments.
– However, we expect real estate companies' profitability to remain under pressure and leverage to be high.
– Absent a substantial recovery in revenue, companies are likely to focus on cost optimization, proactively managing their
liquidity, and preserving their cash flows.
– Some companies are expected to reduce or eliminate dividends to conserve cash, and sell assets to reduce leverage.
– Rated Dubai-based real estate companies have good liquidity and access to funding, despite currently trying times.
11Related Research
– Expat Exodus Adds To Gulf Region's Economic Diversification Challenges, Feb. 15, 2021
– GCC Corporate And Infrastructure Outlook 2021: Proceeding With Caution, Feb. 2, 2021
– Industry Top Trends 2021 | Homebuilders and Developers: Credit Quality Improvement Continues Into 2021, Dec. 10, 2020
– Industry Top Trends 2021 | Real Estate: Recovery In The REIT Sector Could Be Long And Uneven, Dec. 10, 2020
– Credit FAQ: Dubai's Already High Debt Burden Set To Worsen Amid A Deep Pandemic-Related Macroeconomic Shock,
Sept. 30, 2020
– Twin Shocks Of Low Oil And COVID-19 Mean Double Trouble For GCC Corporates, July 21, 2020
– Three Dubai-Based Real Estate Companies Downgraded On Increased Economic Pressures Stemming From Spread Of
COVID-19, July 9, 2020
– COVID-19 Dampens The Prospects Of EMEA Real Estate Developers And Homebuilders, April 22, 2020
– Various Rating Actions Taken On Dubai-Based Real Estate Firms On Economic Pressure And COVID-19 Uncertainty,
March 26, 2020
12Analytical Contacts
Sapna Jagtiani Timucin Engin
Director & Lead Analyst, GCC Senior Director & Cross-Practice
Corporates Country Coordinator, GCC
+971-4372-7122 +971-4372-7152
sapna.jagtiani@spglobal.com timucin.engin@spglobal.com
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