The new year ushered in a new season of policy and institutional changes that marked the beginning of a new era in the regional and local real estate industry. Aside from the UAE’s monumental shift to a Monday to Friday work week, the entire GCC region has seen many updates and developments that affect the property and building market.

Growing Bigger and Better

Several policy developments in the UAE, such as visa reforms, business ownership modifications, and a successful nationwide vaccination, have attracted investors and increased market confidence. As a result, sales trends continue to prosper month-on-month, and the real estate industry recorded the most transactions in November, peaking at AED 17.9B (USD 4.9B). 

With an expectation to become a significant driving force in Dubai’s real estate market, Expo 2020 has shown its positive impact with its recent transactional volume. Recording more than 14.7 million attendees, Expo 2020 has generated significant interest that allowed for excess supply to be absorbed. 

The expansion of Dubai World Central has also driven an increase in tourism activity in micro markets around Expo 2020 and Al Maktoum International Airport. As a result, a surge in demand among foreign buyers is expected to endure in the coming years.

PropTech and data centres are expected to grow widely in the Middle East, especially with the growing number of data centres within the GCC region. In the UAE, the rapid development in network connectivity, adoption of cloud, big data, and IoT services paired with solid government support had boosted the growth of the country’s data centre industry. Another sector rapidly gaining interest and popularity among its naturally multi-cultural population is the concept of Cloud Kitchen. Blockchain and DLT platforms are also helping drive a fundamental change in doing business across organisational boundaries and company management.

GCC Markets to Watch

United Arab Emirates

Following its Golden Jubilee in 2020, the UAE has developed several socio-economic development and projects collectively known as “Projects of the 50.” Designed to accelerate UAE’s progress as a nation, the projects seek to create a comprehensive hub across all sectors and establish the city as an ideal location for talents and investors. The vision focuses on several key areas: economy, entrepreneurship, advanced skills, digital economy, space, and advanced technologies. The project aims to transform the region into a comprehensive hub that will attract new talent and investors.

The Central Bank of the UAE forecasts that the economy will grow by 4.2% in 2022. This success is a collective effort from various factors, including the increase in oil and gas prices, a rebound in demand for goods and services, and most notably, the country’s swift and effective response to Covid-19. Moreover, the UAE has earned praises and compliments as one of the first countries to launch support packages and initiatives in alleviating the effects of the global pandemic. As a result, the country’s GDP increased from 15.9% in 2019 to 16.1% in 2020. This successful economic growth is expected to continue as the government aims for USD 150B in FDI by 2030.

Saudi Arabia

The Kingdom of Saudi Arabia has been making headlines as it shifts its focus into the private sector to move away from its reliance on its oil sector. According to the Kingdom’s budget document, the country expects a growth of 7.4% in 2022. With a drive to become a central tech hub, the Kingdom launched a series of technology initiatives worth more than USD 1.2B. The country also found the most extensive tech program in the region, aiming to enhance Saudi’s digital capabilities by creating one programmer out of 100 Saudi nationals by 2030. The rationale behind this move is that a skilled workforce attracts investors. Tech giants like Microsoft and Apple have pledged their interest in opening training academies in Saudi Arabia. Google also plans to develop hubs to promote innovation, further propelling the tech scene.

The country’s highly anticipated USD 500B Neom project will open its first phase in 2025. Utilising Artificial Intelligence in its urban planning and development, Neom City is created to attract tech investors. With plans to expand to Egypt and Jordan, this ambitious project is the first private zone to span three countries.

Qatar

All eyes are on Qatar as it hosts the 2022 FIFA World Cup in November and December. The highly-anticipated event will bring profitable opportunities, such as opening 1.5 million new jobs across key sectors like construction, real estate and hospitality. In addition, the organisers are anticipating receiving 1.2 million tourists during the event, generating a significant income for the economy. Like the UAE’s Expo 2020, Qatar is expecting the FIFA World Cup 2022 will bring a long-term positive effect on the country’s economy. This event, along with positive institutional developments such as the easing of restrictions on foreign investments, allowing full foreign ownership in businesses, a low tax rate of 10% and its restored diplomatic ties with Saudi Arabia, has made Qatar an excellent and attractive investment hub.

Paradigm Shift in Investment

After the post-pandemic market volatility, investors focused more on risk-averse investments, especially towards emerging sectors wherein technology plays a significant role. From a real estate perspective, investors are focused on fraction sale model investments, where the risk is minimised by sharing it with other potential investors. New developments in technology and data have paved the way for emerging opportunities. Investors interested in investing in commercial assets found the unique advantages of hybrid office spaces. 

Across MENA, investors are eyeing arising opportunities in the logistics sector. As one of the fastest-growing real estate assets these days, the logistics industry offers numerous possibilities with their increasing inventory level. The high demand for quality spaces keeps increasing, focusing on the built-to-suit model. The UAE has traditionally been marketed under 3 T’s - trade, travel and tourism. After the pandemic spread, the government has started to focus more on a new T - technology. With the support of the US and China, the country is expected to invest more heavily into technology, which can be seen from the various announcements and pilot test projects run by various government departments. A prime example of this burgeoning opportunity is DP World’s new "Cargos" business line. The service is an integrated supply chain model that will allow DP World to provide end-to-end services to their customers through AI and big data, therefore omitting the need for a middleman.

Asset Classes to Watch in 2022

When it comes to commercial real estate, secondary asset classes beyond the mainstays of multifamily, office, retail and industrial are seeing increased attention. Some areas of commercial real estate that had seen heavier traffic in 2021 are bound to see more traction in 2022. Co-working spaces are also something to look out for in 2022. Last year, start-ups, freelancers, and SMEs found co-working spaces strategically due to flexible leasing agreements.

The resident this year, the residential segment is a primary asset class to watch out ford-breaking transactions and a consistent demand throughout 2021; increased capital values and the number of transactions indicate positive outcomes of the various reforms made by the government and a continuous upward trend this year.

Demand for Grade A warehouses has increased after the pandemic restricted mobility and traditional logistics and storage. With a pre-existing market for well-structured housing developments, the need for high-quality space is higher than ever.

Challenges from 2021 and Impacts on 2022

Despite the large fiscal packages granted to most countries, the pandemic has already caused an intense economic effect: the negative supply and demand shock and tremor from the collapse of oil prices. Moreover, the impact of the pandemic tested the region’s resilience and challenged the political and economic relations within MENA, which could further intensify competition within the area.

In the Gulf region, the surge in healthcare demand, driven by ageing populations, mandatory health insurance, and high levels of lifestyle-related diseases, paired with the government’s new reforms, propels private investment in the healthcare industry.

Another positive observation in the post-pandemic period is the increase in humanitarian outreach and medical diplomacy of MENA countries. In September 2021, Oxford Economics found that oil-rich Middle Eastern economies mainly had recovered all their pandemic losses and could be said to be faring slightly better than the rest of the world during post-pandemic recovery.

Green technology and sustainability are rising in significance and demand. Moreover, due to the pandemic and the ongoing climate crisis, interest has increased in building around environmental, social and governance-focused (ESG) investing.

The author, Hamza Betraoui, is the Managing Director of Land Sterling.