By Thierry Delvaux
Predictions For 2020: 2020 will see the emergence of new market trends, such as the rise in popularity of co-living and co-working projects, as well as the short-term impact of Expo 2020.
Real Estate markets are driven by a mix of short-term cyclical factors and longer-term structural changes. While much of the buzz in the UAE market next year will inevitably surround Expo 2020, it’s important to see beyond the short-term trends and consider how they fit in with longer term structural trends. These expectedly have an impact on all three groups of market stakeholders: investors, developers, and occupiers.
The pace of technological change continues to increase so look out for more ways that PropTech will shape the UAE real estate market in 2020.
With an increase in the proportion of retail sales being done online, retailers are seeking less space in malls and more warehousing and logistics space. This is likely to result in additional demand for state-of-the-art warehousing facilities within JAFZA and Dubai South in 2020.
Big data will play a key role in helping developers design better solutions for their end-users, property managers to assess the performance of their buildings, and investors to compare performance across properties and asset classes. One result of these trends likely to be experienced in 2020 is digital twinning, as advances in the internet of Things (IOT) and 3D modelling allow the creation of digital twins of individual buildings, master planned projects and ultimately of entire cities.
"Among the cyclical issues that will influence the market in 2020 will be the continued emergence of Saudi Arabia as the largest economy in the region, which has both positive and negative implications for the UAE real estate market"
As a relatively new city, Dubai has an advantage in the global property stage when it comes to embracing innovation and technology for its growth. The Smart Dubai Strategy aims to do just that by integrating the public and private sectors to deliver transparent, seamless, and efficient services through initiatives such as Dubai Pulse, the open data policy and Dubai Blockchain Strategy.
The emergence of more digital solutions reflects changes in the way we live, work, shop and travel. Further growth in the sharing economy is likely to impact all areas of the UAE real estate market in 2020.
Cultural norms and regulations have meant the UAE has not yet seen the same growth in co-living that is being experienced in other parts of the world. This situation is however now changing, which is likely to result in increased demand for shared living arrangements in 2020. Student housing is likely to be one of the early formats for shared living in the UAE, with a number of such projects already under construction in both Dubai and Sharjah.
Co-working and other changes in the way that occupiers utilise their office space has resulted in a rapid growth in the amount of flexible office space being delivered across Europe over the past three years. While the UAE has also experienced a rapid growth in the demand for such space, it currently accounts for less than 1 percent of the total office supply in Dubai (compared to more than 6 percent in London). 2020 may well prove to be the year when flexible offices come of age in the UAE.
Serviced apartments have been a feature of the UAE market for some time, blurring the previous distinction between residential and hospitality products. The presence of many short-term visitors in Dubai for Expo 2020 is likely to accelerate this trend, with more residential product being offered to the market on a short term basis.
While there has been much talk about the importance of creating more sustainable real estate, this has been largely seen as a ‘nice to have’ rather than a critical element of performance in the UAE market.
This is however now changing with increased evidence that more sustainable buildings not only reduce operating costs (particularly if these are accounted for across the entire life cycle of the building) but may also achieve rental and value premiums. We therefore expect developers, occupiers and investors to attach more importance to the sustainability and environmental impact of their projects in 2020.
Employee wellbeing is another emerging consideration for real estate players, as more evidence emerges on the impact of the physical environment on occupier’s wellbeing, health and happiness. While the lead has been in the commercial market (largely driven by corporates concerns with attracting and retaining staff), there are moves to implement wellness standards and accreditation systems across other asset classes in the UAE.
To fulfill the role of shaping cities and ensure their future sustainability, the real estate industry needs to operate efficiently and with high levels of transparency. The foundations of this include stringent regulations, timely and accurate market information including transaction and leasing data, performance benchmarks that aid in fair valuations, and high professional standards including independence in decision making. With these practices in place, investors, occupiers, and lenders can make real estate decisions more confidently and effectively. The UAE market is likely to benefit in 2020 from a number of recent initiatives to improve transparency and instil good governance.
Another key aspect of governance which is likely to be addressed in 2020 is the need to better regulate future supply in order to create a more balanced market.
The Dubai Government has established a new real estate planning committee to better regulate the market through balancing supply, identifying value-add projects, and preventing competition between public and private industry players.
Real estate markets are clearly also influenced by shorter term cyclical issues and the UAE is no exception in this regard. JLL has characterised 2019 as a year of uncertainty due to the impact of both global geopolitics and weak local market conditions.
Among the cyclical issues that will influence the market in 2020 will be the continued emergence of Saudi Arabia as the largest economy in the region, which has both positive and negative implications for the UAE real estate market.
If 2019 was a year of uncertainty, we believe that 2020 will be characterised by opportunities to optimise the usage and performance of existing real estate as the Dubai market continues to evolve and mature.
As always, the impact of these trends will vary between projects and locations, with the most successful projects being those that are able to anticipate the long-term drivers of activity rather than just reacting to short term market fluctuations.