Sustainability and tech to drive real estate

12 January 2021
JLL's UAE 2020 Year in Review report highlights the role of digitalisation and sustainable performance in driving demand in the UAE property market

The adoption of sustainability and technology are two critical themes that has been fast-tracked by the Covid-19 pandemic and are likely to shape the recovery of the real estate market in 2021, said property consultant JLL in its latest report.

“While uncertainty will persist in the new year and the recovery will vary across sectors and industries, accelerating digital capabilities and focusing on sustainable performance can redefine business success,” says Dana Salbak, head of research Mena at JLL.

The UAE Real Estate Market: A Year in Review 2020 highlights that while the nation's real estate market saw a slowdown in performance at the beginning of the year, the second half saw a revival of activity.

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According to JLL, the pandemic has thrown health and wellness into the spotlight, where it will remain in the coming years. There will be an increased focus on sustainability and environmental, social and governance (ESG) topics. Sustainability will take centre stage as policy agendas turn green, and investors will battle to give ESG a commercial underpinning.

Assets that do not reach sustainability requirements will risk becoming stranded. Moreover, retailers and hotel owners with sustainability at their core will outperform and provide better customer experiences.

Residential

Dubai's sale prices and rental rates continued to register declines by 8 per cent and 12 per cent respectively in the fourth quarter of 2020 versus the same period of 2019. In perspective, Dubai sale prices are still 20 per cent above the market low of 2010/2011, whereas rental rates are 4 per cent below those averages.

Abu Dhabi sale prices and rental rates declined by 4 per cent and 3 per cent over the same period. These marginal declines in performance can be attributed to the limited availability of investment-grade quality stock.

The second half of 2020 saw a revival of activity as lockdown measures eased and pent-up demand filtered through the residential market in both Abu Dhabi and Dubai. JLL remains cautious in its outlook for residential property and expects further single-digital declines in performance in the short-term.

However, activity is unlikely to drop significantly, supported by reforms such as long-term visas and recent changes in social laws. Future demand is expected to focus on projects delivering true customer service through amenities, health and safety, and blended uses. Developments meeting these requirements are set to outperform.

Office

The future of office spaces is expected to be a 'hybrid', combining both remote working and in-office practices. The JLL Human Experience 2020 survey saw nearly 50 per cent of respondents vote in favour of a hybrid working model, incorporating workplaces ecosystems such as coworking spaces, homes, virtual reality, etc. However, offices continue to the preferred location for some crucial activities such as collaboration, socialisation and to solve work-related issues. 

A chance to reinvent working

Office markets in both Dubai and Abu Dhabi remain tenant-friendly as landlords continue to offer incentives and attractive lease terms. In some instances, tenants have expressed interest in relocating to quality space, particularly in Dubai, resulting in greater polarisation across the market.

In the short-term, JLL expects a significant drop in demand for all office space, including flexible ones. However, in medium to long term, there will be a greater demand for decentralised, flexible spaces, lease flexibility and de-densified workspaces.

Hospitality and retail

While the retail and hospitality markets continue to find their ground post-lockdown, strong domestic demand and active tech adoption have played in their favour.

Retail sector is one which the pandemic has had an immediate impact on, with lockdown measures forcing the shutdown of some retailers, and pushing others towards an omni-channel operation. While not a new trend, the pandemic has accelerated this and the integration of other digital solutions in order to promote demand. 

JLL's outlook for the hotel market in 2021 remains circumstantial and dependent on international travel restrictions. These, however, seem unlikely to be reimposed, given progress in vaccine rollouts to date. This is in addition to the UAE’s efforts to expand domestic tourism via the country’s federal domestic tourism campaign.

Further opportunities for the hotel market to recover include the introduction of coworking spaces particularly in the small to- mid scale hotels. As large corporate occupiers increase their demand for coworking spaces, hotels can redesign underutilised spaces including the conversion of meeting and event space.

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