Home Travel & Hospitality UAE’s hospitality sector sees strong growth in first quarter of 2023

UAE’s hospitality sector sees strong growth in first quarter of 2023

Dubai welcomed around 3.1 million tourists in the first two months of 2023

by Staff Reporter
Azizi Developments to build luxury hotels, resorts in UAE

Fuelled by a steady influx of tourists from three top source markets, namely, India, Russia, and Oman, the UAE’s hospitality sector witnessed a strong growth trajectory in the first quarter of 2023, according to the latest JLL UAE Real Estate Market Overview Report.

Dubai welcomed around 3.1 million tourists in the first two months of 2023, representing a 42% increase as compared to the same period last year.

The rise in inbound tourism also benefited the lower and mid-tier hospitality segments, which saw gains between 7-8 basis points (bps) in occupancy and RevPAR (revenue per available room) of 15% for the first two months of the year. Moreover, Dubai and Abu Dhabi hosting events such as Gulf Food and IDEX further aided operators in delivering a formidable performance.

UAE hospitality sector

Faraz Ahmed

Faraz Ahmed

Faraz Ahmed, Associate, Research at JLL MENA, said: “While all sectors continued to build on the performance of 2022, the year’s well-planned calendar of events coupled with the continuous increase in tourist numbers, have firmly placed the hospitality sector on a growth track, reaffirming its position as one of the strongest pillars supporting the UAE’s economic acceleration. However, macroeconomic volatilities continue to influence global travel trends, making it critical for operators to employ effective revenue management strategies to boost topline revenues, particularly those in the luxury segment.”

Dubai hotels

Dubai’s hotel stock climbed to 150,000 keys with the delivery of around 2,000 keys. Moreover, propelled by increased demand, around 8,000 keys are expected to be delivered in the year. In comparison, Abu Dhabi’s hotel supply completions were limited, with around 200 keys added to the existing inventory, bringing the total stock to 32,500 keys. The capital’s future supply pipeline for the year remains modest at around 200 keys.

The retail sector remained stable with prospects of a steady pipeline ahead

Within the retail sector, around 34,000 sq. m. of space was added in Dubai in the form of community retail developments, raising the total stock to around 4.7 million sq. m. in the first quarter.

Over the same period, Abu Dhabi saw the delivery of a super regional and community retail development totaling 212,000 sq. m. of retail GLA (Gross Leasable Area) which subsequently pushed the capital’s total stock to 3.11 million sq. m.

In the forthcoming months, around 213,000 sq. m. of retail space is scheduled to be delivered in both emirates combined, of which, approximately 194,000 sq. m. is projected for Dubai and 19,000 sq. m. for the capital.

In Dubai, well-located primary malls outperformed the overall market in Q1 2023, with average rents increasing by 1% year-on-year, while city-wide average rents for primary and secondary malls decreased by 1% year-on-year.

Some key developments within the sector included landlords tightening lease terms with tenants, moving away from previous revenue share models, and offering little CAPEX (capital expenditure) support unless in highly exceptional cases.

On the other hand, malls with near-full occupancy are restructuring spaces to accommodate more tenants and generate additional revenue. Some are also dividing large anchor stores as well as utilising other common areas to lease out additional space.

Rents in Abu Dhabi

Average rents in Abu Dhabi remained stable in annual terms in the first three months of 2023.

In comparison to Dubai, landlords in the capital continued to showcase flexibility, offering incentives to attract and retain tenants. Depending upon the brand, property managers are also able to negotiate offers on revenue-based deals and extended fit-out periods.

Off-plan transactions

Off-plan transactions trump existing properties in leading residential sales.

In the residential sector, off-plan sales began to recover in Q3 2022 in Dubai, propelled by new launches late last year.

The trend has continued for the third consecutive quarter, with off-plan transactions outperforming existing properties in terms of value and volume, accounting for 56% of total value and 59% of total volume.

This strongly indicates that both developer and investor confidence has returned to the off-plan market.

Similarly in Abu Dhabi, off-plan transactions have also been leading the market since the second half of last year, supported by a number of new project launches.

Residential sales

According to data from Quanta, off-plan property transactions accounted for around 74% of the value of total residential sales. With residents preferring to relocate to developments offering modern amenities on the new islands, pressure on the prices of outdated projects on the main island continues to build. As a result, average city-wide sale prices and rental rates increased modestly by 1% each.

When viewed in annual terms, rents in Dubai increased by 28% in February 2023 with demand for large units, especially villas, continuing to push up rentals.

Furthermore, in Q1 2023, a 52% increase in value and 50% in volume of residential sales activity compared to the same quarter last year have impacted sales prices, demonstrating a 12% Y-o-Y increase from 2022.

Residential supplies in Dubai rose by 9,800 units in the first quarter, raising the total stock to 690,000 units with an additional 32,000 units scheduled to be delivered in the year ahead.

In the capital, around 1,800 units were added, bringing the total residential stock to 281,000 units. In terms of upcoming supply, Abu Dhabi has an additional 4,000 units in the pipeline for 2023.

Grade A spaces

Increased preference for Grade A spaces continues to drive the office sector.

In a move to encourage employees to return to the office in the UAE, as well as attract and retain the best talent, corporates are increasingly looking to upgrade their real estate assets with a subsequent focus on sustainability and wellness.

In addition, significant growth in enquiries from new market entrants and strong demand for flexible offices were also recorded in the first quarter of 2023.

Building upon the strong momentum of last year, the segment continued to perform well on the back of robust demand for high-quality Grade A spaces that can provide a healthy, vibrant, and experience-driven environment. As a result, in the first three months of the year, average Grade A rents in Dubai’s CBD rose by 16% year-on-year (Y-o-Y) to AED 2,140 per sq. m. per annum. Likewise in Abu Dhabi, a combination of high demand and limited stock for quality space pushed Grade A rents up by 9% Y-o-Y to an average of AED 1,800 per sq. m. per annum.

In addition, resolute demand has led to the fast absorption of available space within the central business district (CBD) in Dubai resulting in a drop in average vacancy to 11% while city-wide vacancies in the capital reached 23%.

The report further highlights that occupiers looking for high-quality office space are expected to face continued competition in the coming quarters, with landlords less likely to negotiate rates and CAPEX contributions.

With no noteworthy office completions across both cities in Q1 2023, the stocks remained stable at 9.1 million sq. m. in Dubai and 3.9 million sq. m. in Abu Dhabi. However, over the next three quarters, approximately 100,000 sq. m. of office space is scheduled to be delivered in Dubai and 35,000 sq. m. in the capital.

tanvir@dubainewsweek.com

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