UAE’s hotel sector shows strong growth in Q2 2022: JLL

The UAE’s hotel sector has seen a significant rise in occupancy in the last five months spurred by the recovery of the tourism sector, according to JLL’s Q2 2022 UAE Real Estate Market report.

According to the report, there has been an increase in occupancy rates in the hotel sector of Dubai and Abu Dhabi, with the emirates registering an occupancy rate of 75 per cent and 71 per cent, respectively. This marks an uptick in percentage from the corresponding period of last year. The performance was driven by luxury resorts and waterfront destinations over other segments.

Dubai saw the completion of around 500 keys in Q2 2022, which led to the city’s total hotel stock reaching 144,000. An additional 10,000 keys are scheduled to be handed over in the second half of this year. While no new stock was added in Q2 in Abu Dhabi, around 700 keys are expected to be delivered by the end of 2022.

Amr El Nady, head of Hotels & Hospitality MEA, executive VP, Global Hotel Desk at JLL, said: “While we did see an uptick in positive sentiment towards the sector, hotel operators will need to be competitive in their offerings evolving from traditional models to get an edge, as the market matures further. This becomes pertinent, especially in light of managing the overall impact of inflation and the growing strength of the UAE dirham on the purchasing power of tourists. The key will lie in adopting a balanced approach to achieving revenue targets.

“When it comes to the other sectors, the current economic situation could pose challenges, but with the surge in domestic demand, the current rebound in tourism, and the slew of policy innovations introduced by the government with a concerted focus on transparency, we remain optimistic that the UAE is in a strong position to continue to pivot to an upward trajectory.”

Retail market
Although there were no new completions, which caused the stock figures for Dubai and Abu Dhabi to remain unchanged, it is anticipated that approximately 333,000 square metres of retail space will be completed in Dubai and 203,000 square metres will be completed in Abu Dhabi in H2 2022.

However, developers have shown some concern around the delivery of the planned pipeline of retail projects over the next 12-18 months, which risks tipping the demand-supply balance. To mitigate this, completions may be postponed until economic fundamentals catch up with floorspace planned to be released across upcoming developments.

In contrast to Abu Dhabi where retail rents were stable, Dubai’s retail rents continued to soften in the second quarter with values falling by an average of almost 3 per cent year on year.

Boosted by a combination of strong local leisure demand and a bounce back in tourism,  food and beverages outperformed in terms of segments while luxury and fashion continued to recover.

Residential sector
In the residential sector, around 6,500 units were added to Dubai’s stock in Q2 2022 while Abu Dhabi witnessed the competition of nearly 1,300 units. Demand remains strong for prime residential properties, especially across waterfront developments.

Anecdotal evidence suggests that there continues to be a large influx of investors from Eastern Europe, albeit buyers from China, India, Pakistan, and Central and Western Europe are also active. In line with higher transaction activity, residential prices in Dubai remain on an upward trajectory – rising 11 per cent year-on-year in May and rents also saw a double-digit increase, of 19 per cent over the same period.

In Abu Dhabi, the robust demand for new villa and townhouse developments continued to persist and year-on-year sales prices for apartments and villas increased by an average of 5 per cent while rents picked up by 3 per cent.

Office spaces
With regard to office spaces, strong demand for ‘Grade A’ floorspace coupled with tight availability in the segment led to double-digit growth in rents in Dubai while rents in the capital increased by 8 per cent to an average of Dhs 1,700 per sq. m. per annum.

Though there were no new office projects delivered in the second quarter of the year, healthy levels of leasing activity helped exert downward pressure on Dubai CBD’s vacancy rate, which reached 14 per cent in the second quarter of this year. This can be attributed to an increase in demand from tenants for quality as they resorted to spaces in single-owned, well-managed office buildings. This trend brought back the landlords firmly in the driving seat, therefore, lowering the threshold for flexibility and incentives in negotiations.

The quarter was also dictated by a considerably higher number of inquiries from new market entrants, especially for flexible office space coupled with queries from existing tenants looking to expand their footprint. In terms of absorption, the financial, technology, and e-commerce sectors continued to lead the way.