The UAE is on course to reach an impressive 5% economic growth in 2024, largely thanks to its thriving non-oil sector, which makes up 73% of the GDP. This demonstrates a vigorous private sector and instils confidence among investors. Meanwhile, Saudi Arabia is expected to experience increased activity in its financial sector and in aggressive investment strategies.
As part of Savills’ worldwide research initiative, Impacts, Swapnil Pillai, the Associate Director of Research at Savills Middle East, remarked, “The Middle East continues to generate a positive economic outlook in spite of global economic uncertainties. Both UAE and Saudi Arabia have seen substantial growth in their non-oil sectors in recent years. These sectors have maintained their strong performance and are set for further expansion in 2024, which in turn will be beneficial for the real estate market.”
Forecast for Rental Markets
According to Savills’ global studies, investment in infrastructure is likely to be the catalyst for economic expansion in 2024, specifically in Saudi Arabia and the UAE.
The office rental market is poised for robust growth due to low vacancy rates. Despite the trend towards flexible working post-pandemic, premium office spaces in the UAE are scarce, with less than a 5% vacancy rate in prime locations. These spaces have seen substantial rental increases in 2023, and with limited new properties entering the market, we expect prime rents could climb by up to 20% in 2024.
While growth in residential rentals in the UAE is expected to slow somewhat due to an increase in supply from new property launches, the overall price levels are likely to remain high, particularly in the luxury segment, which set new price standards in 2023. The surge in development in Abu Dhabi, including several high-end master-planned projects, supports this trend.
Population growth in Riyadh, which is forecasted to rise from 6.4 million in 2015 to 8.5 million by 2030, is fuelling the heightened demand for residential properties in the area.
Outlook on Investment Yields
Looking to the future, we anticipate that decreases in central bank interest rates will invigorate investment activities, normalizing yields around mid-year. However, there could be some slight downward trends in prime yields in certain market areas. In the logistics sector, yields are expected to hold steady during the first half of 2024 but may tighten slightly in the second half as central banks start reducing interest rates. Office sector prices might see less downward pressure after the first half of the year, with prime office yields settling down.
Pillai concludes by saying, “Although we’re not completely shielded from international economic shifts, various governmental policies and proactive efforts to encourage growth across different market segments should benefit our region, helping us weather economic fluctuations.”
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