Global property agency and consultancy company Knight Frank continues to deliver substantive guidance and solutions to the challenges faced by its clients as a result of the global Covid-19 pandemic and aggregating industry-specific data in order to assess the evolution of real estate markets in response to this global crisis throughout the United Arab Emirates.

Knight Frank carried out surveys to obtain valuable market feedback from Residential/Mixed Use Developers, Office Landlords, Office Tenants and Retail Landlords & Operators throughout the UAE

A summary of the key findings from the survey’s as well as their market outlook on the different sectors is provided below.

Residential/Mixed-Use Developers

⦁ Close to 90% of Residential projects that were under construction before the pandemic are still proceeding.

⦁ However, construction contracts may see delays in completion due to developer induced postponements or interruptions in logistics of both labour as well as construction materials.

⦁ Developers are largely taking a ‘wait and watch’ approach when it comes to projects that were under planning, with an overwhelming majority of projects being either put on hold (50%) or proceeding with expected delays (37.5%).

⦁ The residential market had just started to show tentative signs of entering into a growth phase prior to the lockdown, with some developers now showing weakened confidence in the market reverting to the growth phase in the short term as evidenced by the shift in their debt strategy to longer term holds.

⦁ From a buyer perspective, the market has seen a drop in off-plan sales with at least a quarter of the respondents seeing a drop of over 50% in transaction volumes as compared to Q1 of this year.

P.P. Varghese, Partner, Real Estate Strategy and Consultancy at Knight Frank Middle East, said: “The key question developers need answered prior to moving forward with planned projects is whether the fundamentals of the market will change in the post-COVID era. The residential populace’s embrace of the return to normalcy following the recent easing of lockdown in Dubai, may be a very early indicator of the market’s resilience and ability to bounce back.

Office Landlords

⦁ 53.5% of office leasing deals in the UAE under negotiation at the start of the pandemic face delays and 30.8% are on hold, signalling the fluid demands of businesses as they try to adapt to market conditions.

⦁ This immediate stress in the office market is further accentuated by the fact that only 15.4% of signed leases are proceeding as planned.

⦁ 69.2% of respondents indicated that tenants had successfully requested rent deferrals and renegotiations of lease terms on existing leases, with 61.5% of landlords stating they are likely to offer further concessions to maintain existing tenants and attract new ones.

⦁ 46.2% of respondents are wary of the general uncertainty in the market, citing it as the greatest challenge to their real estate portfolios, followed by an apprehension that tenants may not be able to pay their rent (30.8%).

Umberto Bevilacqua, Commercial Agent at Knight Frank Middle East, said: “The commercial real estate landscape will be permanently transformed by the current crisis. In the immediate effect many commercial Landlords will be facing drastically lower returns as majority of the tenants have obtained consistent short-to-medium term rent reduction or abatement. Even though the future is difficult to predict, more than ever before, we believe that on the long run Landlords will need to consider digitalization of the workspace and improve the overall occupier experience for its tenants in order to maintain and retain high overall occupancy for their portfolios.

Office Tenants

⦁ 90.9% of respondents have indicated that their organisations intend to implement social distancing policies upon resumption of business leading to reduced density in their offices.

⦁ 54.5% of respondents strongly believe that organisations will consider moving away from the traditional real estate workspace model and implement flexible workspace policies and remote working.

⦁ Going forward, the pandemic is expected to lead to a significant change in homeworking and office space demand, with the focus of the workplace expected to be much more around internal collaboration.

Umberto Bevilacqua, stated: “The current crisis has been a tremendous test for all types of corporate occupiers, from multinational to local business, as the vast majority had to adapt to remote working within a matter of days. It is likely that we will see a shift in occupiers demand from large offices to smaller and more calculated solutions where collaboration, creativity and privacy will have to somehow co-exist.

In the short to medium term we most probably see office layouts and design to be reconsider as the overall employee density will remain low, despite the new government disposition that commercial business can come back to 100% capacity. While in the long-run we see the utilization of the office premises as collaborative spaces, where talent retention and health and wellness for employee will be a key aspect of the new office-as-a-service for corporates.

Retail Landlords and Operators

⦁ Fast food restaurants, full service restaurants and healthcare related retail tenants are anticipated to be the quickest to recover from Covid-19.

⦁ Two accommodations were typically sought by retail tenants with 50% of respondents reporting that rent holidays were requested and the other 50% stated that short term renewals were sought. This points, not only to the financial stress the retail sector is under, but also the increasing flexibility in lease terms required by retail tenants in times of uncertainty.

⦁ With the retail sector expected to be under pressure for the short to medium term, it is expected that more flexible lease terms and potential revenue sharing arrangements may be requested by retail tenants in the future as they seek to hedge themselves in the event of similar crises.

⦁ While larger retail centres that depend on tourism visitation are expected to feel the brunt of the pandemic more severely than neighbourhood retail centres, given that a large number of brands are controlled by a few number of players, renegotiated terms for one format is expected to filter down to the other to some extent.