UAE DIRHAM TO UDS
UAE DIRHAM TO UDS
The UAE Dirham is expected to trade at 3.67 by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at 3.67 in 12 months time.
The USDAED spot exchange rate specifies how much one currency, the USD, is currently worth in terms of the other, the AED. While the USDAED spot exchange rate is quoted and exchanged in the same day, the USDAED forward rate is quoted today but for delivery and payment on a specific future date.
The COVID-19 pandemic had a seismic effect on the UAE economy, with initial estimates showing that GDP contracted by 7.7% in 2020. However, despite this shock, the UAE’s commendable handling of the pandemic and fiscal and monetary stimulus plans has seen recovery ensue in certain sectors.
The UAE’s Purchasing Managers’ Index (PMI), shows that business activity has stabilised in Q3 and Q4 2020, however, the PMI’s employment index fell for the 12th month in a row, and UAE employment levels decreased by 8.5% in 2020.
Looking ahead, the UAE’s GDP is forecast to expand by 1.1% in 2021 and by 4.0% in 2022, according to data from Oxford Economics. During this period, Abu Dhabi and Dubai are expected to record growth rates of 1.6% and 5.4% in 2021.
Residential sales prices in Abu Dhabi fell on average by 2.0% in 2020, whilst average mainstream sales prices in Dubai fell by 7.1% over the same period.
Despite Dubai seeing some of the most stringent lockdown measures in the UAE throughout the
early stages of the pandemic, residential demand has remained relatively resilient in 2020. Initial
data shows that almost 33,000 residential units transacted in 2020, down 16.4% compared to 2019. However, secondary market sales increased by 7.2% over the same period and for the first time in five years accounted for the largest share of activity in the market.
Dubai’s prime residential market saw prices decrease by 4.2% in the year to December 2020, with Prime transaction volumes increasing by 7.9% in 2020 compared to 2019.
Residential rents in Abu Dhabi continued to soften in 2020, with average rents decreasing by
4.3%, with Dubai seeing a much larger fall in rental prices, by 12.2% in 2020.
The outlook for 2021, shows that both Abu Dhabi and Dubai’s residential market are expected to record historic levels of new supply of circa 14,000 and 83,000 units respectively. Even, as expected, this scheduled supply only materialises to historic precedents, we are likely to see sales prices continue to decrease at a similar rate to 2020.
In Abu Dhabi’s occupier market, we continue to see occupiers take flight to quality, as they look to take advantage of softer market conditions.
In the year to Q4 2020, Prime rents in Abu Dhabi have increased by 2.3% to an average of AED
1,660 (sq.m/p.a.). Over the same period, Grade A rents fell by 3.8% to AED 1,203 (sq.m/p.a.). and
Citywide rents by 3.0% to AED 939, (sq.m/p.a.). The average vacancy rate in Abu Dhabi as at Q4
2020, was registered at 21.9%.
As at Q4 2020, average Prime rents in Dubai registered at AED 209 (sq.ft./p.a.), down 3.0% compared to the same period a year earlier. Grade A office rental rates have seen rates of declines moderate on average in the 12-months to Q4 2020, where rents fell by 4.0%, registering at an average rate of AED 129 (sq.ft./p.a.). Citywide rents declined by 6.9% over the same period to an average of AED 99 (sq.ft./p.a.). Vacancy in Dubai’s office market is estimated to have increased by 5.5% in 2020 to 24.3%.
The vast majority of demand in Dubai’s corporate occupier market continues to stem from existing market participants looking to consolidate operations or improve the quality of their space. In response to this, landlords, in an attempt to retain tenants, are offering competitive rent-free periods.
From a supply perspective in Abu Dhabi, over the next two years we expect a further 356,000 square metres of space to be added, bringing the total GLA to 4.10 million square metres by 2023. In Dubai, as at 2020, an estimated 241,000 square metres of GLA was delivered, bringing the total GLA to 10.2 million square metres. The vast majority of this new supply is classed as Grade
A and as a result, we are likely to see further pressure be exerted on rents in this segment of the market.
Prior to the onset of the pandemic, the UAE’s retail sector was already under considerable
Pressure and therefore, the onset of the pandemic has pushed many retailers to the brink and beyond.
As at 2020, in the UAE, annual resident based retail spending is forecast to have declined by AED 8.2 billion. Around 47% of this decline is expected to be attributable to Dubai, where resident based retail spending is expected to decrease by 4.7%.
However, for certain markets, particularly Dubai, tourism-spending accounts for a significant portion of total demand. As a result, it is not surprising that we continue to see footfall levels sit considerably below pre-pandemic baselines. Data from Google’s Mobility Index shows that, post lockdown to the end of 2020, the total visitor numbers to Abu Dhabi and Dubai’s retail and recreational establishments on average sat at 31.0% and 36.2% below their pre-pandemic baselines.
Looking ahead, reduced footfall levels and the fast-tracked adoption of e-commerce over the
last year will continue to provide considerable headwinds to the UAE’s retail sector, however, Physical retail destinations, particularly those supported by demand drivers, will continue to attract both retailers and footfall.
However, with margins shrinking and competition increasing we are likely to see further pressure exerted on rents. In 2020, in Abu Dhabi has seen 87,000 square metres of GLA being added, taking the total GLA to 1.99m square metres. By 2024, we expect this to increase to 2.70m square metres of GLA. During 2020, Dubai has seen 202,000 square metres of GLA added, bringing its total GLA to 3.86m square metres.
The COVID-19 pandemic has presented the global hospitality market with an unprecedented set of
challenges. As a result, passenger traffic volumes at the world’s busiest international airport, Dubai International Airport, fell to 17 million in 2020, down from 86.4 million in the year before.
Despite efforts to reopen, visitation remains materially below pre-pandemic norms. Using Dubai as a proxy for demand shows, that visitation in the year-to-date to November 2020 is estimated to total around 5.37m, down 64.2% year-on-year. Therefore, it is unsurprising that we have seen performance decline across almost every Key Performance Indicator. Year-on-Year in the year to date December 2020, citywide RevPARs have fallen between 8.5% and 44.6%.
More so, on a broader UAE level, looking at performance data since the reopening of borders in July to December 2020, paints a significantly better picture. Here we have seen the UAE’s Average Daily Rate (ADR) increase by 68.4% and occupancy rates increase by 29.7 percentage points, resulting in Revenue per Available Room (RevPAR) increasing by 201%.
Looking ahead, despite the drive to inoculate the global population we are still not expecting tourism being able to return in a meaningful manner until the latter part of 2021. The rescheduled Expo 2020 will help bolster demand, although, it is very unlikely it will be to the same extent to pre-pandemic levels when around 25 million visitors were expected.
The UAE’s industrial market can largely be singled out as one of the few sectors to benefit from the pandemic, where demand has remained strong in both Free Zone and non-Free Zone locations throughout 2020.
With the market seeing high levels of non-institutional grade stock and institutional grade market remaining tenant favourable, average headline rents in Abu Dhabi and Dubai fell by 9.4% and 17.6% in the year to Q4 2020.
Looking ahead, we expect that average rents are likely to soften further over the coming six months before we see a floor in rental rates. With the 100% foreign ownership legislation now in effect, consolidation of space is likely to continue. This will not only drive demand for larger sites, but is likely to contribute to rents softening.
Read our UAE Market Review and Forecast 2021 Research report here