The real estate markets in Dubai and the Kingdom of Saudi Arabia (KSA) are expected to grow further in 2023, driven mainly by a surge in residential sales in both regions.

In its ninth annual Middle East Real Estate Forecast 2023 report, Deloitte provides a positive outlook for 2023 and delves into different real estate sectors, including hospitality, residential, retail, commercial office space and industrial.

Among the key findings, the report reveals the recovery of tourism in Dubai and Saudi Arabia following the Covidien 19 event, with key indicators for the hospitality sector being the growth in occupancy and average daily rate (ADR) over the past year.

The report also highlights the growth in residential sales in both regions and the rise in rental prices for commercial office space in Dubai.

According to the Deloitte report, the significant growth in Saudi Arabia's GDP has made it one of the most attractive global destinations for investors.

Employment forecasts from the Oxford Economics Institute show year-on-year growth in the financial and business services sector of 12% in Saudi Arabia.

Stefan Burch, partner and head of real estate at Deloitte Middle East, said." With the global economy fully re-opened following the pandemic, we forecast continued growth in the Saudi real estate market throughout 2023. Growth will be driven by strong spending on various government initiatives and a strong private sector responding to the level of demand for quality real estate projects."

"While 2022 saw record levels of demand for commercial office space as a result of the 'Headquarters Programme', 2023 looks set to be dominated by the delivery of high quality residential-led mixed use schemes and a continued focus on tourism, leisure and entertainment projects," Burch explained.

On Dubai's real estate performance, Deloitte said pent-up demand from travellers and increased residential spending had led to a recovery in the emirate's property sector following the pandemic.

Inflation remains a concern for consumers and is expected to influence sentiment through 2023, it said.

Oliver Morgan, partner and head of development in Deloitte's Middle East real estate team, said 2022 had been a boom year for residential investors, who were finding it tough to review recent trends in Dubai.

"In Saudi Arabia, there continues to be excess demand across all residential sectors, with more volume house builders competing for market share and differentiating their offerings," he said.

According to Morgan, the average occupancy rate in Dubai so far in November 2022 is 72 per cent, compared to 63 per cent for the same period in 2021, while the average ADR for the period has increased by 22 per cent year-on-year to AED674.

This is higher than most regional and international markets, he said.

The average sales price of residential properties in Dubai has increased by approximately 10 per cent between 2021 and 2022. Average rents have also increased by about 21 per cent over the same period.

The report notes that office rents have returned to pre-pandemic levels, with a 12% increase YTD in September 2022 compared to the same period last year.

Growth in consumer spending has driven the recovery in retail in both online and traditional mall formats. The Economist Intelligence Unit (EIU) estimates that total retail sales in the UAE grew by around 4.2% in 2022, with sales expected to grow by an average of 3.9% between 2023 and 2026.

Average warehouse rents at Dubai International Airport (DXB) and Dubai World Central (DWC) continue to recover at 3% and 5% respectively, as demand from logistics companies remains strong and cargo volumes at the airport exceed 2021 levels.

Regarding Saudi Arabia's real estate performance, Deloitte said that its GDP grew by 8.6% in the third quarter of 2022 and is expected to grow by 8.3% in the fourth quarter of 2022 before slowing to 3.7% and 2.3% in 2023 and 2024 respectively, according to the World Bank.

The recovery of the real estate sector after Covidien has been driven by growing tourism demand and government spending on infrastructure projects such as the expansion of Riyadh Airport.

Riyadh saw the strongest occupancy performance in the first three months of the year, reaching 76% in March. Meanwhile, hotels in Jeddah recorded the highest occupancy performance in May, at 59%.

According to Deloitte, sales prices for villas and flats rose in the first nine months of 2022 compared to 2021, with demand for flats by Saudi nationals remaining strong.

Rents for prime industrial stock remain relatively stable due to the limited supply of international grade warehouse facilities and increasing demand from logistics companies, the firm said.

Riyadh and Dubai remain attractive commercial markets as occupiers are looking for growth away from the Far East and Europe," Morgan said.

"Investment in infrastructure and a growing retail and food service offering is a social marketer's dream, which will continue to attract record numbers of visitors to both locations," he added.