Savills recently named Dubai first in its Prime Residential Global Cities Index for 2023, as the emirate’s prime capital values reached $730 per square foot with a 12.4% increase from the previous year’s 3.2% global average.
Swapnil Pillai, Associate Director for Middle East Research at Savills, stated that Dubai’s future price growth is projected to be between 6% and 7.9%, which is less than the 12.4% growth experienced in 2022. He added that the city still has room for further growth given its sustained demand levels and lower prime property per sq ft costs.
The Savills analysis concludes that the prime residential world city markets are likely to slow down in 2023, with an average price growth of 0.5% across the 30 international locations the real estate consultancy’s Prime Residential World Cities Index tracks.
Of these cities, 17 are expected to record slower capital value growth than in 2022 while the remaining 13 will be equal or slightly enhanced.
Highest capital value growth
The Savills Prime Residential Global Cities Index found that Miami and Dubai had the highest levels of capital value growth in 2022, with rates of 25.4% and 12.4%, respectively. Singapore came in third, with a rate of 6.8% and a price of $1,550 per square foot. Cape Town, South Africa, and Rome, Italy, were fourth and fifth with 5.1% and 3.1% capital value growth. Kuala Lumpur was sixth with 2.9%. Mumbai (India), Madrid, Barcelona, and Hangzhou (China) completed the top 10 list.
According to Oxford Economics, each of these cities will see an increase in the number of households with an annual income of over $250,000 in the next seven years.
Paul Tostevin, head of Savills World Research, commented that, “Capital values rose by an average of 3.2 percent across the 30 cities we monitor in 2022, with the second half of the year only contributing 0.7 percent as the deteriorating economic situation and higher interest rate environment took effect.”
Although the second half of the year has some promise for global economic growth, the recessionary conditions, a rising interest rate environment, and inflation will affect prime residential performance, according to him.
Rentals exceed capital values
A real estate firm’s research revealed that rental values are projected to exceed capital values in 2022, as average prime rental values increase by 5.9%. This is in comparison to capital values, which are expected to rise by 3.2%. The shortage of available inventory and escalating demand are driving the higher rental rates. Additionally, increasing interest rates in the second half of the year are causing more people to opt for renting as a “wait and see” strategy.
Lisbon and Dubai experienced the highest rental rates with 25.4% and 22.9% increases, respectively. This is due to the cities’ desirable weather conditions and business-friendly environments, which attracted many buyers. Singapore had the highest rental market rise, with rates climbing 26.2%. This was caused by the influx of students, ex-pats, and high net-worth individuals migrating to the city when it opened up.
Investing in Dubai provides the highest returns.
In 2022, globally, prime yields on average increased by three percent. Dubai (+60 bps, to 5.3 percent) and Singapore (+40 bps, to 2.9 percent) experienced significant inflows of foreign tenants, causing yields to surpass pre-pandemic levels. London’s prime yields also rose by 25 bps to 3.2 percent, as the city continues to be a leading destination for higher education and international students fuel the scarcity of prime stock.
However, rents in Chinese cities were unable to keep up with capital values due to political unrest, resulting in landlords having to reduce their rates as demand weakened.
