The recently announced AED5 billion ($1.36 billion) Emirates Towers Business Park is set to revive Dubai’s commercial property market after it has experienced slow growth over the past six months, according to the latest Dubai Office Market Bulletin for Summer 2017.
“The development, which is set to help triple the size of the wider DIFC by 2024, will provide a welcome source of relief to the dwindling supply of Grade A space in the area,” said a statement issued on real estate firm Cluttons’ website.
Positive for market
The statement quoted Faisal Durrani, Cluttons head of research, as saying: “The launching of Emirates Towers Business Park is positive for the market as the project will meet the increasing demand for Grade A office space through low- and high-rise office towers, catering to a range of requirements. Dubai is moving rapidly from being a regional hub to a global one and the new Emirates Towers Business Park is expected to complement the DIFC, effectively expanding the city’s financial district and putting it on a path to rivaling the City in London, or New York’s Wall Street.”
Paula Walshe, head of international corporate services at Cluttons, explained that the Emirates Towers Business Park will likely relieve demand pressures on core DIFC stock around the Gate, Precinct and Village developments. “Already, international occupiers pay more rent per square foot than any other commercial building in Dubai for office space within the on-shore Emirates Towers office building, which is at the heart of this new development. With that in mind we expect demand and rental levels for space in this zone to be strong.”
According to Cluttons, Dubai’s office market experienced weaker than normal demand across all quarters of the city’s office market.
Durrani noted that the slow demand is attributed to the currently shaky global economic conditions and the conservative approach adopted by some multinational organisations.
“Much of the activity we have been involved with recently has involved a consolidation of operations, across a number of different sectors,” said Durrani.
Cluttons said in its statement it has tracked a trend this year around the ending of many five-year leases which were initially signed in mid to late 2012, as the market began to rise following the financial crisis in 2009.
“Occupiers who committed to new tenancies during this period are now faced with new rents that have on average, risen by 22 percent, if they intend to relocate, or downsize within a prime market. Cluttons cites that this uplift occurred during the period of 2012 to 2015 when rapid rental rises were a feature of the market,” according to the statement.
Walshe commented: “This is making savings-based relocations more challenging, even where tenants are significantly reducing their footprint, especially when capital expenditure for fit out and moving costs are factored in.”
How did Dubai perform?
Cluttons’ Office Bulletin shows that Deira was the weakest performing submarket during the first six months of the year with lower limit rents receding by AED10 pound per square foot (psf) to stand at AED50 psf at the end of June.
It added that rents in the Dubai International Financial Centre core remain the priciest in the city, with occupancy levels holding at almost 100 percent. It noted that the strong prestige factor, combined with the attractiveness of operating in an internationally regulated free zone, created an appeal base for DIFC.
Moreover, the Business Bay area of Dubai has witnessed a rise in upper limit rents of AED20 psf, making it the strongest performer in Dubai’s Office market, during the second quarter of 2017.
“The uplift in rents in Business Bay has been driven by the emerging shortage of Grade A quality stock in the area, which remains confined to a handful of completed buildings, such as Ubora Tower, for instance, which has a sub 20 percent vacancy rate. Cluttons does note however that there remains a surplus of Grade B and Grade C space in the area, with more in the pipeline,” said Durrani.