After facing the brunt of weak market sentiments, global financial meltdown, and fluctuating oil prices during the past few months, Dubai’s office market is finally opening up. Industry experts are expecting a rise in demand for the new office spaces thereby adding to the confidence of overall real estate industry in the region.
Upcoming Expo 2020, which will see many new businesses setting up their base in Dubai and in the neighbouring areas, is adding further impetus to the office space market.
According to reports, office market supply grew by up to 2.3 million sq-ft over year-to-date 2017. This supply increase is indicative of Dubai’s office market adjusting to the dominant need for single-owned prime stock – a segment where demand has consistently outstripped supply, said Dubai Office and Industrial Update, a Core Savills Research report (Q3 2017).
“Prime offices are now forecast to account for a substantial 71 percent of the total stock expected from 2017 to 2019, finally overtaking Grade B and C deliveries. This supply should see sustained absorption and relieve rental pressure from the high performing districts such as DIFC, DIC and DMC,” revealed the report.
Leasing market goes slow but steady
Amidst all this, Dubai’s office leasing market witnessed slow but steady growth in Q3 as UAE economic indicators experienced a boost in activities throughout the 2017. Grade A offices saw a welcome increase in supply, which is expected to relieve the upward pressure on rents in central prime areas.
By contrast, rents in the Grade B & C office segment have continued to soften due to persistent issues faced by strata office stock, evidenced by lower occupancy and sluggish demand. However, the lagging impact of office consolidation in the public and private sectors has kept enquiry levels relatively constant, restricting lease activity mostly to relocations, said the latest update from Core Savills.
Surge in demand
While economy keeps opening up, there was a series of positive demand drivers for the commercial real estate emerged over the course of 2017.
The Emirates NBD Dubai Economy Tracker Index (DETI) indicates the non-oil private sector saw solid expansion over the last few quarters, with a sharp rise in business activity and new work. This quarter also saw the business expectations index rising to from 67.7 in July to 68.5 in September.
Interestingly, according to Core Savills, demand for business centers and micro offices continues to be buoyant as occupiers with smaller spatial requirements, and new entrants in particular, prefer plug-and play facilities eliminating occupation timelines.
Expensive office spaces
Being the world’s top retail destination and hub of global brands, Dubai continues to command sky-high rents of office spaces. However, neighbouring gulf nations including Bahrain and Saudi Arabia have also experienced a rise in office space market but Dubai has taken a lead.
According to the Knight Frank skyscraper index, the city’s premium high-rise addresses command the 18th most expensive rents in the world — $44 per square foot. The tight financial condition is forcing many businesses to head towards cheaper destination like Jeddah and Manama. However, experts believe the trend has a positive side to it.
“Dubai can never lose its charm as it has the world-class infrastructure. Many startups from Jordan, Egypt and Lebanon maintain presence in their countries as well as in Dubai. If companies are heading to other GCC countries to keep operating costs in check, it means the entrepreneurial ecosystem in the Gulf is growing,” says Walid Hannan, CEO, MEVP.