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28 March 2024

Dubai office market back up

Published
By Parag Deulgaonkar

Office occupancy rates in Dubai improved in the first quarter of 2014, driven by strong economic fundamentals and growing business activity in the emirate, according to a new report.

“Vacancy rates within the central business district (CBD) have decreased to 26 per cent, with a number of deals closing as corporates have sought new space,” JLL, a global real estate consultancy, said in its Q1 2014 report on Dubai real estate market.

The Dubai economy is expected to sustain its growth momentum with the Department of Economic Development estimating gross domestic product to grow to 4.7 per cent in 2014.

Tourism, trade, transportation and real estate witnessed strong performance and continued to be the main drivers of the economy. Besides, the Department of Economic Development’s composite Business Confidence Index rose 8 per cent in Q4, 2013, compared to Q4, 2012, with more businesses willing to invest in expansion, recruitment and technology upgrades.

Although there remained a number of large active enquiries, most deals completed in the first quarter were relatively small, typically between 400 sqm and 1,000 sqm.

But occupier demand remains focused on high quality office space in prime locations due to limited availability within these offerings. Single ownership buildings continue to account for the majority of demand, while strata projects remain less popular.

Landlords of prime buildings are adopting a more mature approach by gradually increasing asking rents as occupancy rates increase.

“With around 277,000 jobs estimated to be created by Expo 2020, more multinationals and start-ups are expected to establish offices in Dubai, providing a further boost to the commercial market in the future,” the report said.

The area around the Expo 2020 site is expected to benefit most from the new demand, boosted by established infrastructure facilities such as Al Maktoum International Airport and Jebel Ali Free Zone.

Total office stock within areas monitored by JLL stood at around 7.4 million square metres at the end of first quarter with addition of new 83,000 sqm of office space during the period.

JLL expects over 600,000 sqm of office supply to enter the market by year-end, increasing the total office space in FY 2014 by 9 per cent. The report cites developers in Dubai estimating around 1.5 million sqm of additional office space to enter the market by 2016.

Business Bay remains the fastest growing area, accounting for 42 per cent of total new supply over the next three years (2014-2016). Dubai International Financial Centre (DIFC), Jumeirah Lakes Towers, Silicon Oasis and Dubai Investment Park will also see new completions during the period.

There was no significant change in office rents in the first quarter with only some prime buildings witnessing a marginal rent increase as landlords competed to attract occupiers.

The top open-market rent in the DIFC recorded a 1 per cent increase to reach Dh2,630 per sqm. Elsewhere in the CBD, rents improved slightly to Dh1,860 per sqm.

The office market in Dubai continues to see a “flight-to-quality”, with the best performing locations being DIFC, Burj Downtown and Tecom A&B.

The rate of annual rental growth declined in the year to Q1 2014, compared to that experienced in the year to Q1 2013, reflecting landlords’ more realistic attitudes which have seen asking rents increase at a gradual rate in line with demand and occupancy levels.

“2014 is expected to see a continuation of the two-tier office market in Dubai, although secondary locations may also benefit as occupier interest increases,” the report said.

“The strong pipeline is likely to restrain any pressure for rental increases in secondary locations but further declines are considered unlikely,” it added.