The office market has recorded a range of activities across the board, with some companies expanding and others consolidating operations. According to Cluttons, factors like rising costs, high inflation, value-added tax (VTA) and other global economic factors have affected the office market. Moreover, there has been a wide range of new market entrants and some are attempting to regear existing leases. Office rents, meanwhile, have continued to remain moderate, according to the Cluttons Spring Office Market report.
“Global economic factors continue to have a direct impact on the real estate market in the UAE. In the office market, upper limit headline rents have been affected, with occupiers either sitting tight, regearing leases, or continuing to consolidate operations,” says Faisal Durrani, head of research at Cluttons. “In fact, five of our 24 submarkets registered minor downward adjustments during the final quarter of last year, with the weakness persisting into 2018. It is our view that this will continue for the remainder of the year with rents set to fall Dh5 per square foot to Dh20. However, core free zones are likely to buck this trend, with rents holding steady.”
Office rents are expected to remain relatively flat in the midterm, with landlords expected to offer more competitive terms, especially to strong covenant clients with large requirements.
“We do not expect rental rates to increase any time soon, nor do we expect them to fall drastically,” says Dana Williamson, regional director and head of agency and corporate solutions at JLL Middle East and North Africa (Mena). “However, the tenants that have relative flexibility in their requirements concerning location, amenities and space layout, can expect a large number of options in the market, where landlords will be motivated to offer attractive terms.”
Williamson notes that the amount of new stock entering the market is not disproportionally high compared with existing stock, but it does exceed the rate at which companies are looking to grow. “Last year 175,000 sq m of new office space was added, bringing the total office stock to 8.9 million sq m of gross lettable area,” she says. “Moreover, approximately 537,000 sq m of office space is currently under construction and due to be delivered by 2020.”
Supply will come from communities like Dubai International Financial Centre (18 per cent), Dubai Trade Centre District (12 per cent), Jumeirah Lakes Towers (11 per cent), Dubai Hills Estate and Deira Waterfront Development (10 per cent each) and Business Bay (9 per cent). Other locations will account for up to 30 per cent of the supply.
“While there is currently an oversupply in the market, the level of oversupply ranges across the various districts and properties. Within Dubai’s central business district, vacancy currently sits at 9 per cent, which is only slightly higher than vacancy rates in key global cities, which sit around 4-7 per cent,” says Williamson.
Apart from the age of a property, other critical determining factors for occupancy include location, floorplate design, accessibility, landlord profile, building amenities and rental or sale price expectations, according to Williamson. Vacancy, nonetheless, is not high across the whole market. “Those buildings that do suffer from high vacancy rates could either be located in areas with low demand or could potentially have specific issues that refrain occupiers from taking office space,” says Williamson.
Dubai offers a wide range of quality and sizes, from as small as 30 sq m to a full floor of around 5,000 sq m. The biggest demand, however, is for small to medium-sized units of around 500 sq m, says Williamson. “The desire to operate more effectively does create some movement in the market, where companies are open to considering less-expensive properties and less-expensive areas.
“The consideration to move areas does not only apply to companies moving from central, higher-cost areas to more peripheral areas, but it also applies to many companies that have moved to more upscale areas where they have achieved similar rental rates compared to secondary areas. We currently live in a time and market where a conservative approach to company spending prevails, so it is unlikely for an occupier to be prepared to pay more for their premises on a per square metre or a headcount basis.”
Top three office locations in Dubai
Barsha Heights (Tecom)
Shell-and-core and fitted offices in the area range from 700-8,000 sq ft
Prices here have weakened in line with the overall market performance, says Joanna Elley Sr., global property consultant at Gulf Sotheby’s International Realty. “Some offices are still empty as the condition of the offices or the rent is too high,” says Elley. “Here the shell-and-core and fitted offices range from 700-8,000 sq ft with the rental price starting from Dh65 to Dh120 per square foot.
Elley says the top-performing office buildings are Grosvenor Business Tower, I Rise Tower, Executive Heights, Smart Heights and Al Thuraya Tower.
Most of the demand in DIFC were for offices ranging from 1,000-1,500 sq ft
Dubai International Financial Centre (DIFC) is a vital office zone because it is an independent free zone that offers 100 per cent ownership and is tax-free. “In the past 12 months, DIFC-based offices saw rental gains of 6 per cent during the period,” says Ben Bargh, manager of commercial sales and leasing at Better Home. “The majority of the offices in demand were confined to spaces from 1,000-1,500 sq ft. Rents have remained steady for the last two to three years.”
Office sizes start from 300-20,000 sq ft and prices start at Dh110 to Dh350 per square foot depending on the office type and building, sasy Bargh. “Key office buildings are DIFC buildings, Central Park, Index Tower, Emirates Financial Towers and Park Towers,” according to Bargh.
Prices in the area have seen a substantial decline as supply has outstripped demand
Business Bay, which has several good commercial towers that have been handed over, was planned with the new parking code [a parking bay for every 45 sq m] so there is plenty of parking, says Sanjay Chimnani, managing director of Raine & Horne Dubai. “Here office space starts from 500-12,000 sq ft and rent start from Dh65 to Dh110 per square foot,” he says. “Prices have had a dramatic downturn as supply has far outstripped demand. However, with occupancy moving upward of 60 per cent and no new projects on the horizon, the story will change in 12 month’s time. The A-grade buildings have held their prices stronger than the basic office supply that has been delivered.”
Chimnani considers the Oberoi tower, Vision Tower, One by Omniyat and Prime Tower as some of the grade A buildings that will hold value over time.
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