Dubai’s office property market could be next in line for a turnaround … even a partial one. Leasing enquiries for DIFC and Tecom locations continue to be strong, and is now spilling over to other locations as well, according to the latest update from Knight Frank.
And this could be the trigger for developers to once again come up with new office-only projects, either for leasing or on a build-to-sell arrangement. But for the moment, the DIFC cluster is where the action is.
“DIFC is expected to maintain its strong appeal among corporate occupiers, particularly with the delivery of ICD Brookfield Place,” the consultancy states. (The $1 billion project will have 54 storeys of Grade A office space.) Apart from that, the DIFC will also host the “biggest single infrastructure project it has launched since inception”, in the form of “The Gate Avenue (earlier known as The Spine), which will link the main Gate and Village districts in the north to the other commercial and residential towers. The Avenue will add 660,000 square feet of built-up, including for retail, leisure and dining options.
“In terms of performance, Tecom and the DIFC maintained high rental levels as occupancy levels remain strong,” said Matthew Reason, Surveyor at Knight Frank. “Their free zone status, quality of space, developed surrounding infrastructure and proximity to amenities such as retail and F&B continue to work in their favour.
“Meanwhile, the performance of up and coming areas such as the Dubai Design District (D3) stabilised as rents increased substantially following a period of strong occupancy levels.
“With the strong commitment to government investment, occupier sentiment has improved and companies are now starting to resume their office searches capitalising on greater landlord motivation.”
Grade A office properties currently average rentals of just under Dh200 a square foot.
But, according to the report, not all commercial properties in the city are getting a demand uptick. Some of the less prominent office high-rises at Business Bay continues to record occupancy drops.
“However, despite subdued performance, Dubai’s commercial market remains the most resilient in the region,” said Reason in the analyst’s note. “This stems from the emirate’s strong appeal among international occupiers and their commitment to Dubai as a regional hub for their operations. This is reflected in the fact that occupiers such as HSBC are pressing ahead with build-to-suit office schemes.”
The fortunes of Dubai’s office property market differ markedly from that in Abu Dhabi, where some of the high-end recently completed buildings have been hit by weak leasing transactions.
But challenges will remain for Dubai’s landlords — “As the market awaits further details, the introduction of VAT in January 2018 will undoubtedly impact costs,” the report adds. “We remain cautious of external challenges which may hinder economic growth.”
On the plus side, “Stock levels are expected to increase in 2018, with developments such as ICD Brookfield, Gate Village 11, One Central and HSBC Headquarters all coming online. This will bring a welcome addition to the current limited levels of international grade A quality space available in Dubai, and is expected to attract further demand.
Key points
In 2016, the bulk of the demand for offices was confined to spaces of between 1,000 to 5,000 square feet. “In turn, Q1-17 saw increases in enquiries for 1,000—5,000 square feet of office space which confirms current sentiment,” the Knight Frank report states.
Office enquiries continue to come in from businesses in general trading, but there were also those from the health care and pharmaceuticals industry.
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