Office rents in both Dubai and Abu Dhabi fell in Q1 2020
Companies in the UAE could introduce modified workplace designs that reflect specific spatial requirements in light of the spread of the coronavirus, a recent report has stated.
“Most companies will look to modify the design and layout of office spaces to address mid-term company strategies and employee needs,” Dana Salbak, Head of Research MENA at JLL, said.
According to JLL’s Q1 2020 UAE Real Estate Market Performance report, the office market in Abu Dhabi and Dubai is in the late downturn stage of the cycle, as leasing activity remained sluggish in the first quarter of the year.
In Dubai, headline rents across office spaces (grade A and B) dropped 15 percent year-on-year in Q1 2020, while rents fell 2 percent in Abu Dhabi, the report shows.
JLL expects a reduction in office utilization rates in the short to medium term
“In the long-term, we expect demand to centre on office spaces that offer more of a collaborative and social experience rather than just a place to work. There will also likely be widespread adoption of health and wellness standards to ensure employee wellbeing,” Salbak said.
Authorities have been encouraging the public to observe social distancing or stay at home to avoid contacting the virus. As employees work from home, JLL believes that greater emphasis is being placed on the role of technology in improving collaboration, productivity and employee wellbeing.
“As expected, corporates in this current environment are focused on implementing business continuity measures and developing long-term operational resilience,” Salbak said.
The emirate of Dubai, which has been under a 24-hour curfew for the past weeks, decided to partially reduce restrictions on movement starting April 24.
Under the partial reduction of restrictions, employees in the emirate of Dubai are also allowed to work in offices but their number should not exceed 30 percent of the total workforce.
Salbak expects the UAE office market performance to heavily depend in the coming months on the extent to which normal activity is resumed, as well as the government initiatives undertaken to promote the country’s property market.
For the emirate of Abu Dhabi in particular, corporate demand is expected to be active for fitted spaces with short-term leases that offer tenants flexibility, in line with trends witnessed up until the end of 2019, the report said.
Residential market
In Dubai, 12,400 residential units were delivered in Q1 2020, but the remainder of stock under construction is expected to witness some delays in handover, JLL said.
“Current market data shows transactional activity remains resilient, however, demand is likely to come under pressure in light of the present uncertainties and the impact on investor sentiment,” the report noted.
Sale prices and rental rates in the emirate dropped 7 percent and 8 percent respectively in Q1 2020.
In Abu Dhabi, the market remained relatively stable over the first quarter, on the back of limited quality supply of residential units, JLL said.
Sale prices and rental rates registered 3 percent and 3.5 percent drops respectively in the first quarter of the year.
Retail market
According to JLL, the retail sector remained challenged by the growth of e-commerce, change in consumer preferences and a significant supply pipeline, particularly in Dubai.
Average rental rates across primary and secondary malls in Dubai fell 11.5 percent in Q1 2020. In Abu Dhabi, average rental rates across primary and secondary malls dropped 15 percent.
“With the growth in online shopping, the short-to-mid-term is likely to see more retailers adopt omnichannel retailing as a tool to mitigate costs. We are also likely to see various landlords work closely with retailers to alleviate some of the financial pressures,” JLL said.
Hospitality market
Q1 2020 represented a “Tale of Two Halves” for the hotel industry in the UAE according to JLL.
“While YT January 2020 occupancy rates registered 84 percent and 77 percent in Dubai and Abu Dhabi respectively, the impact of event cancellations and travel suspension was felt immediately after,” the report said.
Data from global hotel research firm STR showed that the week ending March 21, 2020 saw occupancy rates in Dubai at 31 percent, compared to 84 percent over the same period last year.
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