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Office rents in the UAE’s two largest business hubs – Dubai and Abu Dhabi – remain resilient, but demand and occupancy rates for Grade A offices also continue to rise, according to new analysis from global property consultancy Knight Frank .
Despite rising demand, new supply remains limited, according to Knight Frank research.
“Our data shows that in the third quarter, new office demand in Dubai stood at 265,000 sq ft and year-to-date new office demand of 739,000 sq ft is on track to exceed the 1.1 million sq ft demand we registered for 2021,” commented Faisal Durrani, Partner and Head of Middle East Research.
“However, the biggest challenge facing the market is the shortage of quality Class A space. With only 2.9 million square feet completed between now and 2025, Class A occupancy hovers around 90% on average – some of which are even higher in the most sought-after buildings – occupiers entering the market or looking to expand face very limited options,” Durrani noted.
Excluding confidential demand, Knight Frank noted that commercial services tenants were responsible for the bulk of new office demand in Dubai, accounting for a total of 97,000 sq ft of space demand in the third quarter.
According to experts, Barsha Heights (31,000 sq ft), Business Bay (27,000 sq ft), JLT (28,000 sq ft) and Sheikh Zayed Road (22,000 sq ft) lead the office demand in specific areas.
“There is a clear trend towards quality as many international businesses are looking for spaces with ESG credentials as occupants migrate from older buildings to more modern buildings that are well managed and maintained,” said Andrew Love, Partner ( Occupier-Landlord Strategy and Solutions) and Middle East Capital Markets said.
“Such construction is more likely to be in newer parts of the city, so it may not be surprising that submarkets with a high concentration of new or relatively modern listings are seeing rents surpass pre-pandemic levels,” he added.
“What’s more, office occupancy rates in the best buildings will continue to rise as demand is firmly focused on top-notch buildings,” Durrani said.
“However, second-hand housing grade B or older may continue to struggle, and the gap between rental performance in the long-established duplex office market may widen further,” he added.
Despite rising demand, new supply remains limited, according to Knight Frank research.
Love added: “Our forecast is for 2.9 million square feet to be delivered by the end of 2025, with District 2020 and Uptown Tower T2 accounting for the bulk of the new space.” Dubai South 2020 District (formerly the Expo 2020 site) being developed by Dubai Holding It is the largest single development of commercial office space planned in the city and is expected to be completed in 2023.
The severe shortage of new office space, combined with rising demand, especially for prime office space, suggests that office rents will continue to experience upward pressure, especially with Grade A office occupancy rates between 80% and 90%, or for some of the city’s smaller Even higher for new Class A buildings.
In the case of Abu Dhabi, Knight Frank said office rents held steady in the third quarter across all major submarkets tracked by the property consultancy.
“In Abu Dhabi, confidence among businesses is on the rise due to an improving domestic economic environment, increased tourist arrivals and the recent easing of Covid-19 restrictions,” said David Crook, partner and head of Abu Dhabi.
“Capital Center is growing faster than the rest of the city, with average rents rising by 4.9% to AED 1,400 per square meter over the past 12 months. The biggest challenge facing the market is the shortage of Grade A space,” he noted .
“The fact that sites like ADGM, and some of the best buildings in the city, are seeing 95% occupancy underscores the challenge for new entrants or those looking to expand their presence,” he noted.
The stabilization of office demand is partly linked to the stabilization of rents, which are currently 15.4% higher than in 2020 (The Corniche/Downtown), with rents in Capital Center and Al Reem Island up 6.3% and 4.3% respectively.
“What we’re seeing is a general return of workers to the office and a parallel rise in business confidence,” Durrani said. “Businesses are feeling good about life now as this is reflected in non-oil sector PMI readings – and demand for offices Space is going up across the board.”
“However, like Dubai, the Abu Dhabi office market continues to face an undersupply of quality finished space in well-managed buildings,” Durrani noted.
According to Knight Frank research, most of the demand for office space in Abu Dhabi is driven by the education and media industries. In fact, these two sectors accounted for 51% of the 18,000 sqm of new office demand registered so far this year.
Furthermore, the flexibility of serviced offices remains a key feature for new entrants and start-ups in the market. It added that the need for flexible offices in branded serviced offices has led incumbent operators to seek expansion opportunities, while tenants prefer shorter leases.-TradeArabia News Service
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