Office supply in Dubai is switching dynamics for the first time in recent history, reveals Cushman & Wakefield Core in its Dubai Office Market Spotlight. The combination of economic market conditions and work-live-play developments in the pipeline are early signs of a new era.
“The secondary office market is not moving forward towards a recovery in its real estate cycle due to strong headwinds faced from the large amount of existing stock, despite marginal improvements in demand” - reveals the report.
Cushman & Wakefield Core CEO, David Godchaux explains: “In this report, we have analysed the evolution of Dubai’s office supply and arrived at the conclusion that the secondary market is unlikely to recover in the near future.”
He further explains: “Out of a total of 94 million sq. ft. of office space in Dubai, 71% or 67 million sq. ft. are estimated to be of Grade B & C quality. This submarket has seen a lot of new supply coming over the past 5 years with low levels of absorption, leading to high vacancy rates, above 30% on average. He adds: “As macro-economic indicators start improving and demand for Grade B & C office space starts increasing again, it will still take a lot of time for it to absorb the existing vacant stock.”
Even with an optimistic hypothesis on demand, we estimate that it will take over 1.5 years for half of the total vacant stock to be absorbed; for this reason, we are very cautious about any chance of an upward movement in secondary market rents in the next 12-18 months.
Meeting tenants’ expectations with prime office space
“The good news is that the office market seems to be gradually self-adjusting with new prime stock expected to exceed new Grade B supply for the first time in the last 10 years. Developers have recognised the need for quality office space where demand has consistently exceeded available supply in the past, while the recent surge of Grade B & C delivered stock is finally anticipated to slow down” explains David Godchaux.
“Developers and free zone authorities have been responding to the growing demand for Grade A stock and this trend is expected to amplify through 2017-2019,” states the report.