Dubai: This is what an office tenant in Dubai is facing - rent increases of 20% in key locations and buildings. If the tenant does not agree to that, then notices for eviction. Of course, the landlords already have waiting lists for any space that opens up due to the eviction being carried out. -Advertisement- Ads by
This time, all of the above is happening in Dubai’s office rental space. It doesn’t matter whether the property is a Grade A let or Grade B. Landlords are jacking up rents at the time of renewals, in most cases by the maximum upward limit of 20% as prescribed by RERA. In many cases, landlords are pushing tenants to sign up for a higher rental –even after they agreed to a higher rate in the previous year’s lease renewal.
What explains the rush in new rental hikes for Dubai offices? The answer is pretty straightforward.
“Yes, there is the natural demand that’s pushing rents up, but you are also seeing landlords want to effect higher rates before the digital real-time Rental Index takes effect for commercial properties too,” said the owner of multiple office buildings in Dubai.
“Because if Dubai Land Department does that, then any future rent increases will be determined by the star rating system for each building. Like they already have for residential rent setting.”
Dubai office rents have been rising since early 2022 across both Grade A and Grade B properties. Grade B office assets, with multiple owners in a single building, has seen fragmented yet exponential growth." Robert Thomas of Cushman & Wakefield Core
It was early this month that Dubai launched its real-time Rental Index rather than the annual changes to the residential rental rates. It meant more areas of the city came under the new Index. At the time of its launch, Land Department officials said a similar program will eventually cover office and commercial real estate leasing too.
Developers, landlords waste no time
While no specific time for launch of an office rental index was provided, developers and landlords of office buildings are not wasting any time. For them, the next renewal they come across is an opportunity to bring up rates to levels they are comfortable with.
If a tenant doesn’t want, that company is free to leave, is what landlords are thinking. And making it happen.
“If the RERA rental calculator permits, tenants could face increases of up to 20%,” said Robert Thomas, Director - Head of Agency at Cushman & Wakefield Core “Some tenants are (still) renewing from lower rental rates established before and during Covid.
“Grade B office assets are more likely to experience higher percentage hikes compared to Grade A. This is because Grade B assets are often managed by relatively smaller, non-institutional operators who prioritize rental increases over factors like lease length or overall lease terms.
“In contrast, institutional Grade A landlords typically tend to value strong tenant covenants and focus on retaining international occupiers by fostering long-term relationships.”
Business tenants are getting worried
Tenants in office buildings, whether in Deira, Al Quoz or Ghusais, too are getting caught up in the hikes. “We just got hit with a 20% hike after paying only 7% increases in each of the last 2 years,” said the owner of a mid-sized business. “We have occupied this office for the last 17 years, but our requests are not even listened to by the landlord.
“Every office owner wants to bring rates up by the maximum possible before RERA introduces real-time Rental Index to office leases too.”
"Many old office rents in Dubai have come for renewal at around 50%, even much more"
Demand for offices is not slowing in Dubai
According to Harish Fabiani, founder of Indialand Group and owner of multiple office buildings/floors in Dubai, “Vacancy levels are as low 5%-10% in Grade A office buildings. But because those might be shell-and-core, they need more time to be ready to occupy. So, tenants prefer ready fitted offices.
“Rents have easily increased 15-20%, and even much, much more in some cases. Tier 2 offices too has seen similar rent increases, and there is a situation where even big companies are opting for that because Grade A rents are way too high.”