Demand for office spaces is outstripping supply in Dubai and the emirate could well run out of Grade A office space next year.
With the inflow of foreign companies that are setting up regional headquarters in Dubai, many landlords and free zones are upgrading older office stocks to meet the growing demand and capitalise on higher rents.
Prathyusha Gurrapu, director and head of research and consultancy at Cushman & Wakefield Core, said developers and free zones are expected to initiate the next phase of office projects, however, no relief is expected until 2026 due to a minimum of a two-to three years' time for construction.
“As most of the upcoming Grade A supply is highly likely to be pre-leased, limited substantial new supply is expected to be brought to market in the foreseeable future, deepening the supply shortage,” she added.
Gurrapu revealed that with office demand continuing to outstrip supply and most handovers being pre-leased, occupancy levels are to see sustained upward pressures with Grade A office occupancy expected to be near 95 per cent by the end of 2024 and hovering at near full by 2025 – albeit, contrary to other global markets which are at much lower office occupancy levels.
She expects city-wide occupancy levels of Grade A, B and C Stock to breach 90 to 92 per cent over the next year as the demand trickles down to Grade B and Grade C spaces.
Behnam Bargh, managing director at CRC, said one particularly significant trend within the office segment was the 15 per cent increase in the secondary sales price, indicating heightened demand and value appreciation in this sector. This upward trend in secondary sales prices underscores the attractiveness of Dubai's office market to investors and businesses alike, potentially fueled by factors such as economic stability, infrastructure development and favourable regulatory frameworks.
According to Betterhomes, the average sale price of the secondary office market stood at Dh1,062 per sqft, up from Dh927 for the same period last year. the prices have risen above the Q1 2019 level of Dh933 per sqft, but still below the previous years.
No new supply in Q1
Prathyusha Gurrapu revealed that no new office supply was handed over in the first quarter of this year.
“We foresee over 1.85 million sqft of gross leasable area to be handed over in 2024, including the next phases of Expo City Dubai, Wasl Tower, Millennium Downtown, and the next phases of Innovation Hub and Dubai CommerCity,” she said.
She added that many major landlords and free zones are activating projects now to address the growing demand.
“Immersive Tower in DIFC is the first of multiple developments within DIFC expected to begin construction along with DMCC and Tecom set to launch their next phases. We are also witnessing a rising number of landlords upgrading older office stock to address rising demand and capitalise on higher rents. A small section of secondary stock is expected to be brought to market as some technology and services sector tenants consolidate – albeit marginally easing the supply crunch,” she added.