Researchers have analysed the evolution of Dubais office supply.
Prime Office Markets
- The polarisation between prime and secondary markets continues to amplify, also reflected within individual submarkets amongst Grade A and Grade B products.
Secondary Office Markets
- Business Bay, the leading strata-driven office district, has shown significant growth in occupancy levels from the initial low of 55% to 63% over the last year.
- Landlords marketing their properties at the higher end have adjusted their rents down to realistic levels, while more affordable units have been readily absorbed leading to a consolidation in the headline rental range.
Supply Forecast
- The supply delivery in Q1 2017 has been rolling, with over 1.6 million sq. ft. of office stock coming to the market.
- Major developments being handed over were The Onyx 1 and 2 in The Greens, and the Tamani Arts Tower in Business Bay.
- The remainder pipeline for 2017 looms at 1.4 million sq. ft, including One Central’s Offices 2 and 3 spanning more than 745,000 sq. ft.
- In 2018, One Central’s remaining Offices 4 and 5, phase 1 of Innovation Hub along with Amesco Tower in JLT are expected to be handed over, topping nearly 1.8 million sq.ft. altogether.
- Other large developments under construction include D3 phase 2 and ICD Brookfield Place, announced to be delivered by 2019.
- We have also noticed several upcoming mixed-use projects adjusting their asset portfolio, accommodating more residential or retail instead, marginally affecting office supply estimates.
**Demand Trends
- Diversity remains key - apart from the oil and BFSI (Banking, Financial Services and Insurance) segments, occupier demand is spread across most sectors – a strong endorsement of the diversified Dubai economy. These include technology, service industries, logistics and transportation.
- Furthermore, the enduring demand for business centres persists, highlighting the supply gap for smaller fitted spaces and aligning the needs of startups, SMEs and new corporate entrants.
- International operators along with regional names are increasingly addressing this gap.
Upcoming Trends
- A cross segment between retail and commercial space is emerging with gymnasiums and fitness centres rising in demand.
- The growing interest in bona fide mixed-use developments and adoption of the live-work-play philosophy for millennials (the next generation of occupiers), requires integrated services like fitness centres in a pedestrian ecosystem, within close proximity to offices.
- This has led to a spike in enquiry levels for retail within office buildings, bolstering rents in prime areas.
- Boutique workout studios, conveniently located within commercial buildings, usually offer innovative and intense workout classes in a structured 45 minutes format such as spin, HIIT or boot camp sessions, facilitating lunch break workouts for employees.
Tenant-friendly Market
- Lease terms favouring tenants are increasing in districts such as Business Bay and JLT, where the bulk of the stock is strata.
- We have noticed that landlords are attracting tenants with incentives and even contributions, specifically in utility bills and fit-outs (or amortisation of fit-out over the lease term), to ease large initial capital expenditures.
- Rent free periods are also increasing up to 6-9 months from the previous standard of 3-4 months, particularly for longer lease terms. However, this trend is not reflected throughout the entire market.
- Dubai as a global commercial investment destination Dubai witnesses high occupancy levels within Grade A office stock, stemming from strong demand from blue-chip occupiers positioning their regional headquarters.
