Dubai office rents continue to soften as supply rises

Dubai’s office market has seen an increase in relocation and consolidation activity so far in 2018, exerting downward pressure on prime office occupancy levels, according to a new report.

Cushman & Wakefield Core's Dubai Office Market Update 2018/2019 report said rents softened across 11 of the 13 office districts tracked.

Current market conditions continue to be tenant favourable across most grades, with the decline in rents forcing strata landlords to choose between leasing at lower rents, or incurring opportunity cost for extended vacancy periods.

The report said over 1.3 million sq ft of space has been delivered in 2018 so far, while another 0.44 million sq ft is expected over the remainder of the year.

Cushman & Wakefield Core noted that the supply of new prime office space is expected to continue increasing over the next two years, with marginal additions through secondary stock coming to market due to footprint optimisations by large blue-chip occupiers.

The report added that job growth will gradually gather momentum, but a pause on spatial expansion is anticipated.

Cushman & Wakefield Core said a number of policy initiatives announced by Dubai and UAE Federal Government recently are expected to attract more investment into the city and drive economic growth, spurring office demand.

Joel McQueen, head of commercial at Cushman & Wakefield Core, said: “Despite job growth gradually gathering momentum, we anticipate a pause on spatial expansion for most firms as near-term resource growth is expected be managed within existing portfolios or by consolidating multiple offices into a central location.”

He added: “New additions to Dubai’s office market supply this year are largely concentrated in the Grade A segment. These additions are expected to alleviate some of the pressure seen in prime office districts which until recently saw prohibitively high rents due to limited supply.”

Cushman & Wakefield Core's report said that although the first few months of the year did see slightly weaker enquiries and transaction volumes, VAT implementation had marginal impact on the office market.

"The effect of VAT was mostly absorbed, as landlords and tenants adjusted to the administrative requirements of the tax. The absorption of VAT by the market was most likely accelerated as any increases in business costs were levelled off by a decline in rents," it added.

McQueen said: “Going forward, market sentiment is expected to improve given the implementation of various policy initiatives to reduce business costs and streamline business processes, such as the Dubai Municipality reducing market fees for businesses by 50 percent.”

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