Office demand remains strong in Dubai's free zones

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Office demand remains strong in Dubais free zones

Published: Tue 16 Aug 2016, 6:14 PM

Last updated: Tue 11 Oct 2016, 11:12 AM

Free-zone areas in Dubai continue to maintain strong demand for office space while the economic slowdown seems to curb appetite for office space, the latest research from an international real estate consultancy said.
Cluttons' bi-annual Dubai Office Market Bulletin shows that as firms retrench staff and reconsider their future strategy in the wake of global economic challenges, decisions to acquire, expand or move office space have commonly been put on hold. "This has resulted in an exaggeration of the seasonal summer slowdown throughout late second quarter and early third quarter 2016," said the report.
Over the past six months, demand for office space in Dubai has receded as the ripple effect of the oil price collapse and the subsequent economic slowdown in the rest of the Gulf reverberated across the emirate's commercial property market, the real estate consultancy said.
"Free-zone areas have remained in relatively high demand," said Murray Strang, head of Cluttons Dubai. These included Tecom's Dubai Internet City, Media City and Knowledge Village, DIFC and Dubai Design District, which all contain internationally recognised Grade A space. "As such, the prime central areas of these free-zones have very low vacancy rates, of around five per cent, compared to sub-markets such as Shaikh Zayed Road [Trade Centre], which has stock of mixed quality and age, and vacancy rates closer to 20 per cent," said Strang.
Rents remained stagnant in the second quarter of 2016, with falls recorded in six of the 22 sub-markets. Most declines were seen in areas with higher vacancy rates, particularly of second-hand stock, such as Al Barsha (-10 per cent), Deira (-5 per cent) and Garhoud (-18 per cent). Certain sub-markets have seen minor uplifts in upper limit rents, including the DIFC (six per cent) and the wider Tecom submarket (seven per cent).
Rental growth stagnant
"However, these are the exception, as no movement was recorded in either lower or upper limit rents in 14 sub-markets during the second quarter," Strang explained.
"The general lack of rental growth is unlikely to change in the short term. Across the market as a whole, rents are not expected to fall much further, particularly as they are at a point where they are considered to be fair market value and landlords appear unwilling to lease below a certain level," said the report. "However, we do see landlords offering increased incentives, such as rent-free periods and fit-out contributions to attract tenants and as such, we expect a period of minimal rental change for at least six to nine months before there are any signs of an uplift," said Faisal Durrani, head of research at Cluttons.
"Despite the slowdown, a number of sub-markets contain buildings that do not follow the same trajectory as the wider market and have rents that go beyond the upper limit figures as they are considered flagship, prime, signature schemes," said Strang.
He said Burjuman Business Tower (Dh180 psf) commands rents above the average Dh120 psf rate for the remainder of Bur Dubai because of the unique quality of office space and specification it offers. Also, Emirates Towers on Shaikh Zayed Road remains extremely popular and has very low vacancy rates, despite the slowdown in the wider market, he said.
Glut of new stock
According to Core, the UAE associate of property broker Savills, office rents in some of Dubai's most established business locations fell in the three months to the end of June as a glut of new office stock drove markets south.
In a report, Core said rents for offices in Downtown Dubai and along Shaikh Zayed Road fell by six per cent in the second quarter, compared with the same period last year, because of competition from new supply at a time when the economy is suffering from tumbling oil prices and the strong US dollar,
Thousands of square metres of new stock at Dubai Trade Centre District and Dubai Design District, coupled with competitively priced buildings at Business Bay, drove rents down.
According to Core, about 30 per cent of the 7.3 million sq feet of new office space currently being built in Dubai and expected to be completed by 2018 is in Business Bay.
- issacjohn@khaleejtimes.com
 

by

Issac John

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