Dubai office markets sustain rents

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Despite sustained demand, occupiers remain cost conscious and budget driven in the face of a softening global economic backdrop, with the key word for many being ‘prudence.’
Despite sustained demand, occupiers remain cost conscious and budget driven in the face of a softening global economic backdrop, with the key word for many being 'prudence.'

Dubai - Tecom, Media City and Knowledge Village post 10% rise in rents in '15

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Published: Wed 17 Feb 2016, 8:21 PM

Last updated: Tue 17 May 2016, 9:05 AM

 Persistent high demand from both international and domestic occupiers helped Dubai's main office markets to sustain rents in 2016 first quarter, a market bulletin released on Tuesday said.
The bulletin highlighted that 13 office submarkets in Dubai witnessed no change in starting rents in 2015, whereas seven submarkets witnessed notable increases and the remaining two saw lower limit rents decrease over the 12 months of 2015.
The bulletin by Cluttons, a leading real estate consultancy, said despite sustained demand, occupiers remain cost conscious and budget driven in the face of a softening global economic backdrop, with the key word for many being 'prudence.'
Faisal Durrani, Cluttons' head of research, said landlords appear to be slow to react to the cooling market, with many reluctant to move on asking prices and others demonstrating a lack of flexibility for lease terms at renewal. "The emerging gulf between market reality and landlords' expectations is a concern, particularly for a market that is now starting to show signs of maturity."
With the establishment of two new free-zones in the form of Dubai Design District (D3) and Dubai World Trade District in 2015, Central Dubai has become the focus of many occupiers and developers, particularly as it has long suffered from a demand-supply imbalance in the face of rising requirement levels, Cluttons noted.
D3's lower and upper limit free-zone rents have registered a 67 per cent and 28 per cent rise respectively since its launch, pushing them to between Dh150 psf and Dh165 psf. "This sharp rise was also underpinned by the gradual fading of favourable terms offered to initial occupiers," it said.
The strongest performing submarket in 2015 in New Dubai was the Tecom Dubai Internet City, Dubai Media City and Dubai Knowledge Village area. Overall, this submarket experienced a 10 per cent rise in lower limit rents to Dh165 psf, while upper limit rents rose 13 per cent to Dh225 psf.
Cluttons' report divides Dubai into four zones - Central Dubai (DIFC, Downtown, Business Bay, Shaikh Zayed Road), New Dubai (JLT, Marina, Media City, Al Barsha), Old Dubai (Bur Dubai, Deira) and Dubai Fringe (inland areas including Dubai South, Silicon Oasis, Dubai Investments Park).
"Firms continue to be attracted to this free-zone submarket because of the high quality of buildings and the presence of other high profile occupiers in the area. In comparison, JLT (Jumeirah Lake Towers) has seen both lower and upper limit rents fall over the past 12 months, by 13 per cent and 10 per cent respectively to Dh70 psf and Dh180 psf," said Murray Strang, head of Investment and Agency at Cluttons UAE.
According to the heat maps produced for the bulletin, Old Dubai remains a hub for local businesses, with a steady stream of demand coming through over 2015. The continued popularity of the Old Dubai market is reflected in the rise of rents in areas like Bur Dubai and Garhoud. Bur Dubai registered a 20 per cent rise in lower limit rents to Dh60 psf, while upper limit rents moved up by seven per cent to settle at Dh140 psf at the end of last year.
"The narrowing rental band is reflective of the markets gradual maturing process, however, it is also hinting at the achievement of a potential ceiling in upper limit rents. With the majority of stock comprised of older buildings, there is a growing opportunity for landlords to undertake refurbishment in order to drive rents up," said Strang.
Some submarkets are experiencing the effects of rental stagnation, said the bulletin. Dubai Fringe submarket has been amongst the first few to witness this trend, with three of five submarkets in the area registering no change in lower or upper limit rents over 2015.
"This reflects a stabilisation in requirements for fringe office space. Dubai South, which will house the largest airport in the world, Al Maktoum International, in addition to the World Expo 2020 site is positioning itself as a significant destination in its own right which in the long-run is likely to help bolster office rents," Durrani said.
In general, Dubai's property market is facing a challenging 2016 but is expected to see an upturn in 2017, a report by consultancy KPMG has predicted.
"While oil prices remain well below the long term average, which is clearly having an effect on market confidence, Dubai's improved regulatory environment, broader investor profile, and increased maturity are all indicators that its real estate market should eventually self-correct," KPMG said in its report.
- issacjohn@khaleejtimes.com 

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