Dubai's office market to stabilise with average rents, says Cluttons

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Dubais office market to stabilise with average rents, says Cluttons

Dubai - According to real estate consultancy Cluttons, the slowdown follows a period of strong growth over the past several months.

By Issac John

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Published: Wed 18 Nov 2015, 11:00 PM

Last updated: Thu 19 Nov 2015, 8:30 AM

Office market in Dubai, the most preferred city in the Middle East and North Africa region for corporate occupiers, is showing signs of stabilising, with average rents remaining virtually unchanged across all the city's major submarkets and free zones.
According to real estate consultancy Cluttons, the slowdown follows a period of strong growth over the past several months. A new report by Cluttons reveals that overall, prime, secondary and tertiary office rents have remained unchanged for the first three quarters, standing at Dh250 per square foot, Dh130 psf and Dh70 psf respectively, with the market remaining quite fragmented.
Cluttons' finding is in line with the observation made by Knight Frank in its latest market report, saying that office rents in Dubai have remained stable over the last quarter and increased marginally since last year. The real estate consultancy said prime rents were flat quarter on quarter but up 2.1 per cent from the same period in 2014 with "robust" activity reported.
According to Cluttons, micro markets, which are often as small as specific buildings, continue to buck wider market rates, such as Emirates Towers (Dh310 psf), or The Gate District (Dh225 psf).
Steven Morgan, CEO of Cluttons Middle East, said occupier activity is down, however a positive sign remains in the diversity of the market, which is reflective of the overall economic activity. "Banks, financial institutions, law firms, construction companies and technology-media-telecoms firms round off the list of the most active occupier groups, with the city's free zones remaining the primary target."
Dubai's city's free zones, according to the report, will still tend to be dominated by multinational organisations, with take up activity is intrinsically linked to business performance in their home markets. Cluttons also underlines moves by hydrocarbon based occupiers to consolidate office space as global headcounts are adjusted downwards, although this is not considered to be a major occupier group in Dubai compared to other regional markets.
"Free zones across the city continue to review expansion plans in order to cater to the buoyant level of requirements, with schemes such as the Innovation Hub at Dubai Internet City expected to ease pressure on rents once completed in fourth quarter 2017. New free zones are also seeing increased interest and activity, highlighting the important role free zones play," said Faisal Durrani, Head of Research at Cluttons. Despite this, Cluttons does however remain cautious on the short term outlook for Dubai's commercial market. "With the outlook for global growth faltering, we expect occupier activity will continue to slow, with office space requirements shrinking during next 12 months," said Durrani.
Rents across Dubai's industrial sector are also showing increasing signs of plateauing, following the record growth last year, with rents across most submarkets remaining unchanged in the first nine months of 2015. Overall activity in the industrial market remains diverse with Al Quoz remaining a hub for the automobile sector, while at Dubai South, logistics occupiers continue to show a high level of interest in acquiring airside plots."
The report also confirms that investment activity has remained robust, with DIP being a particularly active market for Cluttons' commercial teams. The recent sale-and-leaseback of a 55,000 sqft light industrial unit for Dh25 million, representing a net yield of eight per cent, attracted a high level of interest from a wide range of investors.
Dubai is expected to consolidate its position as the top city for corporate occupiers in the region over the next three years, JLL revealed in its first Occupier Sentiment Survey in the Mena region. While there is still growth in demand in Saudi Arabia and Egypt from companies servicing these local markets, Dubai remains the preferred location for regional operations, it said.
- issacjohn@khaleejtimes.com


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