Prime office space demand outstrips supply as investors’ influx to Dubai surges

Dubai is experiencing a trend for flexible or serviced office spaces

by

Issac John

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Published: Thu 16 May 2024, 7:04 PM

Last updated: Thu 16 May 2024, 7:05 PM

Demand for quality Grade A office space in Dubai is outstripping supply across all primary submarkets as the emirate continues to attract overseas investors and businesses with a spate of business-friendly initiatives, including full foreign ownership and residency visa reforms.

Grade A offices witness an average increase of 14 per cent y-o-y in rental growth, with specific markets experiencing 20 per cent to 30 per cent surge in rental values, Savills, an international real estate advisor, said its Q1 report.


Rising demand for flexible office spaces, including serviced and co-working spaces, reflects changing work models.

Dubai’s office market is on an upward trajectory, buoyed by a resilient regional economic rebound and strong demand from overseas investors and businesses, Savills report said. “Other factors in the thriving office market were the city’s business-friendly initiatives, such as full foreign ownership, changes in residency visa rules, and support for tech firms through platforms like FinTech Hive, Dubai Technology Entrepreneur Campus, and C3 Social Impact Accelerator, which continued to attract global investors and businesses to establish a regional business hub,” said the report.


Paula Walshe, director of Transactional Services at Savills Middle East, said the surge is primarily driven by new businesses establishing operations in the city, which often find these flexible spaces better suited for their initial phase of business development than traditional offices. “Simultaneously, we have witnessed the global trend of existing occupiers transitioning to serviced office spaces to adopt more flexible work models and mitigate significant capital investment for the fit-out of transitional space.”

Analysts at Savills said Dubai is experiencing a trend for flexible or serviced office spaces, causing the office market to expand, exacerbating the supply-demand imbalance. This trend, combined with record-high new company registrations, presents challenges for firms looking for high-quality office space.

“We are seeing a rise in demand for flexible and serviced office spaces, which has resulted in expansion by existing operators in the market already, such as ServCorp, IWG, and the Executive Centre. In addition, we are seeing a raft of new operators entering the Dubai market for the first time,” they said.

Demand for office spaces, particularly in areas such as DIFC, witnessed significant growth driven by new companies entering the market and existing occupiers expanding. This high demand, coupled with a limited vacancy of an average of 3.0 per cent, led to an average 6.0 per cent quarterly rental increase. Other premium developments in the submarket experienced a rental spike of nearly 30 per cent year-on-year. However, all submarkets, especially Free Zones like Dubai Internet and Media City, Expo City, and DWTC, are witnessing considerable activity.

They noted that the market has seen a significant uptake of space by sectors such as legal services, wealth management, and technology, media, and telecommunication companies inthe review period, with companies from Singapore, China, and the UK leading the leasing activity.

Market dynamics were mostly influenced by new and existing companies expanding their operations. Companies like Hawksford, Bfinance, Capital.com, Danfoss, Atoz, Additiv, and others have established their presence in Dubai in Q1 2024.

Landlords offer reasonable rent-free periods for shell and core spaces, but incentives are becoming less generous for fitted spaces or lease renewals. Despite recent completions like Uptown Tower and 6 Falak in Dubai Internet City, the shortage of Grade A space remains a challenge, driving rental values up by 14 per cent on average year-on-year, with some markets such as Jumeirah Lake Towers, Business Bay, Dubai Marina, One Central, and DIFC seeing an even higher rental growth of 20 per cent to 30 per cent.


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