Heightened Confidence Driving Dubai's Office Market

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According to international real estate consultancy firm Cluttons, an upsurge in economic confidence following Dubai's World Expo 2020 win, has led to heightened demand for commercial office space in the emirate. Rents for prime Grade A space in particular have continued to climb with a 10% increase recorded in Q1, pushing average rates in this category to AED 220 per square foot.
 
Cluttons Dubai Spring 2014 Commercial Market Outlook report, asserts that the rising tide of occupier demand is having a knock on impact on supply for prime freezone office space, which is rapidly being depleted in freezone submarkets such as Dubai Internet City and Dubai Media City (TECOM A&B). The upturn in occupier requirements has helped to drive upper limit rents here by almost 29% to AED 180 per square foot between Q3 2013 and the first quarter of this year.
 
Falling supply levels in centrally located freezones is aggravating demand for space in more secondary locations such as Dubai Health Care City and the International Media Production Freezone (IMPZ), with both recording rising levels of interest from occupiers. Centrally located submarkets also remain in high demand with locations such as Business Bay and Downtown Dubai witnessing increased interest.
 
Steve Morgan, Chief Executive Cluttons Middle East states, "With the gradual absorption of centrally located Grade A office space expected to persist, we expect to see very low vacancy levels across these buildings by the end of the year. The Department of Economic Development recorded a 12% rise in the number of business licences issued during the final quarter of last year, and this growing economic confidence inevitably has had consequences for office space demand."
 
With this Grade A office supply shortage, we anticipate an upturn in build-to-suit options as occupiers are forced to explore secondary solutions. As a result, land plots in centrally located submarkets like Downtown Dubai and Business Bay are expected to be highly sought after. In particular, larger, more liquid occupiers from the banking sector, a number of whom remain on the market for space in the region of 100,000 square feet to 150,000 square feet, are expected to pursue this option.
 
The upturn in demand, especially from the real estate sector, is triggering the implementation of an unofficial quota system by some landlords, as they work to minimise the exposure to any one sector in particular.  This trend is expected to gather pace across the city as building owners take a more strategic view of their assets. Reflecting this maturity is the fact that discounts are available on larger office space requirements, particularly if it results in further diversification of tenant bases.
 
Buoyancy in the industrial market has seen occupier demand rise during the first quarter of 2014, with initial preparations for the World Expo 2020 beginning to take place around Al Maktoum international Airport and Jebel Ali Freezone. As a result of the rising demand in this area, rents in Dubai Investments Park (DIP) for industrial units continue to edge upwards. With supply levels decreasing in parts of new Dubai, freezone expansion in inevitable.
 
"As supply constraints start to impact on industrial occupiers' expansion strategies, we expect to see a rise in the amount of purpose built facilities, particularly from the rapidly expanding F&B sector. In addition to the expansion of freezones, we are anticipating an increased amount of speculative warehouse development, as submarkets in the vicinity of Dubai World Central approach saturation", Morgan concluded.