Analysts bullish on Dubai’s prime office space as rents rise
Rents for Dubai’s most prestigious offices could rise by 20 per cent this year and another 10 per cent next year, property experts predict.
Rent increases for the best offices in prime Dubai locations will be driven by demand from corporates and small businesses, the property agent Knight Frank estimates.
Having rocketed to a high of Dh4,000 per square metre during the boom years and languished at a low of just over Dh1,500 in the crash, rents for the best areas of Dubai under sole ownership (excluding Dubai International Financial Centre) rose last year for the first time since the crisis and reached Dh1,950 per sq metre during the first three months of this year, Knight Frank said.
Rent rises were highest in locations such as Emaar Square and Downtown, Tecom C and Business Bay, all of which had double-digit increases over the past year, Knight Frank said.
And the property agent added that prime rents are expected to rise more over the coming two years despite an increase in the amount of office stock through the completion of long-stalled projects.
The agent said that vacancy rates for prime office buildings fell from a high of about 20 per cent in 2011 to 18 per cent last year and had fallen to 16 per cent in the first quarter this year. It expected those rates to continue to fall over the coming two years to about 15 per cent.
The figures reflect data from Dubai’s Department of Economic Development, which reported that the number of new business licences issued last year rose by 11.4 per cent year-on-year to more than 18,000, with the strongest growth in the professional services category.
“In the first quarter of this year, demand was strongest from the professional sector, which accounted for almost 40 per cent of all enquiries,” said Jon McGloin, Knight Frank leasing manager. “The technology and general trading sectors were the next biggest sources of demand, accounting for 14 per cent and 12 per cent, respectively. The engineering and construction, leisure and hospitality, real estate and oil and gas sectors featured further down the list.”
The figures also chime with JLL’s recently published first quarter office market report, which found that prime office rents in Jumeirah Lakes Towers rose by a 36 per cent over the year to the end of March and those in Tecom A and B rose 29 per cent. Rents in DIFC and Business Bay were also up 11 per cent.
The prognosis for the majority of Dubai’s fledgling office market was not so good, however. About half of all office space in the city remains empty. And it looks set to remain so for the long term, with Knight Frank predicting that the market-wide vacancy rate across the city would fall slightly to 45 per cent by the end of next year as the amount of office stock increased by 1 million sq metres over last year.
Dubai’s office market has been the property sector slowest to show any signs of recovery from the 2009 property crash.
Low vacancy rates before the boom prompted a glut of office building across the city as developers sought to supply what seemed like massive demand.
Many developers sold small units in office buildings off plan to investors in the same way that they were selling residential apartments – fuelled by an expectation that they could sell them on later to companies at a large profit.
But when the global financial crisis hit demand tumbled as many companies folded, retreated from the country or slashed staff numbers.
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Published: May 4, 2014 04:00 AM