UAE’s commercial property market records highest demand in nine years

Sector will continue to perform strongly in the foreseeable future, report says

Demand for office space continues to be strong in Dubai, according to the latest Rics survey. Chris Whiteoak / The National

The UAE’s commercial property sector recorded the highest demand for occupancy in the second quarter since 2014, amid a pickup in the economy.

Headline occupier demand posted an increase of "56 per cent net balance" in the April to June period, compared with a 53 per cent gain in the previous quarter, a survey by the Royal Institution of Chartered Surveyors showed.

“All three subsectors reported strong demand with a +56 per cent and +48 per cent recorded for office and retail, respectively,” Rics said.

“Industrial led the way on the strength of its occupier demand, with a +64 per cent reading – its highest level in almost 10 years, since the fourth quarter of 2013.”

The UAE economy bounced back strongly from the coronavirus pandemic-induced slowdown on the back of government initiatives and higher oil prices, which boosted demand for commercial and residential property.

Office space in Dubai recorded an annual increase of 26.2 per cent, the highest since the first quarter of 2015, a report by ValuStrat this week found.

The ValuStrat Price Index for office space rose by 7.9 per cent quarterly to 96 points, compared with a 100 point base in the first quarter of 2015.

Sales of office space in the second quarter set a decade-long high with 662 transactions, up 18.6 per cent annually.

Demand for office space surged in Al Reem Island of Abu Dhabi. Khushnum Bhandari/ The National

There has also been a significant surge in transactional activity in Abu Dhabi's office market during the first half of 2023, reflecting “the city's commitment to economic diversification and [this] serves as a powerful catalyst in boosting investor confidence”, Knight Frank said in its latest report on Thursday.

Average rents within Abu Dhabi free zones, which now include Al Reem Island, have risen by 31 per cent over the past 12 months to rates of up to Dh1,600 ($435.67) a square metre.

The increase has been driven by a combination of greater demand from businesses expanding their operations and a limited supply of available commercial space, according to Knight Frank’s Abu Dhabi Office Market Review – Summer 2023.

“In the first six months of this year alone, commercial office sales transactions rose to Dh1.3 billion, representing a 220 per cent increase in sales transactions compared to the same period last year," said Andrew Love, partner and head of ME capital markets and OLSS.

"Notably, almost 70 per cent of these transactions in 2023 took place on Al Reem Island and Al Maryah Island, amounting to a combined total of Dh919 million, driven by the availability of Grade A supply, which remains highly sought after but [in] very short supply across the city, and also by the recent announcement of ADGM's [the Abu Dhabi Global Market]’s expansion."

Abu Dhabi's office market is set to welcome an estimated 109,500 square metres of additional office space within the next two years, spread across Al Raha Beach, the Abu Dhabi mainland, Al Reem Island and Khalifa City, according to the report.

“Overall, the UAE commercial property market continues to be one of the world’s leading lights with signs that this market will continue to perform strongly for the foreseeable future,” Rics said.

Twelve-month rent expectations for the office sector are also positive.