Office space demand in Dubai surged by nearly a quarter in the first half of 2023, an “unprecedented spike” led by an increased preference for grade A locations, a new study has shown.
Demand in the six months to the end of June rose 23 per cent annually to almost 54,000 square metres, underpinning the robust demand for commercial office space, consultancy Knight Frank said in its market update on Thursday.
Interest in Grade A developments, in particular, continued to grow during the period, as occupiers – both local and international – increasingly gravitate towards office spaces that are efficiently managed, well maintained and accredited to environmental, social and governance (ESG) standards, the London-based firm said.
Tenants also believe that high quality offices contribute to talent attraction and retention, Knight Frank said, which would be a key selling point for companies in a competitive workforce market.
This has led to a strong performance in average office lease rates in the 25 submarkets Knight Frank monitors, it said.
However, this is a challenge for developers as they try to keep up with continuously rising demand, said Faisal Durrani, partner and head of Middle East research at Knight Frank.
“Dubai’s office market continues to experience a severe shortage of supply, with just 3 million square feet [278,700 square metres] of space due to be completed between now and 2026, the vast majority of which is already spoken for. This is against a backdrop of 580,000 square feet [54,000 square metres] of requirements,” he wrote in the report.
“With no supply relief in sight and economic growth being sustained … the only way rents are likely to continue trending is upwards. Still, while occupiers may be getting a relatively ‘good deal’ compared to historic rates, the shortage of options is likely to be even more frustrating.”
Business activity in Dubai's non-oil private sector economy maintained a robust speed of expansion in June, improving at the quickest pace in three years, as new orders rose sharply despite inflationary pressures.
The emirate's economy, which last year rebounded strongly from the coronavirus-induced slowdown, has carried the growth momentum into this year, supported by the resurgent travel and tourism sector and its rapidly improving property market.
The Dubai International Financial Centre remained the city’s best-performing location, driven by Brookfield Place, where rents remain well above the wider DIFC average of around Dh2,799 per square metre.
The 92,900-square-foot Brookfield Place is the among the world’s 20 largest Leed Platinum rated buildings and was also the first building in the Middle East to achieve a Platinum WiredScore rating, which assesses the quality and resilience of digital infrastructure in buildings.
Elsewhere in the emirate, Business Bay, the Trade Centre District and Dubai Marina have posted the biggest rise in office rents in the past 12 months, recording 69 per cent, 54 per cent and 54 per cent, respectively.
Average office lease rates in Business Bay were at about Dh1,894 per square metre, making it approximately 22 per cent more affordable compared to the adjacent Downtown area with Dh2,422 per square foot. Rents in the Trade Centre District and Dubai Marina stood at an average of Dh2,077 and Dh2,153 per square metre, respectively.
Office rents in Business Bay were also the biggest climber from the first quarter of 2020 – the last three-month period before the Covid-19 pandemic took hold – through the second quarter of 2023, registering an increase of about 130 per cent, the Knight Frank report said.
The Trade Centre District, Jebel Ali Free Zone, Jumeirah Lakes Towers, Downtown Jebel Ali, Barsha Heights, Downtown Dubai and Dubai Marina all registered increases above 40 per cent to lead all areas monitored by Knight Frank.
Growing preferences for ESG-accredited buildings in Dubai imply that the emirate is ahead of the curve, given that ESG considerations are still a relatively nascent concept across the Middle East.
“There are indications that the market is responding to the global green agenda. These indications are evident through a growing emphasis on sustainability, energy efficiency and environmentally responsible practices in the construction, operation and management of properties,” Mr Durrani said.
“Developers integrating ESG practices appear to be benefiting financially from the growing demand for ESG-rated office buildings. Global blue chip businesses, with green mandates, are the principal driver behind this and are willing to pay premiums to occupy such office buildings.”
The gravitation towards more advanced buildings are also proving to be a challenge for older, more secondary office stock, as lease rates in older buildings are still trailing pre-Covid levels irrespective of location, Knight Frank said.
