Activity remains “muted” in Dubai’s office market, with a majority of districts in the city reporting flat or declining rents, according to Cluttons.
The company’s Spring 2017 Dubai Office Market Bulletin reported declines in top-band rents in 15 out of 23 submarkets monitored and increases in only two: DIFC, where top rents increased by 5.7 per cent year-on-year to Dh370 per square foot and non-free zone space in Dubai Design District.
The submarkets that had the greatest declines were JLT, which had a 22.2 per cent reduction in top-band rents to Dh140 per sq ft; Garhoud, 18.2 per cent, Dh90 per sq ft; and Al Barsha, 18.2 per cent, Dh 90 per sq ft. Lower-band rents fell by 14.3 per cent in JLT and Business Bay – to Dh60 per sq ft.
Faisal Durrani, the head of research at Cluttons, said that activity in terms of the take-up of new office space started to weaken during the second half of 2016.
“By no means would I go so far as to say that it had dried up, but it was weaker than a year earlier,” he said. “I think that … nervousness around the health of the global economy is putting multinationals in a holding pattern. They’re holding off on expansion activities until things become a little bit clearer.”
He said that there had not been a significant increase in the supply of new office space but that in certain areas such as Business Bay, Bur Dubai and Deira more secondary or tertiary space is being delivered.
“To an extent, international occupiers still discount Business Bay as an option for relocation simply because of the strata ownership status. And in places like Bur Dubai and Deira, you’re getting modern, high-spec, grade A buildings for the first time appearing and competing with stock that has been around for a while.”
He said that while there are costs associated with relocating, “occupiers are very much in the driving seat”.
“We’re finding that landlords are offering incentives, rent-free periods [and] contributions to fit-out costs to try and lure people from older buildings into new ones,” said Mr Durrani. “That’s causing a correction in those markets.”
In the prime market, however, there is a lack of space in DIFC and in specific free zones such as Dubai Internet City and Media City.
Demand for space in the latter is being driven by an active technology, media and telecoms (TMT) sector, Cluttons said, in part because of the Dubai government’s efforts to build smart cities and embrace new technologies. Samsung will shortly triple its space in Dubai taking a large presence in Tecom’s Butterfly Building in Media City, while Huawei is having a new Dubai headquarters built for it.
Mr Durrani said TMT “is going to be the star performer of the year” for Dubai’s office market this year.
Speaking at the launch of its Dubai Annual Market Update last week, Nick Maclean, the managing director of CBRE Middle East, said that a polarisation was taking place in Dubai’s office sector, with prime rents maintaining values but rents in the secondary market declining by 12 per cent.
“We see a clear differential now between the better quality, secondary and tertiary markets. The top 10 per cent of the market is actually doing very well but the secondary market is doing badly and the tertiary market is doing very badly,” he said.
mfahy@thenational.ae
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