Business Bay, and beyond: Dubai office space hunt stabilising

Business Bay, and beyond: Dubai office space hunt stabilising
Office market stabilising after period of strong activity: Cluttons
By Emirates 24/7 news
Published Sunday, November 22, 2015

Business bay Dubai office space hunt

Inter-emirate relocation especially to Sharjah and Ajman were relatively much lower during this period of growth in Dubai. (Shutterstock)

Following a period of strong growth, Dubai’s office market is showing signs of stabilising, with average rents remaining virtually unchanged across all the city’s major submarkets and free zones, according to Cluttons.

The consultancy’s ‘Winter 2015/16 Dubai Commercial Market Outlook’ report revealed that overall, prime, secondary and tertiary office rents have remained unchanged for the first three quarters, standing at Dh250 per square feet (psf), Dh130 psf and Dh70 psf, with the market remaining quite fragmented.

Micro markets, which are often as small as specific buildings, continue to buck wider market rates, such as Emirates Towers (Dh310 psf), or The Gate District (Dh225 psf).

Steven Morgan, CEO, Cluttons Middle East, said: “Occupier activity is down, however a positive sign remains in the diversity of the market, which is reflective of the overall economic activity. Banks, financial institutions, law firms, construction companies and technology-media-telecoms firms round off the list of the most active occupier groups, with the city’s free zones remaining the primary target.”

The upward creep in rates in some of Old Dubai’s office submarkets is also reflective of the performance of the wider economy and dominated by domestic occupiers.

Morgan added: “Although space requirements from this segment are undoubtedly lower than this time last year, the limited amount of new stock deliveries in these areas, coupled with a steady rate of requirements, is putting upward pressure on rents in some key locations and buildings.

“This is driving some migration to submarkets such as Business Bay, where average rents range from Dh70 psf to Dh120 psf are perceived to offer better value for money compared to Deira or Bur Dubai with the added advantage of being more centrally located, as the city’s centre of gravity continues to drift further south.”

According to the report, the city’s free zones still tend to be dominated by multinational organisations, with take up activity is intrinsically linked to business performance in their home markets. Cluttons also underlines moves by hydrocarbon based occupiers to consolidate office space as global headcounts are adjusted downwards, although this is not considered to be a major occupier group in Dubai compared to other regional markets.

Faisal Durrani, Head of Research at Cluttons, said: “Free zones across the city continue to review expansion plans in order to cater to the buoyant level of requirements, with schemes such as the Innovation Hub at Dubai Internet City expected to ease pressure on rents once completed in Q4 2017. New free zones are also seeing increased interest and activity, highlighting the important role free zones play.

“EnPark, for instance, has emerged as Dubai’s latest success story and US based occupiers in the energy sector appear to be showing high levels of interest in securing space at TECOM Investments’ specialist Dubai Biotechnology & Research Park (DuBiotech) free zone cluster as they home in on the growing green tech and energy sector in the region”.

Despite this, Cluttons does, however, remain cautious on the short term outlook for Dubai’s commercial market. Durrani added: “With the outlook for global growth faltering, we expect occupier activity will continue to slow, with office space requirements shrinking during next 12 months. This comes at a time when land values in submarkets such as Business Bay are cooling and therefore improving the financial viability of some previously stalled projects, which are now seeing a resumption in construction activity. The ability of the market to absorb this new space is likely to dampen the speed at which the office market sees a resumption in rental value growth as there is a risk of supply inching ahead of demand, although a lot of this is likely to be in the Grade B category.”

Warehouse market plateaus

Away from the office market, the report reveals that rents across Dubai’s industrial sector are showing increasing signs of plateauing, following the record growth last year, with rents across most submarkets remaining unchanged in the first nine months of 2015.

Morgan said: “Although rents appear to have plateaued, a trend we expect to persist over the next six months, events such as the Expo 2020, the ongoing expansion of Jebel Ali Port, the progression of works at Al Maktoum International Airport and the lifting of trade sanctions on Iran early next year are all expected to help inject additional momentum into this crucial segment of the city’s economy.”

Overall activity in the industrial market remains diverse with Al Quoz remaining a hub for the automobile sector, while at Dubai South, logistics occupiers continue to show a high level of interest in acquiring airside plots.”

The report also confirms that investment activity has remained robust, with DIP being a particularly active market for Cluttons’ commercial teams. The recent sale-and-leaseback of a 55,000 square feet light industrial unit for Dh25 million, representing a net yield of 8%, attracted a high level of interest from a wide range of investors.

“This underscores the growing momentum behind this niche investment segment, which, unlike other property sectors, continues to offer investors a wide range of opportunities, with relatively attractive returns,” said Morgan.

Posted on November 22, 2015 in Dubai news, Property, Real Estate

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