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Cluttons: Dubai office market in demand in Q1 2016

Old Dubai remains a hub for local businesses, with a steady stream of demand coming through over 2015

The strongest performing submarket during 2015 was the Dubai Internet City, Dubai Media City and Dubai Knowledge Village.
The strongest performing submarket during 2015 was the Dubai Internet City, Dubai Media City and Dubai Knowledge Village.

Stability in office rents in Dubai persisted throughout Q1 2016 as a result of continued high demand from both international and domestic occupiers.

According to Cluttons’ first office market bulletin for 2016, showcasing the performance of 22 submarkets across the city in the first quarter of the year, 13 submarkets witnessed no change in starting rents in 2015, whereas seven submarkets witnessed notable increases and the remaining two saw lower limit rents decrease over the 12 months of 2015.

Faisal Durrani, Cluttons’ head of research, commented: “Despite sustained demand, occupiers remain cost conscious and budget driven in the face of a softening global economic backdrop, with the key word for many being ‘prudence’. Landlords, by contrast appear to be slow to react to the cooling market, with many reluctant to move on asking prices and others demonstrating a lack of flexibility for lease terms at renewal. The emerging gulf between market reality and landlords’ expectations is a concern, particularly for a market that is now starting to show signs of maturity.”

Cluttons data also shows that, the strongest performing submarket during 2015 in New Dubai was the Tecom Dubai Internet City, Dubai Media City and Dubai Knowledge Village area. 

Murray Strang, head of investment and agency at Cluttons UAE said, “Firms continue to be attracted to this free-zone submarket because of the high quality of buildings and the presence of other high profile occupiers in the area. In comparison, JLT (Jumeirah Lake Towers) has seen both lower and upper limit rents fall over the past 12 months, by 13% and 10% respectively.”

The attractive lease rates that were initially offered to attract occupiers to the area were positioned to undercut rents and have therefore resulted in some downward readjustments as the submarket rebalances itself after the release of extra space, according to the property firm.

According to the heat maps produced for the bulletin, Old Dubai remains a hub for local businesses, with a steady stream of demand coming through over 2015.

The continued popularity of the Old Dubai market is reflected in the rise of rents in areas like Bur Dubai and Garhoud. Bur Dubai registered a 20% rise in lower limit rents, while upper limit rents moved up by 7% at the end of last year.

“The narrowing rental band is reflective of the markets gradual maturing process, however, it is also hinting at the achievement of a potential ceiling in upper limit rents. With the majority of stock comprised of older buildings, there is a growing opportunity for landlords to undertake refurbishment in order to drive rents up,” said Strang.

The report also highlights that, some submarkets are experiencing the effects of rental stagnation. 

“This reflects a stabilisation in requirements for fringe office space. Dubai South, which will house the largest airport in the world, Al Maktoum International, in addition to the World Expo 2020 site is positioning itself as a significant destination in its own right which in the long-run is likely to help bolster office rents”, Durrani concluded.

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