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Dubai: Demand for office space slows in H1 2016

Economic slowdown curbs appetite for office space, while free-zone areas continue to maintain strong demand in Dubai

Rents remained stagnant in the second quarter of 2016.
Rents remained stagnant in the second quarter of 2016.

Demand for office space in Dubai has receeded in the past six months, as the ripple effect of the oil price collapse and the subsequent economic slowdown in the rest of the Gulf reverberates across the emirate’s commercial property market.

Cluttons’ bi-annual Dubai Office Market Bulletin shows that as firms retrench staff and reconsider their future strategy in the wake of global economic challenges, decisions to acquire, expand or move office space have commonly been put on hold.

This has resulted in an exaggeration of the seasonal summer slowdown throughout late Q2 and early Q3 2016.

Murray Strang, head of Cluttons Dubai, said: “Free-zone areas have remained in relatively high demand. This includes areas like Tecom’s Dubai Internet City (DIC), Media City (DMC) and Knowledge Village (DKV), DIFC and Dubai Design District (D3), which all contain internationally recognised Grade A space.

"As such, the prime, central areas of these free-zones have very low vacancy rates, of around 5%, compared to submarkets such as Sheikh Zayed Road (Trade Centre), which has stock of mixed quality and age, and vacancy rates closer to 20%.”

According to Cluttons’ office bulletin, rents remained stagnant in the second quarter of 2016, with falls recorded in six of the 22 submarkets. Most declines were seen in areas with higher vacancy rates, particularly of second hand stock, such as Al Barsha (-10%), Deira (-5%) and Garhoud (-18).

Certain submarkets have seen minor uplifts in upper limit rents, including the DIFC (6%) and the wider Tecom submarket (7%).

“However, these are the exception, as no movement was recorded in either lower or upper limit rents in 14 submarkets during Q2,” Strang explained.

Cluttons research also highlights that, the general lack of rental growth is unlikely to change in the short-term. Across the market as a whole, rents are not expected to fall much further, particularly as they are at a point where they are considered to be fair market value and landlords appear unwilling to lease below a certain level.

Faisal Durrani, head of research at Cluttons, explains: “Based on our research, landlords are offering increased incentives, such as rent free periods and fit out contributions to attract tenants and as such we expect a period of minimal rental change for at least six to nine months before there are any signs of an uplift.”

 

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