UAE Office Space Has Room To Grow
July 16, 2016

Canadian developer Brookfield Property Partners’ joint venture on a USD1 billion office tower in Dubai highlights the UAE’s attraction to international property players.
Brookfield’s 50-50 joint venture with Dubai–government-owned Investment Corporation of Dubai (ICD) will oversee the construction of a 53-storey tower in the Dubai International Finance Centre (DIFC), set to be completed by late 2018.
The massive investment comes just as the UAE’s residential real estate sector rental and sales have slowed down on rising supply and a low crude oil price environment. In addition, the UAE dirham’s peg to the American dollar has also made the country expensive for investors from Asia, Europe and Canada – which makes the Brookfield deal even more remarkable.
The latest Dubai Real Estate Tracker survey by Markit suggests that average sold prices decline at slowest pace since June, despite an accelerated fall in new buyer enquiries.
“Looking ahead, around 47% of real estate agents expect a fall in Dubai property values over the course of 2016, while 32% forecast a rise, Markit said in a note.
“Survey respondents generally noted that market conditions would favour buyers over the next 12 months, as construction volumes look set to remain strong while the uncertain economic outlook has acted as a brake on investor demand.”
Despite the uncertain environment the office space segment has held up.
“Whilst average office sales prices showed a 2% decline, this was predominantly for the lower end of the market as owners were keen to sell,” according to real estate consultancy Asteco Properties.
Average sold prices decline at slowest pace since June
Indeed, Grade A buildings saw a 4% increase last year, with enquiry levels for quality spaces high in the second half of the year, compared to the first half.
Rental rate growth was also flat, although the real estate consultancy reports high level of enquiries from investors.
“Over the next 12 months, the market is expected to witness a significant amount of office stock being released for both Grade A and strata units that could potentially lead to a reduction in rental rates as landlords seek to limit vacancy levels,” Asteco said.
Dubai’s office market saw a nearly 9% increase in office space, with 700,000 square metres of gross leasable area coming on the market in 2015, taking total stock to 8.3 million square metres.
A quarter of the space was delivered in office space, while the new Dubai Design District (17%), TECOM and Logistics City were home to 13% of the new space. The new Dubai Trade Center District (DTCD) also saw its first office space on the market.
“Looking ahead, an additional 600,000 sqm of GLA is expected to be delivered between 2016 & 2017, with around 35% of this proposed supply expected in Business Bay,” according to Jones Lang La Salle.
Abu Dhabi saw a more modest increase in new office space last year of around 146,000 sqm, taking the total stock to 3.3 million sqm. Jones Lang La Salle expects another 400 sqm to enter the market over the next two years.
As more Grade A stock is delivered to the Dubai market over the next couple of years, such as Dubai Trade Center District and ICD-Brookfield project, rental rates across the Central Business District (CBD) are expected to remain flat, JLL said.
“Vacancy rates across the CBD, currently at 19%, are expected to increase,” JLL noted.
An era of lower rents would make the UAE a more attractive place for international businesses.
Dubai was recently named as the 20th most expensive destination for office rents, according to a recent report by CBRE. Dubai office space could be leased for USD92.57 per square foot, compared to frontrunner London’s USD272.56.
Just a few years ago, Dubai was among the ten most expensive jurisdictions, and the lower rents would certainly help the emirate attract businesses.
Abu Dhabi is also emerging as an important business destination in the region, with office rents rising 7% last year, due to the limited stock of Grade A offices. The development of the Abu Dhabi Global Marketplace, which officially opened last October, will also raise the emirate’s business profile.
The financial free zone will be built on Al Maryah Island, a 114 hectare island between Abu Dhabi’s downtown district, Al Reem Island, and a new cultural district on Saadiyat Island.
Abu Dhabi Global Market Square will be at the heart of Abu Dhabi's new International Financial Centre, with a 450,000 sqm office, retail and hotel developments dotting the landscape. The wider project also feature residential and hotel developments.
The resilience of the UAE’s office space underscores the emirate’s long-term growth as a business destination, with investors shrugging off oil price volatility and focusing on the fundamentals driving the UAE economy.
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