An additional 1 million square metres of office space is to hit the Dubai market over the next 15 months as the economy shows signs of slowing.
According to the property broker Knight Frank, the amount of office space in the emirate is set to rise from 9.5 million sq metres to about 10.5 million sq metres by 2017 as three major new developments come on stream.
Prime office developments due for completion by the end of the year include the remaining buildings in the first phase of Tecom’s 185,000 sq metres D3 development at the Design District, the 20,000 sq metres C1 office development at Dubai World Trade Centre, and Dubai Multi Commodities Centre’s (DMCC) 27,000 sq metres One JLT.
Dubai property developers are already planning to build millions more square metres of prime office space in the coming years. They include the world’s tallest commercial tower, DMCC’s Burj 2020, and ICD Brookfield Place, a US$1 billion development between Investment Corporation of Dubai and the Canadian asset manager Brookfield.
In a report published on Thursday, Knight Frank reported “a slightly longer and sustained drop in occupier sentiment over the Ramadan period”, but said that leasing inquiries in the city remained “buoyant”.
The broker said it expected prime rents to remain flat. That is because although 26 per cent of offices are vacant in Dubai, many of these are in buildings which have been sold to several owners through what is known as strata title, making them less appealing to international occupiers.
Knight Frank said that prime office rents between July and September stood at Dh1,990 per sq metre per year – unchanged from the previous quarter but up 2.1 per cent from a year earlier.
Offices in the Dubai International Financial Centre, home to financial institutions and law firms, had the highest rent, averaging at Dh2,530 per sq metre, while Emaar Square and Downtown, where many professional services firms are located, came second at Dh1,991 per sq metre.
Rents in Internet City, Knowledge Village and Media City – home to Dubai’s technology and media centres and university campuses – stood at Dh1,615 per sq metre, while rents in Business Bay, where many of the new strata-built office blocks are located, stood at Dh1,507 per sq metre.
This week, a report from rival broker JLL found that 53 per cent of the 283,000 sq metres of office space delivered in the third quarter was in Business Bay.
“Dubai has effectively got a two-tier office market, with a lot of the new office space coming online being located in Business Bay and not being quite up to the same standards that you would get as the new developments being built in proven areas,” said William Neill, the head of commercial leasing and sales at Knight Frank.
“With oil prices remaining low, we have been watching the market to see what that means for office demand. But so far, since the summer, we have seen an increase in the number of inquiries.”
Craig Plumb, JLL’s head of research in Dubai, said the city’s office market remained largely fragmented, highlighted by the continued “flight to quality”.
“While the central business district continues to see strong demand and command higher (but stable) rents due to better amenities and parking, stock in secondary locations suffers from lower occupancy rates and rents. This is further aggravated by the excess supply of strata- owned office buildings that are likely to remain vacant in the short term,” he said.
Follow The National’s Business section on Twitter