Dubai is continuing to experience strong demand for prime office space, which is encouraging a wave of new developments in prime areas as demand outstrips supply, according to the property broker CBRE.
The agency’s first quarter report argued that the performance of the local economy meant that vacancy rates had declined in markets such as Dubai International Financial Centre (DIFC) and Tecom, leading to speculative development projects being undertaken.
“Tecom and DIFC, in terms of their directly-managed portfolio, are pretty much full,” said Matthew Green, the head of research and consulting at CBRE Middle East. “There are only small pockets of space available.”
Mr Green said that even most of the buildings that are under construction in Tecom’s Media City and Internet City districts, such as its own Butterfly Building and Sweid & Sweid’s The Edge building, are now largely pre-let before they come onto the market, while many firms within the free zone have had to refurbish existing space to make more room or consider relocating. DIFC’s lack of space, meanwhile, has led to the commencement of its own Gate Village Building 11 project and the 54-storey, US$1 billion ICD Brookfield Place tower.
Dubai’s economy continues to outperform the rest of the region, with the IMF forecasting growth of 3.7 per cent for the emirate, compared with 2.4 per cent for the UAE and 1.8 per cent for the wider GCC.
Mr Green said the availability of “good quality, single-held office space remains tight” following a surge in pre-leasing activity over the past 12 months. As a result, average rents grew marginally in prime locations to Dh1,916 per square metre per year, which CBRE said reflected “sustained demand for well-located and good-quality office products”.
Development activity has been fairly limited, with the amount of new space due to come on to the market over the next three years standing at about 750,000 square feet – less than 10 per cent of the existing stock. About 10 per cent of this sits within the new Dubai Trade Centre district which, alongside the new Dubai Design District, has shown healthy levels of pre-lets, according to Mr Green.
However, about 25 per cent of this new stock is likely to be in smaller, strata-owned units in Business Bay – an area that is still contending with an oversupply of space following the 2008 global financial crisis and one which lacks free zone status.
“Certain business towers there are also a long way from the metro and public transport, which is causing a headache for some landlords,” said Mr Green. “Commercial occupiers put real value on being close to the metro – it’s more important to them than it is for residential customers.”
At a recent media round-table event, competitor Cluttons said that office rents in Business Bay stood at Dh70 to Dh140 per sq ft, meaning it offered comparable value to much older districts like Deira (Dh60 to Dh120 per sq ft) and Bur Dubai (Dh60 to Dh140).
“Although it is in the centre of the city, it offers among the cheapest entry level rents,” Cluttons’ head of research, Faisal Durrani said.
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