Dubai’s office market faces a “challenging” outlook, with further rental declines likely to come over the summer months after a period of relative stability, says the property consultant Cluttons.
The company said that although rents held in some of Dubai’s prime free zones, such as DIFC and Dubai Media City, during the first three months of this year, headline rents in non-free zone areas and for strata-owned space continued to fall.
Cluttons said that for the remainder of the year, rent falls “of up to 10 per cent on average cannot be ruled out this year”.
Faisal Durrani, its head of research, said: “The current weakness in some sub-markets of Dubai’s office market is expected to persist, with further rental declines likely as we move into the summer months”.
Cluttons said that following recent redundancies in banking and finance, a small amount of office space has started to trickle back on to the market. This is moving the supply-demand imbalance further out of kilter and landlords have generally been slow to react to market conditions.
It said there was “a growing minority” of landlords who are reacting to conditions, citing landlords in Business Bay and JLT who have been offering rent-free periods and, in a few extreme cases, rent reductions of up to 20 per cent, as well as contributions towards utility bills and fit-out costs.
“Following a period of relative stability, we are increasingly noting instances of negotiated rent reductions, materialising at the same time as a growing number of lease incentives offered by landlords,” said Mr Durrani.
Outside Dubai’s free zones, average rents for Grade A space dropped by 8 per cent quarter-on-quarter to Dh230 per square foot. Grade B space also declined 8 per cent in value to Dh110 per sq ft. Certain sub-markets such as JLT and Business Bay recorded more significant rental declines – initial rents in both markets dropped by 14 per cent during the quarter.
Over the long term, Cluttons said that it expects free zones to remain the focus of occupier activity.
Murray Strang, Cluttons’ head of investment, said: “It is our view that free zones can help to transform Dubai into a global commercial hub, with the possibility of Dubai becoming a citywide free zone in the future; a move which would help drive the evolution of the office market.”
Asteco’s latest Dubai report says that Dubai’s office market has never fully recovered from the global financial crisis, with rents still 70 per cent below peak rates achieved in the third quarter of 2008 and sale prices remaining 55 per cent lower.
In terms of sales, it said transaction volumes for office sales were 50 per cent lower year-on-year, which it argued was “possibly an indication of lower purchaser demand and sellers unwilling to reduce prices”.
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