Improving economy boosting growth in Dubai’s commercial real estate sectors

Growth is being recorded across most of Dubai’s key commercial real estate markets as the   emirate’s economy rebounds, creating increased occupier demand.

But this is focused mainly on centrally located submarkets such as DIFC, Downtown Dubai, Business Bay, Barsha and Jumeirah Lake Towers (JLT), according to the latest research by international real estate consultancy Cluttons.

On average, prime office rents at AED200 per square foot have risen by 8.1% between the first and second quarter of 2013, but the firm says that this masks the fact that Grade A prime stock is still available for as low as AED150 per square foot in some submarkets.
The report points out, however, that many landlords who have recently taken possession of properties maintain unrealistic rent expectations that is stemming occupier demand. It adds that downward adjustments are expected as landlords lower rents to match occupier expectations. Limited parking provisions and strata ownership challenges are still acting as barriers for larger occupiers in locations such as Business Bay.
‘These higher asking rents are in part underpinned by the need to generate income streams to offset borrowing, however rent adjustments to market level are inevitable. With the current glut of office space waiting in the wings, it is unlikely that the market will experience a sudden surge in rental values, with only a long and drawn out increase in rents expected,’ said Steve Morgan, head of Cluttons Middle East.

Bucking this general trend, the almost saturated DIFC still retains the highest office rents in Dubai, currently hovering between AED175 per square foot and AED280 per square foot and with prestigious buildings in prime locations continuing to outperform the broader market average.

This has seemingly been the catalyst for the DIFC’s recent expression of interest in developing the remainder of its land bank at an estimated cost of AED 15 billion, the report points out.
It also says that a limited supply of 100,000 square foot headquarter space is impacting the larger requirements led by local banks but the report days that these remain limited in number.

Meanwhile corporate tenants elsewhere in the city are increasingly are negotiating longer lease terms with fixed rents, or built in increases of around 5% per annum. This is expected to protect them from short term rental increases that are driven by improving economic conditions and soon to complete infrastructure improvements in locations such as JLT and Business Bay.

The retail sector is also continuing to benefit from improved economic conditions, with new and existing retailers particularly drawn to affluent sub markets such as Al Wasl and Jumeirah Beach Road, the report says.

Rents in these areas currently stand at between AED 200 and AED350 per square foot with retail bank branches, coffee chains, clothing shops and furniture outlets proving to be the most active retailers.

Developers are also catering for the local market with new community malls such as The Pointe (Palm Jumeirah), Jumeirah Beach Village (Dubai Marina) and The Ribbon (Motor City) getting ready to meet current demand.

‘We anticipate that these new community shopping centres, along with the expansion of more established malls, such as Dragon Mart, Al Ghurair Centre, The Dubai Mall and Mall of the Emirates, will be quickly absorbed into their respective communities, with pre-lets likely for majority of the new space,’ said Morgan.