Healthy Outlook for Dubai Real Estate Sector

Mixed level of activity in Dubai office market indicates healthy outlook for sector, says Cluttons

While the level of office market activity remains mixed throughout Dubai, Cluttons’ Spring Office Market Bulletin indicates growing maturing and a healthy outlook for the sector. As occupiers continue to ‘rightsize’ to suit their business needs, against the backdrop of rising inflation and global economic factors, office rents have continued to moderate, according to leading international real estate consultancy, Cluttons.

The report shows that headline rents in the city’s top tier free zones have remained largely steady, bar one or two low quality buildings. Away from prime Grade A buildings, which remain well let and in high demand, landlords are demonstrating greater flexibility and are largely receptive to rent reductions at renewal.

Faisal Durrani, Head of Research at Cluttons said: ‘Global economic factors continue to have a direct impact on the real estate market in the UAE. In the office market, upper limit headline rents have been affected, with occupiers either sitting tight, regearing leases, or continuing to consolidate operations. In fact, 5 of our 24 submarkets registered minor downward adjustments during the final quarter of last year, with the weakness persisting into 2018. It is our view that this will continue for the remainder of the year with rents set to fall AED 5 psf to AED 20 psf. However, core free zones are likely to buck this trend, with rents holding steady.’

Cluttons’ latest report also indicates that while overall conditions may seem flat, landlords are not yet at the stage where large discounts and extensive incentives need to be offered.

Paula Walshe, Director of International Corporate Client Services at Cluttons said: ‘So far, the introduction of VAT has not had any real impact on landlord behaviour but we are monitoring this closely. While absorbing the 5% VAT costs does not appear to have been considered yet, this may well emerge as an option should rental weakness linger into 2019.’

Cluttons is also monitoring the rise of co-working and serviced office providers. The evolving definition of an office, along with the rise of remote working, is fuelling this trend globally.

Walshe continued: ‘Landlords in Dubai can perhaps learn from this trend in order to generate more interest in vacant stock, although with work visa quotas still linked to the amount of space let, organisations operating with an ‘agile working’ policy may still need to let more space than they need.’