UAE's office rentals better off with slower increases

UAE's office rentals better off with slower increasesImage Credit: Supplied

Dubai and Abu Dhabi did not make it to the Top 10 rankings of cities with the highest growth rates on rentals for prime office space during 2014… and that can only be a good thing. In fact, Abu Dhabi just about made it to the 50th spot in rankings - compiled by the consultancy CBRE - that were dominated by Dublin (with a year-on-year gain of 34.9 per cent), Manila (20.7 per cent) and Seattle (20.3 per cent).

Growth in asking rates on office leases in Abu Dhabi were at 2.4 per cent, according to CBRE estimates for the 12 months that ended September 2014.

Even without a major upswing, Dubai’s Grade A offices are still among the most expensive… with a square foot averaging $92.56 (Dh340) and placing at 23rd. On this score, London’s West End had the most expensive offices, at $273.63 and Hong Kong (Central) in second at $250.61 a square foot.

The slower rental demand increases in Dubai and Abu Dhabi bodes well for the near-term prospects of both. What the market does not need right now is to go through sharp spikes and which would add to the cost of doing business in the cities. The cost factor is already high on the residential side, with rental increases in Dubai rated as among the highest in the world during the same period.

As such, demand has been building up gradually for new office space in the last 12 months, with much of the completed – or near-complete - Grade A space already spoken for by tenants. The pipeline of new stock is also substantial which could also ensure that sudden increases on rents don’t happen.
If anything, any near-term increases should remain within bounds, industry sources say. “December witnessed a lot of activity (in Dubai) with newer office spaces getting occupied,” said Ranjeet Chavan, Director at the estate agency SPF Realty. “Prices in key locations will grow marginally because of the (current) restricted supply.”

Existing Grade A office buildings have limited vacancy, with those on Shaikh Zayed Road having rents of between Dh140-Dh180 a square foot, while ready-to-occupy offices in Business Bay are going for sale at between Dh1,250-Dh2,000 a square foot. Average office rents in Business Bay currently range between Dh125-Dh180. (Non-fitted offices generally have lower asking rates by about 15 per cent. However, some non-fitted office buildings can fetch higher rents because of the location and build quality which can be a magnet for blue-chip tenants, Chavan added.) Meanwhile, offices at JLT are now priced between Dh850-Dh1400 per square foot when up for sale, while rentals fetch landlords between Dh80-Dh140. “If one looks at the annual rental yield as a return on investment, this is definitely a notch above the residential property in terms of percentage,” said Chavan.

Learn more about Dubai office market

Source: Manoj Nair, Associate Editor,

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