Expert Eye - Office sector registers strong H1 2016

Office sector registers strong H1 2016Declan McNaughton, Managing Director UAE - Chestertons MENA

What a difference a year makes. For Dubai's office sector, the first six months of 2016 have been all about upward market movement after months of relative stagnation and subdued demand.

Our latest market report shows a quarter-on-quarter increase of 6 per cent in overall transactions, with June standing out, registering a transactional increase of 18 per cent in April and May valued at Dh299 million, with an impressive Q2 total value of Dh823.46 million.

Rounding out the first half of the year on an optimistic note, demand for office space across popular business locations in the city has seen consistent transactional growth month-on-month since the New Year.

Looking at the main commercial hubs, Business Bay occupies the top spot when it comes to demand and price, with increases in both sales and rental rates, while the other major business communities of Dubai International Financial Centre (DIFC), Barsha Heights (formerly Tecom), Dubai Silicon Oasis and Jumeirah Lakes Towers have remained relatively stable.

Of course, developers, landlords, economists and real estate agencies all want to see sustainable price increases, higher occupancies and steady demand but after a prolonged period of waiting and watching, it's certainly encouraging to report a solid six-month performance in a sector that directly reflects the overall health of the economy and its future prospects.

So, what do we read into this? On the upside, this could well mean that the office market has plateaued ahead of what we hope will be a period of sustainable growth. This is especially relevant as Dubai continues to ramp up its economic development, infrastructure and activities in the run-up to the Expo 2020 hosting.

The growth in transactions clearly indicates that investor confidence is returning. Our report also found that mortgage approvals were up quarter-on-quarter by 17.6 per cent to reach Dh329.96 million. Again, this is to be read as a positive market indicator both with renewed signs of support from the banking sector and an indirect endorsement from market prospects.

Cynics might say that this is also a prime time for speculators to move in. However, speculators only move markets temporarily. It is market fundamentals that provide direction, momentum and endurance, and the fundamentals moving forward are both strengthening and credible.

Business Bay is clearly the investment location of the moment as it continues to develop its appeal both from a business and social/leisure perspective. With all the development and roadwork, it is easy to forget just what a central and strategic location Business Bay is. Flanked by Burj Khalifa, The Dubai Mall and The Dubai Canal, it is expected to become one of the most popular locations in the years to come.

Sales prices for towers in the area are currently at Dh1,360 per square foot, up from Dh1,250 in Q1 2016, a healthy 8.8 per cent increase, with a slight increase in quarter-on-quarter rental rates also noted. That compared favourably with the performance of office space in DIFC which dropped from Dh1,905 to Dh1,850 per square foot, a near 3 per cent fall.

The Expo 2020 will continue to dominate economic decisions at different levels and with access to the site as well as the Maktoum International Airport, the emerging Dubai South (formerly Dubai World Central) development will undoubtedly join Dubai's leading business communities as an in-demand location.

The new Dubai Metro Red Line's 15-kilometre extension from JLT to the Expo 2020 site will also provide a stimulus for community development along its route through to Jumeirah Golf Estates and Dubai Investments Park.

Investors, take note.

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Source: Declan McNaughton, Special to Freehold

The author is Managing Director UAE - Chestertons MENA


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