Why UAE’s office landlords are turning more accommodating

They need to as Dubai and Abu Dhabi slip in rankings for premium global office spaceImage Credit: Ahmed Ramzan/Gulf News Archive

Office tenants can expect more accommodating landlords as Dubai and Abu Dhabi slip in the global rankings for the most expensive commercial space. Dubai now ranks 23rd while Abu Dhabi’s slipped out of the Top 50, in the latest update from CBRE, the property consultancy.

The decline is more telling in Abu Dhabi, which as recently as the third quarter of 2015 was among the most expensive cities to set up and operate an office address. The rollback in the energy and allied sectors was the obvious catalyst for change as was the strict cost control imposed by government organisations. CBRE places the rental for an upscale location in Abu Dhabi at around Dh180 a square foot at the end of the first quarter of 2016, down a fairly significant 5.3 per cent over a 12-month period.

In comparison, a prestige address in Dubai commands Dh280 a square foot. Within the city’s wider commercial space, the decline in office lease rates has been confined to a narrow range for the better part of this year. At the same time, new Grade A office stock in locations such as World Trade Centre District and Dubai Design District continue to pull in greater demand and at rates at a premium to the market average.


“We continue to see strong demand from international companies primarily seeking to improve the quality of accommodation and/or its efficiency,” said Nick Maclean, Managing Director, CBRE Middle East. “The latter point is particularly important for organisations whose staff are spread across several buildings.

“Overall, the market fundamentals in the commercial sector remain positive particularly for well-located buildings of good quality. Poorly located offices with indifferent facilities, particularly those which are badly managed, will struggle against more competitive new stock.”

This is why landlords with less than Grade A spaces to fill are more than willing to meet tenant demands halfway. These are likely to include a rental freeze for a set of years, a longer rent-free period within a year than is the norm, and more flexibility on fit-out charges.

According to market analysts, Dubai commercial space’s lower dependence on any one particular sector has been an advantage in the current economic climate. It also creates some breathing space for Grade B office landlords, as their tenants are more likely to retain the location than add to their immediate costs by relocating to a new place.

Biggest losers

But these landlords need to use this time to upgrade their premises — if they continue to put that off, they could be the biggest losers once the next upturn comes around and tenants gain confidence about prospects.

“Dubai’s position as first choice for regional new entrants is very important,” said Maclean. “In addition to direct real estate considerations, the relative depth of the labour pool and the quality of the aviation transport sector are cited as important in corporate decision-making.”

Factbox: London’s office space shines in pre-Brexit days

While Hong Kong Central ($290.21 per square foot) remains the highest priced office market in the world, London’s West End came in a strong second at $262.29 (Dh962.60), based on CBRE estimates for the first quarter.

Whether fashionable office addresses in the City can retain these lofty standings now that an exit from EU is a fact remains shrouded in doubt. A few blue-chip corporate relocations to mainland Europe is all that it would take to set off intense pressure on demand and rents.

Meanwhile, global prime office occupancy costs increased 2.4 per cent in the year ending the first quarter of 2016, CBRE notes. “At the beginning of the year, the service sector was not adversely impacted,” it reports.

Source: Manoj Nair, Associate Editor, gulfnews.comGN


For Rent


View more properties

For Sale


View more properties