Dubai’s office space holds the line on rents

Dubai’s office tenants are seeking value — they are doing so by either opting to downsize their existing operations or going for a location where the rental outgo will be much lower than what they have been paying. Clearly, the wider economic sentiments are having a telling effect on where businesses wish to have their addresses.

But, the overall situation for office occupancy remains positive, indicating that “rents are [at] fair market value for the most part”. Office rentals in Dubai have to date not recorded any of the sharp corrections that its residential locations have been through.

“We initially expected rents to decline by up to 10 per cent across the board during 2016,” states the report. “But halfway through the year, the falls have been few and far between.”

Only offices in Jumeirah Lake Towers have been the exception to this hold-rents-steady pattern, with average rents dropping between 25-30 per cent compared with the situation last summer. “Other submarkets have recorded very little change,” Cluttons notes. “It is our expectation that rents will continue to register marginal changes, with any declines likely to be contained between 5 and 10 per cent in any worst-case scenario.”

According to Murray Strang, Head of Cluttons Dubai, “The market has for the most part demonstrated a significant amount of resilience — prime [Dh240 per square foot], secondary [Dh110 psf] and tertiary rents [Dh60 psf] are still 49.51 per cent, 63.3 per cent and 76 per cent below their 2008 third quarter market peaks.”

Contrast to residential space

Only one office cluster managed to break off from the rest of the pack. The DIFC-based high-rises managed to see a firming up in rental values, according to the latest data. Again, this is quite a contrast to the situation in the residential space, where premium locations saw an erosion in both value and rents during recent quarters.

At DIFC, the upper end of the rental spectrum saw value gains of 6 per cent to Dh370 a square foot during the second quarter. None of which seems to be hurting DIFC’s locational prospects — it has one of the city’s lowest office vacancy levels at the moment.

But it is not the case in the “strata-owned” buildings at DIFC, particularly those further away from the core cluster. At these buildings, “we have seen greater flexibility from some landlords, with both favourable rents and incentives being offered,” states the Cluttons report.

Abu Dhabi

In Abu Dhabi, after going through a sharp correction in the first quarter, office rents were by and large stable in the second. It is the case even in the high-end office space, which had been particularly affected in previous quarters due to the turmoil in the oil industry and what it meant for the bigger tenants from the sector.

“Rents are likely to remain under pressure as the year progresses and should there be a fresh wave of redundancies in the oil and gas sector, rents will be depressed further,” said Edward Carnegy, Head of Cluttons Abu Dhabi.

“Some landlords have begun to offer greater incentives in order to entice and retain occupiers, but we still expect weakness in rents to persist. If anything, landlords are expected to become more aggressive over the rest of 2016 as the need to retain and attract tenants moves up a gear.”

As for tenants, consolidation is the dominant sentiment, while some firms prefer to take a wait-and-see approach to relocate from more secondary space, “deterred by the capital expenditure associated with a move”.


When it comes to Sharjah’s office demand, both rents and demand seem to be on a slippery path. Two of the city’s three major office markets registered declines of Dh5 a square foot. Rents in the prime (Dh70 psf) and fringe (Dh65 psf) areas of Al Majaz weakened in the three months to the end of June,” says the report. The only submarket to remain steady was Al Soor (Dh60 psf), where rents have remained unchanged so far this year.

“The number of overall requirements is markedly down on this time last year, with the limited number of requirements trickling in from the SME sector, with a very small number of larger requirements from the finance and banking sector,” said Suzanne Eveleigh, head of Cluttons Sharjah. “Our expectation is for further decreases in average office rents in the region of Dh5 psf before the year is out, taking the total decline during to 2016 to about Dh10 psf.”





Source: Manoj Nair, Associate Editor, GN



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