Dubai’s office market continued to exhibit remarkable resilience and growth in the second quarter, reflecting a robust economic recovery and a high level of business confidence in the region’s economic prospects, two separate studies showed on Tuesday.
A strong economy, diverse demand, and occupiers’ focus on quality spaces and sustainability is driving the performance of the country’s office sector, according to JLL’s UAE Real Estate Market Overview for Q2 2024.
Dubai’s office market saw an increase of 20,000 square metres in office gross leasable area (GLA), bringing the total stock to approximately 9.26 million sq. m. The newly added stock consisted of Grade A quality offices, which was delivered in Umm Ramool. In the next two quarters, there is a pipeline of approximately 18,000 sq. m. of office GLA. In Abu Dhabi, the total stock remained largely stable at 3.95 million sq. m, with a limited delivery of 7,500 sq. m. However, in the second half of the year, an additional 125,000 sq. m. is scheduled for completion, the JLL report showed.
In Q2 2024, Dubai’s commercial real estate market experienced a slight decline in transaction volume, with a 2 per cent decrease compared to the same period in the previous year, a report by Betterhomes’ commercial real estate arm showed. The number of commercial transactions stood at 2,915 in Q2 2024, down from 2,985 in Q2 2023. This marginal dip indicates the market’s overall stability, attributed to ongoing investments and strategic initiatives aimed at bolstering the commercial sector.
The total sales value saw a 6 per cent year-over-year (YoY) decline, suggesting adjustments in property pricing or transactional volume within the commercial real estate sector. This decrease can be linked to significant events, including historic rains in April and two sets of week-long public holidays (Eid Al Fitr and Eid Al Adha), which traditionally reduce market activity.
The office segment in Dubai has demonstrated overall growth and resilience but at the same time suffered from a supply crunch over the last few years, specifically for Grade A office spaces. Transactions in the office market increased by 1 per cent from Q2 2023 to Q2 2024, while the sales value surged by 17 per cent. The total number of office transactions reached 764, amounting to Dh1.36 billion, noting the sustained demand for office spaces, despite the persistent supply crunch.
The supply constraint in the office market is particularly acute, creating a seller’s market. Landlords are leveraging this situation to impose stringent terms, such as demanding rent payments in a single cheque and refusing to include break clauses in leases. These conditions reflect the high bargaining power of landlords in the current market environment.
According to Betterhomes’ data, the following are the top 5 locations for office transactions in Dubai:
Business Bay: Dominates with 43 per cent of all office transactions in Q2 2024, offering a mix of high-rise office buildings, luxury hotels, and residential units.
Jumeirah Lakes Towers (JLT): Accounts for 32 per cent of office transactions, favoured for its strategic location and free zone status.
Dubai Silicon Oasis (DSO): Holds 5 per cent of office transactions, known for its focus on tech-driven businesses.
Arjan: Emerging with 4 per cent of office transactions, located in Dubailand with a mix of residential, commercial, and hospitality developments.
Jumeirah Village Circle (JVC): Also captures 4 per cent of office transactions, attractive for SMEs due to lower rental costs.
The average selling price for secondary office spaces in Dubai has reached an all-time high of Dh1,364 per sq ft as of Q2 2024, representing a substantial 22 per cent YoY increase. This surge underscores the strong demand and limited availability of high-quality office spaces, driving prices higher. Despite ongoing development projects, the persistent supply crunch for premium office spaces has led to increased competition among businesses, driving up prices and maintaining high occupancy rates.
Strong demand and increased leasing activity drove rents upward in both cities. In Dubai, average Grade A rents in the central business district (CBD) surged by 15 per cent year-on-year (y-o-y), reaching Dh2,630 per sq. m. per annum. The rush to secure prime office space further intensified pressure on CBD vacancy rates, leading to a drop to eight per cent in Q2. Similarly, in Abu Dhabi, average Grade A rents rose by 10 per cent compared to the previous year, reaching Dh2,085 per sq. m. per annum. Vacancy rates in Abu Dhabi also decreased to 21 per cent.
Faraz Ahmed, Research Director at JLL MENA, said: “In the first six months of 2024, developers in the commercial real estate sector launched a number of new projects in both Dubai and Abu Dhabi to alleviate constraints in the long-term and meet the growing demands of occupiers seeking quality office spaces that are also sustainable in nature. With over 140,000 sq. m. of space planned to be delivered by the end of this year, we can expect to attract new companies as the UAE cements its position as a global hub for business setup.”
Intense market activity sees retail rents surge in Dubai
In the second quarter, the retail market experienced robust demand for space, particularly in well-performing super regional and regional malls. Capitalising on limited availability and growing demand, most landlords seized the opportunity to raise rental rates. Dubai witnessed a significant 16 per cent y-o-y increase in average rental rates in primary and secondary malls whereas Abu Dhabi recorded an 11 per cent increase in rental rates. Moreover, stricter deal terms now favour landlords, who are able to negotiate a combination of rent and turnover agreements.
Furthermore, there were no new completions recorded in both Dubai and Abu Dhabi, resulting in the retail stock remaining stable at 4.8m sq. m. in Dubai and 3.15 sq. m. in the capital. In the remaining half of the year, it is anticipated that an additional 58,000 sq. m of retail GLA will be introduced in Dubai, while Abu Dhabi is expected to see 85,000 sq. m of retail GLA added, primarily in the form of community and regional malls.
Strong hotel performance amid traditionally slower summer season
Both cities experienced strong growth in hotel performance figures, defying the traditionally slower summer season. In Dubai, tourism data revealed a 10 per cent annual increase in international visitors for the year-to-date (YT) May, supported by diversified source markets. Average Daily Rates (ADR) in Dubai grew by five per cent y-o-y, contributing to a six per cent y-o-y growth in Revenue per available room (RevPAR). Similarly, Abu Dhabi witnessed double-digit growth across all key indicators, with ADR reaching $159, a 13 per cent increase, and an impressive 24 per cent y-o-y growth in RevPAR to $127 for YT May.
The hospitality sector saw limited deliveries in the second quarter, and the future supply outlook remains modest with 4,500 keys anticipated to be delivered in Dubai and over 800 keys to be added to the Abu Dhabi market in the next six months.
UAE’s industrial market sees launch of new projects and expansion plans
The UAE’s industrial market exhibited resilience driven by the demand for quality industrial assets, particularly within established free zones. Warehouse rents across all submarkets in Dubai experienced a notable jump, with an average 14 per cent y-o-y growth in Q2. Developers, confident in the enduring demand, launched new plans to deliver additional stock. Dubai Industrial City announced a 1.3 million sq. m. expansion plan following a 97 per cent occupancy rate in the previous quarter, accompanied by a healthy 9 per cent y-o-y growth in rental rates. Similarly, JAFZA and Dubai South also unveiled new projects, enhancing the supply of high-quality developments.
In Abu Dhabi, the industrial real estate market exhibited positive momentum. Indeed, average warehouse rents surged 10 per cent y-o-y in the second quarter. Industrial developments like KEZAD and ICAD attracted businesses seeking Grade A warehousing spaces with excellent trunk infrastructure and vacant lands. The self-developed and leased assets of KEZAD group achieved an 88 per cent occupancy rate, indicating robust demand for quality spaces. Additionally, KEZAD is pioneering a project in Al Ain Industrial City, covering 70,000 sq. m.
One of the newest and most striking trends in Dubai’s office market is the emergence of pre-leases. This phenomenon, previously unheard of in the market, involves tenants securing office space before it even becomes available on the market. This signifies a shift in tenant behaviour, highlighting their willingness to commit to office spaces in advance to ensure they secure the best possible locations and facilities. This trend also underscores the limited availability of Grade A office spaces, pushing tenants to act swiftly and decisively.
