Dubai and Abu Dhabi office rental markets hit occupancy high

Despite signs of cooling in the broader real estate market, the office markets of Dubai and Abu Dhabi put in another strong performance in the first half of 2023 to hit an occupancy high amid a supply squeeze, according to research by CBRE. Taimur Khan, Head of Research for MENA at CBRE, walks through the most notable developments.

In Dubai, the total number of rental contracts registered in the occupier market reached 29,932, up 42% compared to a year earlier. Over this period, a total of 20,953 new rental registrations were recorded, marking a 59% year-on-year rate of growth. Additionally, a total of 8,979 renewed contracts were registered, highlighting an increase of 13% from the year prior.

As a result, the average occupancy rate reached 92.7% as of Q2 2023, up from 84.8% a year earlier on the back of increased demand and limited availability of quality supply. In comparison, back in 2019, occupancy rates were hovering around 76%.

Added demand has been relatively balanced between both Free Zone and Non-Free Zone locations and is originating from a broad range of sectors. Two notable sectors of demand have been the technology and financial services (namely investment funds) sectors, the latter of which have almost exclusively gravitated within the DIFC.

Another notable trend, given current demand and supply dynamics, has been that occupiers are undertaking exercises to weigh up downsizing their total occupied space, as less is required due to hybrid working, and then are able to use the savings to improve the quality of the current space occupied.

Elevated occupancy rates continue to drive the increase in average rents in Dubai’s office market, where in Q2 2023, average Prime, Grade A, Grade B, and Grade C rents have grown by 17.2%, 11.0%, 16.4%, and 30.0%, respectively. Given the lack of available quality stock and the very limited amount of imminent future supply and strong pre-leasing activity, we expect office rents in Dubai rents to continue their upward trajectory throughout the remainder of 2023.

Similarly, in Abu Dhabi the number of rental contracts registered was up significantly compared to the same period last year, on the back of both renewals and new registrations.

The average occupancy rate in institutional grade buildings monitored by CBRE has increased from 84.0% in Q2 2022 to 93.7% as at Q2 2023.

Government and semi-government-related institutions remain the largest source of occupier demand in Abu Dhabi compared to the private sector in terms of the total space demanded. Whilst there is increasing demand coming from private businesses, on average, the quantum of space that they require is usually substantially lower.

On a broader level, the lack of available quality supply and scarcity of new developments remain among the main challenges faced by the market. This in part explains why Prime, Grade A, and Grade B average rents increased year-on-year by 11.0%, 5.7%, and 7.8% respectively.

The outlook for Abu Dhabi’s office rental market remains strong, given robust levels of demand, the scarcity of available supply and the lack of upcoming new stock. This will continue to result in a landlord-favoured market.