Dubai's real estate office market may see soft landing amid caution

Global property consultants JLL have hinted at the possibility of upcoming delays in delivery within the Dubai office real estate market, as competition increases and corporates exercise caution amid volatile international markets. 

In their latest analysis of the Dubai real estate market, JLL, a global professional services firm specialising in real estate who managed 409 million square meters on behalf of clients in 2016, reports that approximately 35,000m2 of office space has become operational in Dubai over the past quarter, with an additional 110,000m2 currently under construction and slated for completion before the close of the year.

This would theoretically bring the city’s total office stock up to roughly 8.9 million square meters of gross living area (GLA), but the report raises some doubt as to the certain finalisation of the complete range of scheduled projects, as it’s believed that potential corporate tenants may possibly respond to volatile markets and the current geopolitical climate by scaling back future plans for expansion. Trends already being seen in the Dubai office market somewhat back this conclusion, with the report noting an increase toward subleasing as a number of current tenants seek to dump space rendered surplus due to pull-backs from former ambitious plans.

Adding to the mix is a softening of rental prices across current ‘Grade A quality buildings’, along with more favourable renewal terms and incentives, where landlords find themselves up against the next generation of ‘best in class’ projects such as ICD Brookfield Place development, as well as the fresh supply of space being presently added. While the current vacancy rate of 8% has remained largely stable in the past, JLL predicts that these soft market conditions will prevail over the next quarter.

Connectivity will be key

The report also highlights connectivity as a key factor in the office sector across the globe, with accessibility to the transport network being a major determinant in assessing the attractiveness of a given sub-market. According to its authors, ‘the same applies to Dubai,’ and, with respect to the recently announced District 2020 plans in the build-up to the 2020 Expo Dubai, this will ultimately bear on timing and movement within the local market.

The report states, “Connectivity is a key factor in the emergence of new commercial districts and will dictate the timing with which Dubai South will mature from its present focus as a middle-income residential market to a new commercial district..... The road and metro links required to support this precinct are currently underway, and the continued expansion of Al Maktoum airport will further enhance the future attraction of District 2020 to office occupiers.” 

Meanwhile, the attractive rental conditions in the present market may prove to be an added bonus for companies already committed to expanding their operations into the city. Several consultancy firms have opened offices in Dubai in recent times, including German origin management consulting firm goetzpartners last July, and international financial advisers Accuracy in just this past week.