The rise in demand following the pandemic has resulted in over 11.5 million sq. meters being absorbed within the final three years, whereas over 9 million sq. meters has been absorbed within the final 18 months
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Are workplace rents anticipated to proceed to rise? This can be a query we are sometimes requested, and the brief reply when analyzing present provide and demand is that the one manner rents and workplace occupancy charges will enhance within the brief time period is with a rise.
After the pandemic dip, Dubai’s workplace market continues its upward pattern in rental costs and occupancy charges throughout the town at document ranges, pushed by constructive financial sentiment, ease of doing enterprise and a bunch of financial elements leading to job creation and inflow of customers. That is evident from the upper variety of new license registrations within the Division of Financial Improvement (DED) and within the free zones. We’ve got already surpassed peak workplace rents in 2014 and in Dubai’s workplace market, workplace rents throughout the town have risen by greater than 45 % because the pandemic, with a year-on-year enhance of 24 %.
At its peak in 2014, the overall dimension of the workplace market was simply over 81.5 million sq. meters, and workplace rents throughout the town stood at Dh125 per sq. meter/yr, whereas immediately the market has grown by greater than 32 % and 107.6 million sq. meters, with city services. huge rental charges of over Dh138 sqft/yr.
Supply: Cushman & Wakefield Core Analysis
Shortage of workplace inventory within the close to future
Demand is outpacing provide at an unprecedented fee, with workplace occupancy charges at document highs. The occupancy fee of prime/class A places of work hovers round 92 %, whereas the citywide workplace occupancy fee is 87 %. To offer perspective, earlier than the pandemic, solely 75 % of the workplace market was occupied.
This surge in demand following the pandemic has resulted in over 11.5 million sq. meters of workplace inventory being absorbed over the previous three years, whereas over 9 million sq. meters of workplace inventory has been absorbed over the previous eighteen months. In distinction, solely 2 million sq. meters of inventory is predicted to be transferred over the subsequent two years, with many of the inventory pre-leased, leaving the provision crunch unaddressed.”
Uptown Tower by DMCC was just lately accomplished (absolutely pre-leased), including over 495,000 sq. meters of workplace house and bringing Dubai’s workplace inventory to 107.6 million sq. meters. Beforehand, main workplace transfers passed off in 2022 within the Expo District, the Deira Enrichment Undertaking, Dubai CommerCity and Dubai Hills Enterprise Park. Different initiatives anticipated this yr embody the workplace portion of One Zabeel, Innovation Hub One in DIFC and the subsequent phases of Dubai CommerCity.
6 Falak in Dubai Web Metropolis and Tecom’s Innovation Hub Section 2 are each witnessing robust pre-leasing exercise and are anticipated to be accomplished in 2024.
Many of the workplace provide pipeline is already pre-let, making availability upon supply very restricted.
Whereas free zones corresponding to Dubai South, Expo District and the outer Tecom clusters have some current workplace inventory, there’s a critical scarcity of DED-licensed central places. As there’s presently very restricted new workplace inventory being constructed on land, we’re witnessing many particular person landlords (with a land portfolio) and free zones seeking to activate new workplace initiatives or improve/repurpose current workplace inventory. Nevertheless, as the development cycle will final at the least two to a few years, we count on a scarcity of workplace provide within the brief time period, which can put additional upward strain on rental costs and occupancy charges.
The problem
Given the tempo at which we’re witnessing absorption, and the shortage of secondary and new workplace provide, we count on a extreme scarcity of high quality workplace inventory over the subsequent 18 to 24 months. That mentioned, with many builders activating workplace initiatives, we count on the supply-demand imbalance to be resolved by 2026, when most ongoing initiatives have been handed over. Moreover, giant world customers with giant workplace wants can discover purpose-built choices inside free zones.
Supply: Cushman & Wakefield Core Analysis
Rising rents and occupancy charges
As workplace demand will increase throughout the town, workplace districts have witnessed a 5 to 50 % enhance year-on-year.
This demand primarily focuses on Class A initiatives in each free zones and onshore areas. Pushed by their sustainability mandates, occupiers proceed to be interested in new Class A developments, with regional and worldwide tenants actively in search of effectively managed, inexperienced buildings beneath one possession. Whereas older shares are witnessing demand spillovers, they’re anticipated to face challenges within the medium to long run as they proceed to age and require important funding to improve.
Supply: Cushman & Wakefield Core Analysis
We noticed that hire will increase have been greater in districts the place the vast majority of the workplace inventory is strata (an workplace constructing owned by a number of homeowners), as they rose from a considerably low stage in comparison with free zone possession shares and one landlord.
Conscious of the favorable market situations, many landlords (particularly these with furnished models) are actually realizing asking costs or in some instances premiums on asking costs, and likewise receiving fewer hire checks.
As the necessity for short-term plug-and-play places of work continues to extend, particularly from new entrants to the market seeking to arrange and develop operations, we’re witnessing a wave of inquiries from serviced workplace house operators. Most world workplace occupiers, corresponding to WeWork, ServCorp and Regus, are working at full capability and plenty of extra native operators are additionally experiencing excessive occupancy charges.
The place does the query come from?
We have seen demand cut up nearly evenly between new entrants to the market and current customers seeking to develop. Demand largely comes from the banking, monetary and enterprise providers sectors, adopted by the expertise sector. The robust financial backdrop, ease of doing enterprise and competitively priced workplace rents in comparison with different gateway cities, together with Dubai’s central location and overlap with a number of time zones throughout the nation. Each the Western and Jap markets make it supreme for corporations to find their places of work right here.
Supply: Cushman & Wakefield Core Analysis
Market Outlook
Tenants are more and more conscious of the altering market situations and, the place attainable, use office methods inside current buildings and go for hybrid working, as a result of the chances for spatial expansions are restricted.
Then again, owned Class A belongings are effectively positioned each by way of rental costs and occupancy charges, and powerful curiosity in pre-leases is seeing freezones and distinguished particular person landlords seeking to activate the subsequent phases of their workplace. initiatives. Nevertheless, the growing old workplace inventory is more likely to face challenges in tenant retention and satisfaction. Landlords of older buildings might be pushed to renovate their underperforming properties to enhance rental yields and adapt to the market.
With continued demand from new entrants to the market, established corporations increasing throughout all sectors, and really restricted accessible workplace inventory, we count on workplace rental costs in Dubai to proceed to rise, with an extra 10-20 % anticipated in high areas, whereas the occupancy fee is beneath upward strain. within the subsequent 18-24 months.
(Prathyusha Gurrapu is Affiliate Director – Head of Analysis and Consultancy, Cushman & Wakefield Core, UAE)
