Dubai office rents drop, with landlords offering ‘generous incentives’ – report

Office rents in Dubai continued to drop in the first quarter of this year, with landlords offering “generous location incentives”, according to research from property consultancy Savills.

Much of the demand in Q1 was driven by consolidation and space optimisation strategy by corporate occupiers that are streamlining their business to better service their local and regional clients, the report stated.

The majority of enquiry levels and transactions were for small and medium sized office space. Expansion led enquiry levels picked up – especially from companies in the media /tech and co-working space.

Demand for new large sized office space remains limited except in the case of consolidation. Supply addition was “stable” which led to an increase in vacancy levels across select micro-markets.

To incentivise occupiers, landlords have become more flexible, with approaches such as rent-free periods, offering extended car parking facilities, shorter lease terms and even upgrading shell and core spaces to Category A fit-outs (CAT A) to secure agreements, the report said.

However, many corporate occupiers adopted a wait-and-see approach and committed to shorter lease terms at renewals.

Paula Walshe, director for International Corporate Services for Savills said: “With lower rents, a range of quality developments available and landlords taking a more flexible approach to leasing, both domestic and international organisations are well-placed to take advantage of Dubai’s business-friendly rental environment.”

The report found that average rents at DIFC were estimated at approximately Dhs200 per sq ft per annum, while average rents for properties along Sheikh Zayed Road were estimated at Dhs140 per sq ft per annum.

Rents across DAFZA and Downtown Dubai were in the range of Dhs135 – 170 per sq ft per annum while average rental values around Media City and Internet City were Dhs160 per sq ft per annum.

“Going forward, we expect that demand across prime buildings will remain consistent which may contribute to stable rental values across good quality developments,” the report said.

However, supply will continue to outpace demand which will prompt developers to continue with generous incentives.

“These incentives are likely to extend to renewals and in some instances, we have seen some landlords offer rent free periods and reduced rentals on select renewal transactions during Q1 2019.”

Savills also indicated that new providers are entering the serviced office sector, with improved legislation allowing them to operate in the region more freely.

There is also an increasing trend towards co-working spaces catered towards start-ups and tech entrepreneurship, where open desk spaces offer more cost-effective solutions for fledgling companies.

The positive effects of dual licensing are also starting to take shape, with the trend anticipated to increase in the future as this will permit companies to have onshore and offshore operations within their designated space.

Companies will have a larger variety of options to choose from as they are not restricted to specific areas.

“Landlords must keep pace with the changing business demands in order to stay profitable and ensure continued occupancy of their office spaces,” added Walshe.