Supply of quality and well-located units lagging during first quarter of 2016, report finds
Dubai’s office market continues to see strong demand for good quality and well located units, resulting in declining vacancy rates in key sub-markets, according to CBRE.
Demand is currently outstripping supply in areas such as TECOM and DIFC, the real estate consultancy’s Q1 2016 Dubai MarketView report found.
This is encouraging a new wave of development starts, including the highly anticipated ICD Brookfield Place at DIFC, which will comprise around 1.1 million square feet of Grade A offices and quality retail.
There has also been sustained demand for new freezone licences, with DMCC currently experiencing positive take-up rates, driven by demand for smaller offices from start-ups and SMEs.
Mat Green, head of research and consulting at CBRE Middle East, said: “Overall, the availability of good quality single held offices remains tight, with a surge in pre-leasing activity over the last 24 months stripping a large portion of the recently delivered and upcoming office space from the market before completion.”
Around 800,000 square metres of new office space is expected to be completed over the next three years, CBRE’s research says, with the majority to be located within the Business Bay masterplan, which will contribute roughly 25% of the total. A further 10% is anticipated from Dubai Trade Centre District.
The research found that the average prime CBD office rentals saw some marginal growth during the quarter, with rates rising to AED1,916 per square metre per annum, reflecting the sustained demand for well-located and good quality office products.
According to the report, Dubai’s residential rental market has started to show more widespread deflationary trends, with average rentals declining by around 2% during the quarter. Residential properties have faced sliding rates across virtually all locations, reflecting the negative impact of new supply on the market and slowing new job growth caused by ongoing economic challenges in the region.
“As has been the trend in recent quarters, prime locations have experienced some of the most pronounced declines, with Downtown Dubai in particular witnessing a notable dip in rentals during Q1. However, we have also seen deflationary pressures creeping into some of the more affordable leasehold locations, including Al Barsha, Oud Metha and Bur Dubai, while freehold sub-markets such as International City have also suffered more market downturns in performance,” said Green.
“Average residential sales prices have also continued to fall, with a further drop of around 2% recorded quarter on quarter, after a 4% decline during the final quarter of 2015. This broadly reflects current sentiment, with weaker investor demand, US dollar strength, and sustained economic challenges regionally and globally, combining to create an uncertain transactional market environment,” he stated further.