Strong market fundamentals cushioned the impact of broader regional uncertainties, driving resilience and sustained growth across prime office and retail segments in both Dubai and Abu Dhabi in the first quarter of 2026, according to JLL’s latest Real Estate Market Dynamics report.
Marked by a flight to quality, the office sector demonstrated improved market sentiment, while a mixed performance in the retail sector saw domestic-focused segments maintaining resilience and tourism-dependent categories facing softer conditions, it said.
Taimur Khan, Head of Research, MEA, JLL, said: “With strong underlying economic fundamentals and agile occupier and landlord strategies, the UAE’s office and retail sectors demonstrated remarkable resilience and a strong capacity for strategic adaptation as they navigated measured activity in the first quarter. Despite short-term adjustments, demand remains robust, signalling the market’s inherent strength and positioning it for sustained growth as demand for prime spaces accelerates amid tightening supply.”
Occupier confidence boosts office sector growth
Rental rates in the UAE office sector demonstrated sustained growth momentum, with both Dubai and Abu Dhabi posting double-digit annual growth amid tight vacancy conditions, reflecting sustained occupier demand and constrained supply dynamics. Abu Dhabi’s prime office rents saw 11.7% year-on-year appreciation, while Grade A and Grade B spaces were up 5.1% and 4.2%, respectively. Constrained prime availability in Dubai’s core business districts saw occupiers turn to Grade B alternatives, and this segment led rental appreciation by 23.4% year-on-year, followed by Grade A at 19.0% and Prime at 17.2%.
Office inventory reached 101.1 million sq ft in Dubai and in Abu Dhabi, total office stock expanded to 4.18 million sqm. Vacancy rates remained exceptionally tight, with Abu Dhabi citywide at 1.4% and prime at 0.1%. Following new building deliveries, Dubai’s citywide vacancy rose to 7.3% while prime edged up marginally to 0.7%.
Heightened occupier caution in the first quarter saw office rental contract registrations in both Abu Dhabi and Dubai record year-over-year declines of 6.0% and 7.7% respectively, with monthly new contracts declining 19.7% in Abu Dhabi and 20.6% in March in Dubai, compared to February 2026. However, Dubai showed resilience, posting an 11.2% increase in renewals in annual terms, confirming existing occupier confidence despite cautious new commitments.
While global supply chain pressures impact development activity, developers are responding through strategic sourcing arrangements, phased procurement planning, and ongoing contractor negotiations to manage challenges. Looking ahead, transaction momentum is expected to strengthen with compelling market prospects sustained by limited prime stock.
Retail sector balances domestic focus with strategic adaptation
Dubai’s existing retail inventory stood at 56 million sq ft, with citywide vacancy tightening to 4.8%, reflecting sustained occupier demand. Meanwhile, Abu Dhabi maintained a stable vacancy rate of 8.9%. Government support measures, including the AED 1 billion stimulus package, and landlord flexibility on lease structures such as turnover-rent models and short-term rent relief, were crucial in sustaining occupancy and preserving retail ecosystem stability.
Retail rental rates demonstrated resilience across both markets. Super-regional malls in Dubai recorded strong performance at 12.4% annual growth, with Prime super-regional properties exhibiting moderate growth of 1.7%. Abu Dhabi's prime super-regional malls sustained premium positioning at AED5,524 per sqm, driven by selective tenant demand.
Leasing activity in Dubai moderated, with new rental contracts declining 9.9% year-on-year. Abu Dhabi, however, recorded growth in total registrations, up 3.6% year-on-year, supported by new contracts rising 16.7%. Negotiations increasingly focused on flexible deal structures like occupancy-cost-ratio (OCR) and turnover-rent (TOR) models.
The current environment presents opportunities for retailers to diversify revenue sources and enhance domestic market capture through innovative strategies such as pop-up retail destinations and experiential offerings targeting resident demand. Community and neighbourhood centres are expected to maintain resilience. While prime, super-regional, and regional malls may face near-term headwinds if tourism remains constrained, experiential concepts, home-grown retailers, and wellness-focused offerings are well-positioned for growth as consumers prioritise mental and physical wellbeing, JLL said. – TradeArabia News Service
