Following a period of strong growth, the office property market in Dubai, UAE, is showing signs of stabilising, with average rents remaining virtually unchanged across all the city’s major submarkets and free zones, said a report.

The overall office rents in the prime, secondary and tertiary localities remained unchanged for the first three quarters, standing at Dh250 ($68), Dh130 ($35) and Dh70 ($19) sq ft with the market remaining quite fragmented, according to leading international real estate consultancy Cluttons.
 
Micro markets, which are often as small as specific buildings, continue to buck wider market rates, such as Emirates Towers at Dh310 ($84) or The Gate District at Dh225 sq ft ($61), stated Cluttons in its Winter 2015/16 Dubai Commercial Market Outlook report.

Steven Morgan, the chief executive of Cluttons Middle East, pointed out that the occupier activity was down, however a positive sign remained in the diversity of the market, which is reflective of the overall economic activity.

"Banks, financial institutions, law firms, construction companies and technology-media-telecoms firms round off the list of the most active occupier groups, with the city’s free zones remaining the primary target," he noted.

The upward creep in rates in some of Old Dubai’s office submarkets is also reflective of the performance of the wider economy and dominated by domestic occupiers, stated Morgan.

"Although space requirements from this segment are undoubtedly lower than this time last year, the limited amount of new stock deliveries in these areas, coupled with a steady rate of requirements, is putting upward pressure on rents in some key locations and buildings," remarked Morgan.

"This is driving some migration to submarkets such as Business Bay, where average rents range from Dh70 to Dh120 ($19 to $33) sq ft are perceived to offer better value for money compared to Deira or Bur Dubai with the added advantage of being more centrally located, as the city’s centre of gravity continues to drift further south," he added.

According to Cluttons, the city’s free zones still tend to be dominated by multinational organisations, with take up activity  intrinsically linked to business performance in their home markets.

The property expert also underlined the moves by hydrocarbon based occupiers to consolidate office space as global headcounts are adjusted downwards, although this is not considered to be a major occupier group in Dubai compared to other regional markets.

Faisal Durrani, the head of research at Cluttons, said: "Free zones across the city continue to review expansion plans in order to cater to the buoyant level of requirements, with schemes such as the Innovation Hub at Dubai Internet City expected to ease pressure on rents once completed in the fourth quarter of 2017."

New free zones are also seeing increased interest and activity, highlighting the important role free zones play, observed Durrani.

"EnPark, for instance, has emerged as Dubai’s latest success story and US-based occupiers in the energy sector appear to be showing high levels of interest in securing space at Tecom Investments’ specialist Dubai Biotechnology & Research Park (DuBiotech) free zone cluster as they home in on the growing green tech and energy sector in the region," he pointed out.

Despite this, Cluttons does however remain cautious on the short-term outlook for Dubai’s commercial market.

"With the outlook for global growth faltering, we expect occupier activity will continue to slow, with office space requirements shrinking during next 12 months," said Durrani.

"This comes at a time when land values in submarkets such as Business Bay are cooling and therefore improving the financial viability of some previously stalled projects, which are now seeing a resumption in construction activity," he explained.

"The ability of the market to absorb this new space is likely to dampen the speed at which the office market sees a resumption in rental value growth as there is a risk of supply inching ahead of demand, although a lot of this is likely to be in the Grade B category," he added.

Away from the office market, the Clutton report reveals that rents across Dubai’s industrial sector are showing increasing signs of plateauing, following the record growth last year, with rents across most submarkets remaining unchanged in the first nine months of 2015.

Morgan said: “Although rents appear to have plateaued, a trend we expect to persist over the next six months, events such as the Expo 2020, the ongoing expansion of Jebel Ali Port, the progression of works at Al Maktoum International Airport and the lifting of trade sanctions on Iran early next year are all expected to help inject additional momentum into this crucial segment of the city’s economy.”

"Overall activity in the industrial market remains diverse with Al Quoz remaining a hub for the automobile sector, while at Dubai South, logistics occupiers continue to show a high level of interest in acquiring airside plots," he added.

Cluttons in its report confirms that investment activity has remained robust, with DIP being a particularly active market for its commercial teams. The recent sale-and-leaseback of a 55,000 sq ft light industrial unit for Dh25 million ($6.8 million), representing a net yield of eight per cent, attracted a high level of interest from a wide range of investors.

"This underscores the growing momentum behind this niche investment segment, which, unlike other property sectors, continues to offer investors a wide range of opportunities, with relatively attractive returns," stated Morgan.-TradeArabia News Service