Dubai: Key office locations in Dubai has been removing the shackles on rental growth, with those in Business Bay and the Tecom zone recording the highest growth rates (on an annualised basis) during the third quarter, up 35 per cent and 31 per cent respectively. Festival City offices followed with a 26 per cent increase, while Downtown saw 23 per cent, according to the latest findings from Knight Frank, the consultancy.

“With the supply of new prime office space remaining constrained, it was enough to exert upward pressure on rents”, it reports. “Indeed, in the third quarter of this year, prime rental values rose by 2 per cent quarter-on-quarter and were up 23 per cent on a year earlier”.

As with residential, any sharp and unchecked gains in office rentals could skew the cost of doing business in Dubai. Businesses who can afford to hold out from having to take immediate possession of new premises will be better off. There is substantial new capacity that is being readied for delivery in the coming months, a trend already apparent in the residential space and which explains why rental hike growth there has been tapering off of late.

“Anecdotal evidence suggests that some large occupiers are postponing their re-location plans, with a view to move into newly completed accommodation next year,” according to Knight Frank. “Notable schemes due to be delivered include the C1 building [part of phase one of Dubai Trade Centre District and expected to be completed in the first quarter of 2015], as well as the completion of phase one of Dubai Design District in the early part of next year”.

Latent pressures

By the end of the third quarter of 2014, total office stock in Dubai was estimated at 7.5 million square metres. “Our analysis of schemes currently under construction shows that, by 2015, the level of stock will rise to 8 million square metres, and then to 8.2 million square metres in 2016”, the report adds.

According to Sameer Lakhani, Managing Director of Global Capital Partners, “There’s a build up in demand as latent pressures inherent in the economy manifest themselves and the fact that there has been virtually no new supply in this space for the last four years. The sweet spot is in the built-up areas of 1,500-3,000 square feet, which has almost completely been ignored by developers.

“In terms of areas there’s a segmented market between free zone locations and those under Department of Economic Development jurisdiction. Given the flexibility within the latter in terms of licensing, these are being preferred as free zones start to cater to larger corporates.

“Free zones are looking at price points of Dh750-Dh1,400 a square foot depending on the area and whether it’s fully loaded or core-and-shell.”