Dubai office market remains under pressure

In the Dubai office market, occupancies are expected to remain under pressure in the near term, with commercial landlords offering a combination of incentives in existing leases. This includes rental deferrals or partial rental waivers, increased number of cheques, and in a few cases lower headline rents. Some tenants are also extending their leases if favourable terms are achieved with early break clauses included in their lease.

Prathyusha Gurrapu, head of research and advisory at Core, says enquiry levels have gone up from what it was in June and July. “In the ongoing transactions, we are seeing extended rent-free periods (two to four months for fitted options and nine to 12 months for shell and core options), capital contribution to fit-outs and shorter notice periods with limited or zero penalty on early break clauses being discussed. With the current uncertainty and occupancies expected to remain under pressure in the near term, we see landlords being increasingly adaptable to ensure leases are executed and long-term revenue is preserved.”

July has seen a rise in enquiry levels in JLT’s commercial real estate market, she says. “We have been busy helping existing tenants renegotiate contracts with landlords and arrive at suitable solutions for both parties in the current economic climate. There is limited room for negotiations as rental rates and yields were already competitive even before the onset of Covid-19.”

The JLT area offers competitive office rents catering to a wide variety of spatial requirements starting as low as Dh40 per sq ft per annum and going up to Dh220 per sq ft per annum in properties such as the Almas Tower. The overall average asking rent for the district is Dh75 per square feet per annum.

An opportunity to consolidate

It is, however, interesting to see is that some clients within certain business sectors that have succeeded through the recent challenging months, see this period as an opportunity to agree to favourable commercial terms for offices that were previously out of reach. “We are also seeing larger companies with multiple offices looking to consolidate and lock in attractive terms for the mid to long term,” says Gurrapu.

Knight Frank’s recent Dubai Office Market report says prime office rents across Dubai fell 6.8 per cent in the year to Q2 2020, whilst Grade A and citywide rents fell by 5.9 per cent and 7.8 per cent respectively over the same period.

Emrah Yar, head of commercial at Allsopp & Allsopp, says the “commercial market has moved fast since lockdown was lifted and we are seeing many companies moving office location, downsizing and upsizing to cater to the changes they may have made and a number of start-up companies looking for smaller units. What I would say is that some landlords are being more lenient in regard to the payment by increasing the number of cheques they will accept and in some cases, offering an extra month’s rent for free."

Buisness Bay and DIFC rents

"Similar to JLT, most prices in Business Bay have also remained the same. In Business Bay office prices can vary between Dh60 to Dh100 per square feet, again, depending on the building and the condition of the office. The same can be said for office spaces in DIFC. Prices on average in the area have remained the same and start from Dh150 per sq ft and can reach as high as Dh350 per sq ft. The only area I would say that has seen a very slight decline in prices is Downtown Dubai. Downtown offices in 2019 were being rented at approximately Dh150 to Dh200 per sq ft compared to Dh130 per sq ft rental price in the third quarter this year, says Yar.