Dubai: Things are getting tougher for landlords with Grade B office properties in Abu Dhabi and Dubai, while those with Grade A assets can at best expect rental stability.
“In Dubai, we expect to see marginal declines in asking rents across Grade B buildings,” states the latest UAE real estate update from Knight Frank, the consultancy. “The performance of the office market is likely to remain muted for the remainder of the year as corporates scale back on expansion plans under the current global economic conditions.”
The free zones in Dubai, meanwhile, continue to put in solid occupancy numbers. Much the same sort of demand exists for the emerging office clusters in Tecom and Dubai Design District (D3).
At D3, “The availability of quality space, dual licensing system (operating as both free zone and non-free zone), and proximity to Downtown Dubai has seen global and local designers, artists and creative entrepreneurs commit to the development,” the report finds. “As such, D3 registered occupancy rates of 75 per cent and saw a Dh45 per square metre increase in rents over Q1-16 to c. Dh180 per square metre.”
And it is turning out to be a “struggle” for office property owners in Abu Dhabi — “The occupier market continues to struggle as falling oil prices led to the restructuring of many oil and gas companies and government related entities.
“This has in turn impacted rental rates across the emirate. Asking rents in Abu Dhabi’s prime commercial district — the Abu Dhabi Global Market — maintained their levels at approximately Dh2,500 per square metres. Elsewhere across Grade A buildings in Abu Dhabi, landlords have maintained their asking rents given limited available quality stock and reduced supply completions.”
In the midterm, delivery of significant new capacities of premium office stock in Dubai — at Dubai World Trade Centre expansion, as well as the ICD-Brookfield Place tower in DIFC — should start exerting some downward pressure on rentals.
But “In Abu Dhabi, the short-term impact of the economic slowdown is likely to be offset by delays in the delivery of office space, which in turn will keep rents stable,” the Knight Frank report adds. “In the long run, however, rents are expected to soften as landlords strive to attract occupiers, and more space is released to the market (in addition to build to suit developments).”