Dubai’s office market remains competitive

The office sector in Dubai remains highly competitive despite a high levels of supply. It reached nearly 60m sq ft, with an additional 10m anticipated by the end of the 2012, according to Cluttons’ Q1 real estate market report.

The effect of such high supply is that vacancy rates have remained high at approximately 40% across the city. However, instead of ongoing downward pressure on prices experienced throughout 2010 and 2011, Cluttons notes that average quoting rents for prime developments in the city have remained stable over the past three months. DIFC, Emaar Square and the Sheikh Zayed corridor remain the most expensive locations, with JLT, Barsha and Tecom offering the lowest rates.

Despite the excess of supply, there still remains a relatively short supply of good quality buildings for corporate occupiers with major requirements. Single landlord owned buildings still remain an essential requirement for most larger corporate occupiers but there is a lack of supply in prime areas of buildings that can accommodate larger requirements over 40,000 sq ft. Cluttons is noting a greater appreciation of ‘green’ or sustainable initiatives from occupiers and the market is seeing evidence of this becoming a regular requirement in the search process.

In terms of development going forward, initiatives have been put in place with an aim to restart work on previously stalled projects. There remains however an increased recognition by government agencies to reduce the future supply pipeline. Due to the lack of good quality stock there is an improved appetite for prime situated development sites.

The retail market within Dubai experienced a supply slow-down during 2011. However, the recently announced extension of Dubai Mall and the planned Mall of Arabia, signal that retail supply will be a strong focus for 2012. Cluttons is also seeing a small growth in developments within the smaller community shopping centres, which were designed to support local residences.

Finally, the hospitality sector is probably the furthest ahead in the performance cycle in terms of all of the commercial sectors. Increasing visitor numbers (particularly from new markets of Africa and China), the continued expansion of Dubai’s tourist infrastructure and its ‘safe haven’ reputation will remain instrumental to its resilience during 2012. There is now an emphasis on mid-market hotels, not just luxury ones, and several hotels are considering the feasibility of refurbishment, or in the case of the Metropolitan Hotel, complete redevelopment.