Dubai’s office demand remains buoyant despite oil price fall

DUBAI’S economy has continued to grow despite the drop in oil prices, with leasing enquiries remaining buoyant, according to Knight Frank report.

“While the world keeps a watchful eye on the oil price movement which has muted certain corners of the market, and where corporate decision making is pegged to global market sentiment, on the whole leasing enquiries within Dubai’s commercial real estate market remain buoyant,” the UK-based consultancy said in a new report.

Dubai’s economy has continued to grow despite the drop in oil prices, which is testament to the city’s diversification across various sectors including finance, logistics, tourism, and retail, which has been reflected in the types of companies actively searching for new office accommodation during the second and the third quarter of this year.

The office market experienced a healthy level of demand in the third quarter, following a slightly longer and sustained drop in occupier sentiment over the Ramadan period, which, this year, found its way rolling into the summer months.

Signs towards the latter end of Q3 suggest that occupier demand for the remainder of the year will remain strong. With tenant’s end of year decision making window now noticeably shorter, this has provided added stimulus and urgency to businesses who now need to move quickly in order to secure premises for occupation by Q1 2016, according to Emirate 24/7.

Occupier activity continues to be seen in the shape of expansions, new start-ups, consolidations and renewals, which has further reduced vacancy levels, especially within prime office developments where the supply of available space remains low.
“While there are signs economic momentum is slowing, levels of activity remain robust. Dubai’s economy has continued to grow despite the drop in oil prices, which is testament to the city’s diversification across various sectors including finance, logistics, tourism and retail.

“The healthy level of demand and low supply of prime office space has helped to exert continued upward pressure on rents. Prime rents were again flat quarter-on-quarter (q-o-q), but were up 2.1 per cent from a year earlier,” Knight Frank said.
The third quarter kept a close eye on the delivery of a number of well-specified prime office developments designed to cater for a growing level of occupier demand, with the consultancy expecting construction of a number of Grade A developments which are coming out of the ground in order to satisfy both on shore and off shore demand now close to completion.

Tecom’s D3 development at the Design District is the first to come on line with the initial phase delivered in March and set to complete by the end of this year. The new office development at the Trade Centre, expected to be delivered also in the fourth quarter 2015, will also add some much needed grade A supply to the market.

Lack of well delivered office space within the Dubai Multi Commodities Centre has seen the emergence of One JLT expected to be delivered in the fourth quarter 2015, and unveiling of Burj 2020 development. Besides, Dubai International Financial Centre will also get a 50-storey office tower being developed by ICD and Brookfield joint venture, the consultancy said.

Meanwhile, falling oil prices will impact end-user demand in Abu Dhabi’s rental market as supply levels will remain lower than historic levels, believes JLL, a global real estate consultancy.

“We expect future residential rental demand to be affected by the decline in oil prices – directly impacting the oil sector and indirectly affecting other sectors due to a reduction in government spending,” the consultancy said in its third quarter report on Abu Dhabi real estate market.

The UAE government plans to cut spending by 4.2 per cent this year, the first such cut for 13 years, leading to job cuts and cost controls in government and delaying the commencement of new mega projects, the report said.

Another factor cited was the increasing cost of living (through the removal of utilities and fuel subsidies and further potential measures to introduce taxes) that could curtail demand for residential units.

Nearly 700 units were added to the existing market stock during the third quarter 2015, taking the total number of units to 244,000.“As we predicted earlier in the year, we are expecting single digit rental growth during 2015, following 17 per cent growth in 2013 and 11 per cent in 2014, as supply and demand become more balanced,” said David Dudley, International Director and Head of Abu Dhabi Office, JLL Mena.

No forecast was given on 2016. JLL, however, said residential supply remains under control with minimal vacancies in high quality schemes.

It added that circa 5,000 residential units were scheduled to enter the market this year, while 6000 units were expected to be delivered in 2016.

On the property sales side, the consultancy said prices had remained stable, but transaction volumes had dropped due to weaker sentiment, which would continue into the next year.

Last month, JLL said none of the freehold locations in Abu Dhabi currently offer affordable property for sale and therefore the only option for middle-income families are to rent.

On Monday, Abu Dhabi Urban Planning Council signed a pact with 19 top developers to creating a database on real estate developments, which will help it to enhance land management and effectively implement its strategy on development of middle-income housing.

In tandem with the residential market, the office sector also witnessed subdued demand, driven by declining oil prices impacting the dominant oil industry and leading to reduced government spending impacting other sectors.