With the average office rents in Dubai falling by 6.5 per cent and prime office rents down by 4.7% in the year to the third quarter, companies are looking to take advantage of weaker market conditions to upgrade their occupational space whilst being mindful of increasing total spend, according to property expert Knight Frank.
With the Grade A and Citywide rents plunging by 6.1% and 7.7% respectively over the same period, landlords are expected to remain flexible in order to retain and attract occupiers, with incentives to achieve this including but not limited to flexible payment terms, Capex contributions and rent free periods, stated Knight Frank in its Dubai Office Market Update for Q3 2020.
Data from the Dubai Statistics Centre shows that as a result of the Covid-19 pandemic and its impacts on global economic activity, Dubai’s GDP is expected to contract by 7.4% in 2020.
According to forecasts from Oxford Economics, Dubai’s GDP is not expected to return to its 2019 level before 2022.
Given the challenging economic backdrop, employment is set to contract by 9.1% in 2020 If Dubai’s economy recovers as expected, employment is set to register growth rates of 6.7% and 5.1% in 2021 and 2022 respectively, stated the Knight Frank report.
The transport, storage and IT and the consumer services sectors are expected to see the most significant declines in employment, where in 2020 employment in these two sectors is expected to decrease by 14% and 120% respectively.
Taimur Khan, the associate partner, said: “Given the current level of economic uncertainty, it is not surprising that we have seen limited levels of additional take-up in Dubai’s commercial market, with many firms suspending any expansion plans or adopting a wait-and-see approach.”
Despite this weaker backdrop, many firms, where tenancy contracts allow, are taking the opportunity to take advantage of weaker market conditions to upgrade their occupational space, stated Khan.
“Given recent changes in dual licencing regulations, Prime and Grade A offices in Free Zones are most likely to benefit from this flight to quality,” he added.
As at Q3 2020 average Prime rents across Dubai were recorded at AED205/sq.ft., average Grade A rents at AED130/sq.ft. and average citywide rents at AED100/sq.ft.
“Finally, whilst currently, vacancy in most prime projects remains relatively low, over the course of the year with the delivery of additional supply we are likely to witness the Prime vacancy increase,” explained Khan.
The Grade A vacancy rate is also expected to see a marked increase over the coming year as the vast majority of supply scheduled to be delivered in 2021 is of Grade A quality, he noted.
Currently there are estimated to be 25 active projects within Dubai, with delivery dates up to 2024, which are either being executed or in the study or design phase. The total value of these projects currently is estimated at $7.6 billion, he added.-