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Dubai’s office market remains positive with strong corporate occupier demand

May 2016

Dubai’s office market continues to see strong demand for good quality, efficient, and well located accommodations, resulting in declining vacancy rates in key sub-markets according to Q1 2016 Dubai MarketView by global real estate consultancy firm CBRE. In TECOM and DIFC, demand is currently outstripping supply, encouraging a new wave of development starts. This includes the highly anticipated ICD Brookfield Place at the DIFC which will comprise around 1.1 million square feet of Grade A offices and high quality retail.  There has also been sustained demand for new freezone licenses, with DMCC currently experiencing positive take-up rates, driven by demand for smaller offices spaces from start-ups and SME’s.

Mat Green, Head of Research & Consulting, CBRE Middle East, said: “Overall, the availability of good quality single held offices remains tight, with a surge in pre-leasing activity over the last 24 months stripping a large portion of the recently delivered and upcoming office space from the market before completion.”

Around 800,000 square metres of new office space is expected to be completed over the next three years, with the majority to be located within the Business Bay masterplan, which will contribute roughly 25% of the total – A further 10% is anticipated from Dubai Trade Centre District.

Average prime CBD office rentals saw some marginal growth during the quarter with rates rising to AED1,916/sqm/annum, reflecting the sustained demand for well-located and good quality office products.

According to the MarketView, Dubai’s residential rental market has started to show more widespread deflationary trends, with average rentals declining by around 2% during the quarter.  Residential properties have faced sliding rates across virtually all locations, reflecting the negative impact of new supply on the market and slowing new job growth caused by ongoing economic challenges in the region.

“As has been the trend in recent quarters, prime locations have experienced some of the most pronounced declines, with Downtown Dubai in particular witnessing a notable dip in rentals during Q1.  However, we have also seen deflationary pressures creeping into some of the more affordable leasehold locations, including Al Barsha, Oud Metha and Bur Dubai, whist freehold sub-markets such as International City have also suffered more market downturns in performance,” said Green.

“Average residential sales prices have also continued to fall, with a further drop of around 2% recorded quarter on quarter, after a 4% decline during the final quarter of 2015. This broadly reflects current sentiment, with weaker investor demand, U.S. dollar strength, and sustained economic challenges regionally and globally, combining to create an uncertain transactional market environment,” further stated Green.

According to data from the Dubai Land Department (DLD), total real estate transactions were recorded at around USD 15 billion (AED 55 billion) during the first quarter of 2016, delivered through 12,568 transactions.

This comprised of 8,440 sales transactions with a value of USD 5.8 billion (AED 21.6 billion), with mortgages accounting for 3,213 transactions with a total value of USD 6.7 billion (AED 24.9 billion).  A further undefined 915 transactions with a total value of USD 2.2 billion (AED 8.1 billion) were also recorded.

Dubai Marina was again the most prolific sub-market for sales, followed by Burj Khalifa and Business Bay. In terms of mortgages transactions, Dubai Marina was again first, followed by Muaisem 1 and Business Bay.

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