As demand for prime space grows, office rents in Dubai and Abu Dhabi have begun to recover to pre-Covid-19 levels.
According to a report released on Monday by global real estate firm Knight Frank, office rentals in Dubai have returned to pre-pandemic levels in five of the city’s 27 sites. The city’s greatest buildings in Abu Dhabi, on the other hand, continue to show rental resiliency.
“Despite the quieter end to 2021, early data from Q1 suggests a rebound in demand in Dubai, led by technology businesses that are expanding their footprints, albeit many are start-ups,” said Faisal Durrani, partner and head of Middle East research at Knight Frank.
“To an extent, the expansion by this group of occupiers is being eroded by a number of businesses that are still reassessing their occupational strategies, many of whom are shrinking their office footprints as a result of the rise in hybrid working models, which appear to be gaining a sense of permanency, particularly amongst international blue-chip and professional services businesses, as well as a handful of international banks,” he added.
Nonetheless, according to Knight Frank, a shortage of new prime property is keeping rents in high-quality buildings in some areas from rising.
“There is a very limited supply pipeline of high-quality office stock in Dubai, which is where the attention of businesses remains centered. The resultant impact of this market dichotomy is upward pressure on rents, or at worst, stability in lease rates for the city’s best buildings, while some of the older, more secondary stock is starting to experience a migration of businesses to better quality buildings,” said Andrew Love, head of Middle East Capital Markets and Occupier Services & Commercial Agency, Knight Frank.
“What this means is that some sought-after submarkets with high concentrations of prime office buildings are unable to satisfy demand”.
Business Bay is leading the recovery in office rents, with average rates rising from Dh76 per square foot in Q1 2020 to Dh101 psf in Q2 2020. (per square foot).
According to Knight Frank, the seemingly permanent shift in attitudes toward remote working has boosted the serviced office sector, which is still growing.
Aside from consolidation, serviced office providers are becoming more active in the market, offering enterprise solutions to firms looking for more lease flexibility and plug-and-play space, which is gaining traction in major global gateway cities.
“Overall, as the impact of the pandemic on Dubai’s economy abates, we are starting to see larger corporates requesting staff to attend the workplace more often. Smaller businesses, however, are likely to persevere with hybrid working models and indeed enterprise, or serviced office solutions for their space requirements,” Durrani added.
During the first quarter of this year, office rents in Abu Dhabi were constant in all of the primary submarkets tracked by Knight Frank. On an annualized basis, the Corniche Area continues to outperform the rest of the market, with average rentals up 7.2 percent in the last year, to Dh1,675 per month.
Durrani said, “This rental stability largely stems from the continuing world-leading and decisive response of the UAE government to the Covid-19 pandemic. The authorities’ resolve to arrest the spread of Covid-19 has also played a big part in boosting business confidence. Aiding the positive economic undertone has been the recent sharp rebounding in oil prices”.
According to Knight Frank, the stable but high office rents, which are now up to 14.5 percent higher than in 2020 (Corniche Area) or 2.5 percent higher in both Al Reem Island and Capital Centre, are suppressing domestic demand from cost-conscious occupiers who are still evaluating long-term occupational strategies with a view to incorporating greater hybrid working.
However, Knight Frank has noted that some organizations are looking into alternate choices, albeit the underlying motivation appears to be cost-cutting or gathering information for renegotiating existing lease terms.