According to the most recent Dubai Office Market Review report for H1 by international real estate consultant Knight Frank, average office lease rates in Dubai’s major submarkets have increased by 22.4% over the previous year.
The primary drivers of this growth are the city’s top office submarkets, where demand is growing and supply is constrained; occupancy rates in Dubai Grade A offices are currently above 90%.
Faisal Durrani, Partner – Head of Research, Mena, commented: “Despite concerns that the pandemic would lead to a permanent shift toward remote working, demand has in fact surged, which stands in sharp contrast to many other global cities. Businesses remain laser-focussed on securing best-in-class space, not least because of the proven links between occupying Grade A offices and the ability to attract and retain the best talent. Offices have graduated to become showrooms.
Starved of prime space
“And with just 1.2 million square feet of office space completing between 2021 and 2023, the market has found itself starved of prime space. And the shortage is set to persist, with just 4.2 million square feet due between now and 2028, most of which is already spoken for.”
Current demand
The sharp increase in rents is supported, according to Knight Frank, by persistently rising levels of demand from a variety of business industries, despite the space scarcity.
Adam Wynne, Partner – Head of Commercial Agency, UAE, explained: “Our team has registered 578,353 square feet of new requirements for offices during the first half of the year, highlighting just how robust the sector continues to be as the imbalance between supply and demand continues.
“The ‘flight to quality’ trend has become more prevalent in the market as we witness the emergence of ESG themes in occupier requirements. Businesses are now willing to pay a premium for good quality office space in the UAE. Sustainability credentials are especially important to international blue-chip occupiers.
“City wide occupancies sit in excess of 85% for Grade-B assets and in excess of 90% for Grade-A as occupiers keenly await new developments to enter the market. Businesses are having to carefully consider their growth plans in the wake of limited options and this in turn is fuelling pre-lease commitments on buildings yet to be completed, more customary in more mature markets.”
Rents trending upward
The most costly area of the city for office rentals is still the Dubai International Financial Centre (DIFC), where average monthly rentals are AED355 ($96.7) per square foot. With rents of AED 350 per square foot, the Trade Centre District comes in second place, having seen an amazing 81% increase in rent over the previous 12 months. Despite ranking third, Downtown Dubai is still 1.5 times more affordable than the nearby DIFC, per Knight Frank’s analysis.
In the past 12 months, rents at The Greens (77%), Sheikh Zayed Road (West) (77%), and Jumeirah Lakes Towers (67%) have all increased by double digits, with prices now surpassing AED 200 per square foot.
Office sales market
Transaction volumes, according to Knight Frank, also point to a healthy market. In H1 2024, the total value of transactions increased by 24% year over year to AED2.7 billion, from AED2.2 billion in H1 2023. Furthermore, from 1,334 deals in H1 2023 to 1,414 deals in H1 2024, there were more sales transactions.
Office sales prices in Downtown Dubai remain dominant, with average values reaching AED 3,609 psf, up 132% from 2020.
Other areas are also experiencing strong capital growth; Barsha Heights and Business Bay have grown by 47% and 35%, respectively.
