Khaleej Times, Monday, Apr 18, 2022 | Ramadan 17, 1443
Commercial rents return to pre-Covid level in Dubai and Abu Dhabi
Emirates:
Office rents in Dubai and Abu Dhabi have begun to
recover to pre-Covid-19 levels as demand for prime space intensifies.
According to global real estate consultancy Knight Frank’s analysis released on
Monday, five out of 27 locations in Dubai have seen office rents return to
pre-pandemic rates. While in Abu Dhabi, the city’s best buildings continue to
demonstrate rental resilience.
“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.
Still, Knight Frank points to the lack of new prime stock, sustaining upward
pressure on rents in high-quality buildings in some locations.
“There is a very limited supply pipeline of high-quality office stock in Dubai,
which is where the attention of businesses remains centred. 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”.
Leading the recovery in office rents is Business Bay, where average rents have
climbed from Dh76 per square foot in Q1 2020 to Dh101 psf (per square foot).
Knight Frank said the seemingly permanent attitude shift towards remote working
has also given further impetus to the serviced office sector, which continues to
expand.
Away from the consolidation activity, serviced office providers are increasingly
active in the market, offering enterprise solutions to businesses that are
looking for greater lease flexibility and plug n’ play space, which is growing
in popularity, as it has done 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.
In Abu Dhabi, office rents in all of the main submarkets tracked by Knight Frank
have remained stable during Q1. On an annualised basis, the Corniche Area
continues to pull away from the rest of the pack, with average rents climbing by
7.2 per cent over the last 12 months, taking them to Dh1,675 psm.
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”.
Knight Frank explains that the steady office demand is in part linked to the
stable but high office rents, which are now up to 14.5% higher than in 2020
(Corniche Area), or 2.5% in the case of both Al Reem Island and Capital Centre,
which is to an extent suppressing domestic demand from cost-conscious occupiers,
who are still assessing long-term occupational strategies, with a view to
incorporating greater hybrid working.
However, Knight Frank has registered examples of some businesses exploring
alternative options, albeit the underlying driver appears to be cost-saving or
information gathering for renegotiating existing lease terms.