Dubai office rents climb as international firms set up base in the city
This Article originally appeared on July 5th, 2023 in on GulfBusiness.com. Check out the full article at: https://gulfbusiness.com/dubais-real-estate-market-double-digit-surge-june/
The office market in Dubai has seen a notable increase in demand for top-quality office space in Q2 2023, keeping with previous quarters, as per the Dubai Office Market in Minutes Q2 2023 Report by Savills.
Demand was especially evident from banking and financial services, and the technology, media, and telecommunications (TMT) sectors.
The city has also attracted new companies, particularly from the US and Europe.
Dubai office space
Additionally, companies from Asia, particularly India and China, are establishing a presence in Dubai.
The report also sheds light on the working habits that were formed in the post pandemic years and may prove to have a lasting effect than initially expected.
In the US, 56 per cent of full-time employees, or roughly 70 million people, have said that they can do job their job remotely.
Meanwhile, 51 per cent and 42 per cent work remotely for at least one day a week in Germany and the UK, respectively.
This trend is however, far from being uniform on a global scale.
Swapnil Pillai, Associate Director of Research at Savills Middle East, said: “When we compare the office dynamics in the Middle East, and more specifically Dubai, to the rest of the world, we see that it’s quite different.
“Dubai was one of the very few cities globally to resume business as usual after a relatively short period of lockdowns, and the office market across the emirate has been on an expansionary trend ever since.
“Another thing that distinguished Dubai when compared with cities in North America and Europe was that the prolonged utilisation of the work-from-home option wasn’t as widespread.
“Companies across the city focused more on hybrid-work models once the lockdown restrictions were lifted”.
Paula Walshe, Director of Transactional Services, said: “Throughout the initial six months of 2023, there was a notable influx of new companies establishing their regional offices in Dubai, vividly underscoring the escalating need for office spaces within the city.”
This surge in leasing activity was chiefly propelled by a wave of corporate entities from the United States and Europe, driving the transaction share to 72 per cent in Q2 2023, up from 55 per cent in Q1 2023.
“Distinguished financial services firms like Alliance Bernstein, GoldenTree Asset Management, Verition from the US, and St. James’s Place from the UK inaugurated offices across Dubai during our review period.
“Concurrently, a gradual influx of companies from Asia, particularly India and China, contributed to this dynamic landscape,” she added.
Existing corporate occupants across the city are adopting a more strategic and extended outlook towards their current office space requirements.
Several companies are re-evaluating their rightsising endeavours, which initially gained traction due to the rise of hybrid work models at the start of the year and flexible working arrangements adopted by many.
However, a recent trend has emerged where companies are leaning towards retaining their current space or considering smaller reductions compared to their initial plans.
This shift in approach is attributed to various factors, including the costs tied to relinquishing additional space, the limited availability of Grade A developments, and the constrained upcoming supply.
Moreover, the anticipated economic growth and opportunities in the Middle East have prompted select multinational companies to adopt distinct regional office real estate strategies, setting them apart from their broader global strategy.
Leasing activities have been concentrated across all Grade A developments within the city.
Specific micro-markets, such as the DIFC, have particularly thrived due to the issuance of exclusive trade licences by the freezone authority.
The heightened demand has consequently spurred rent increases across most markets.
Within DIFC, rental rates have witnessed a year-on-year increase of 15 per cent, while One Central recorded gains of 27 per cent, Business Bay nearly 39 per cent, and JLT an average of 23 per cent, compared to Q2 2022.
This quarterly surge in rental values has propelled Dubai to the eighth spot in the global hierarchy of the most expensive prime office markets, as indicated by the latest Savills Prime Office Costs report.
With an average net effective cost of $120.72 per sq. ft. for prime office space, Dubai has outpaced cities such as Paris ($119.85.), Shanghai ($116.63), and Delhi ($112.22) per sq. ft.