Office rents in some of Dubai’s most established business locations fell in the three months to the end of June as a glut of new office stock drove markets south.
Rents for offices in Downtown Dubai and along Sheikh Zayed Road fell by 6 per cent in the second quarter, compared with the same period last year, because of competition from new supply at a time when the economy is suffering from tumbling oil prices and the strong US dollar, according to Cushman & Wakefield Core
Rents were forced down by thousands of square metres of new stock at Dubai Trade Centre District and Dubai Design District, coupled with competitively priced buildings at Business Bay.
Rents fell 3 per cent in Business Bay where Cushman & Wakefield Core estimates that about a third of all office space remains empty.
About 30 per cent of the 7.3 million sq feet of new office space currently being built in Dubai and expected to be completed by 2018 is in Business Bay, Cushman & Wakefield Core said. Dubai has about 90 million sq feet of office stock, a third of which qualifies as prime.
JLT was the Dubai district where rents fell the most – with a 10 per cent drop in the second quarter of this year – as the area continues to suffer from an oversupply of grade-B offices, which are often owned by hundreds of owners who undercut each other to levels as low as Dh60 per sq foot.
And Cushman & Wakefield Core says that in real terms rent declines in these areas are even bigger.
"Both JLT and Business Bay have seen a steady shift in sentiment as tenants strengthen their position while landlords slowly respond to the market conditions amid growing competition," said David Godchaux, Cushman & Wakefield Core’s chief executive. "As a result, landlords are offering a raft of incentives such as contributions in fit-outs, extended rent-free periods and shorter lease terms to retain or attract new tenants, although aiming to keep headline rentals steady."
But strong demand from media companies and banks meant that rents continued to rise in two of Dubai’s most established office locations.
Rents in Tecom – an area favoured by media and internet companies – rose by 10 per cent during the period. And rents in the popular DIFC increased by 6 per cent during the quarter, thanks to demand from banks and insurers.
In May, Cluttons predicted that office rents in Dubai could fall by as much as 10 per cent over the second half of the year following redundancies in banking and finance.
"The current weakness in some sub-markets of Dubai’s office market is expected to persist, with further rental declines likely as we move into the summer months," said Faisal Durrani, the head of research at Cluttons.