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.