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Defying global trends Dubai's office market thrives in Q2

First half records 23% increase compared to same period last year

Published: Mon 28 Aug 2023, 9:02 PM

Updated: Mon 28 Aug 2023, 9:03 PM

By
Issac John

The Business Bay area ranked first in terms of the number of real estate transactions with over 4,000 transactions.

Dubai’s office market continued to defy global down trends caused by economic uncertainty by recording an increase in demand for top-quality office space in the second quarter of 2023. The demand growth was driven by banking, fintech, media, and telecommunications sectors along with new international firms setting up operations in the emirate, according to market analysts.

Savills, a global real estate services provider, noted in its report that Dubai attracted new companies, particularly from the US, Europe and Asia, particularly India and China.

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.

Knight Frank, a leading global real estate consultancy, said in a report that in the first half of 2023, the Dubai office market experienced an unprecedented spike, with demand reaching a remarkable 580,000 sqft. This represents a 23 per cent increase compared to the same period last year.

Dubai continues to defy a slump in the commercial real estate market that’s battered occupancy rates and rental yields around the world. “There’s strong demand for the central business district, which reveals that customers prefer high-quality offices in a prime location. We also continue to see strong interest from multinational companies looking to expand their footprint in Dubai and the region,” Abdulla Belhoul, chief executive officer of Tecom Group, said recently.

“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.

The Savills report noted that existing corporate occupants across the city are adopting a more strategic and extended outlook toward their current office space requirements. Several companies are re-evaluating their rightsizing 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, the report 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”, said Swapnil Pillai, associate director of research at Savills Middle East.

“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,” he added.

The strong demand levels have led to an increase in rents across most markets. Rents across the DIFC have increased by 15 per cent y-o-y, while they have gone up by 27 per cent y-o-y across One Central, close to 39 per cent across Business Bay, and 23 per cent on average across JLT when compared to Q2 2022. The quarterly increase in rental values has positioned Dubai as the eighth most expensive market for prime offices globally, as per the latest Savills Prime Office Costs report.