High demand continues to drive UAE commercial realty in Q3

Activity levels within the UAE’s commercial market remained solid over the third quarter of the year, and this continues to drive performance, a report showed on Thursday.

According to CBRE’s UAE Office, Retail & Industrial Market Review Q3 2023, leasing activity in Abu Dhabi’s occupier market remained relatively solid over the third quarter of 2023, where the total number of rental registrations reached 8,814, recording a year-on-year increase of 9.8 per cent.

Over this period, new rental registrations increased by 25.2 per cent, whereas renewed registrations dropped by 9.9 per cent. The vast majority of occupational activity within Abu Dhabi continues to originate from government-related entities in both on-shore and off-shore locations.

That being said, over the past quarter, increased demand has been seen from private sector occupiers across a range of businesses, where the legal and financial services entities have seen marked growth in occupier activity, the report noted. “The market-wide average occupancy rate in institutional-grade buildings tracked by CBRE reached 90.8 per cent in the third quarter of 2023, up from 87.1 per cent a year earlier,” the report said.

Rental performance has improved further on the back of the rising levels of demand, where in the year to the third quarter of 2023, average Prime, Grade A, and Grade B rents increased by 7.0 per cent, 8.6 per cent, and 13.0 per cent, respectively. Moving forward, we expect that rental growth within the Prime and Grade A segments of the market will continue to be relatively strong owing to the lack of quality stock resulting from the scarcity of new developments, alongside the elevated levels of demand.

Robust levels of demand continue to be seen in Dubai’s occupier market in the third quarter of 2023. Data published by the Dubai Land Department show that a total of 35,822 rental contracts were recorded, registering a rise of 40.7 per cent from the year prior. During this quarter, the number of new rental registrations totalled 26,568, up 50.1 per cent compared to the previous year. Over this period, the total number of renewed contracts reached 9,254, registering a year-on-year increase of 19.2 per cent.

The supply and demand imbalance remains one of the major concerns, and this continues to underpin a landlord-favoured market. The prevailing market backdrop is putting additional pressure on businesses, the report noted. “Global corporates, which usually have lengthier decision-making processes are, more often than not, failing to meet landlords’ tight decision-making timelines, with many landlords operating on a first-come, first-served basis. Many occupiers are instead choosing to renew leases and often committing to longer lease terms in order to ensure certainty,” the report said. More so, with limited new developments in the pipeline and those which are seeing strong pre-leasing activity, this trend is likely to underpin the market for some time, itadded. Another notable trend which has been witnessed during this quarter is the marked increase in demand for fitted and serviced spaces, given the cost-effective/ flexible solutions provided.

The average occupancy rate within this market segment reached 92.4 per cent in Q3 2023, up from 86.9 per cent a year earlier. The lack of availability of quality stock, paired with the elevated levels of demand, continues to drive rental growth.

Retail

Taimur Khan, Head of Research – MENA at CBRE in Dubai, said: “The UAE’s commercial market maintained strong performance levels during the third quarter of 2023, bolstered by the country’s hub status that continues to support strong levels of inbound investments. Despite the increasingly uncertain global economic backdrop, the UAE’s robust fiscal position and ease of doing business are expected to inhibit any potential downside risk. Over the remaining quarter of the year, strong activity and performance levels will continue to be seen; that being said, we anticipate that the rate of growth in both activity and asset performance will likely moderate. The former will be underpinned by the lack of quality stock and the latter by the more uncertain global economic backdrop.”