Dubai Career Diary

Demand in premium property spaces, in particular, has reached new heights.

The COVID-19 pandemic has had a profound impact on the commercial property market worldwide. In the US, around 20% of office space remains unleased, while Europe’s average occupancy rate for offices stands at around 57%. But Dubai is bucking this trend, with its office market emerging as one of the most buoyant in the world.

Premium Property Demand Soars in Dubai

Demand for premium property spaces has reached unprecedented levels. The Dubai International Financial Centre (DIFC) saw a 34% growth in new registrations last year, while key office spaces like Index Tower achieved close to 90% occupancy in 2023.

What does this dynamic mean for the coming months and years? In the short term, we can expect office rents to continue to rise. Single-digit vacancy rates will always have an inflationary impact.

The Future of Dubai’s Office Market

This momentum is likely to continue, with a growing population and the attractiveness of the UAE’s economy driving demand for residential and commercial real estate. However, developers in the UAE have traditionally preferred residential real estate as an asset class.

The reasons for this are structural in nature. In the current market, residential projects can be presold, which reduces risk and ensures high returns on investment for developers. Revenue typically comes to owners and managers in the office market when the property has been leased, so returns come later and only when the building has been built.

What’s Next for Dubai’s Office Market?

If demand continues to outstrip supply, we are likely to see pre-leasing emerging as the only option for organizations looking to secure future space. However, a surge in the number of pre-lease commitments will further limit availability. As a result, we can anticipate a challenging time ahead for companies seeking good quality space – and significant room for growth in rental returns.

Conclusion

Having defied global trends, Dubai’s office market has emerged as one of the most buoyant in the world. We can see the emergence of a race towards quality and sustainability, as companies look for a long-term base for their operations. As an asset class and in terms of the quality of experience provided to tenants, it is likely that, for commercial real estate, the best is yet to come.