How Dubai's commercial property market is at an inflection point

How Dubai’s commercial property market is at an inflection point
© Motivate Publishing director crc

After an uncertain year due to the global pandemic, 2021 has seen a big shift for Dubai’s commercial property market, with an increase in prices for both sales and leasing. After years of limited supply and decreasing prices, the market started recovering with a surge in demand for sales. The rental prices have been at a nine-year low up to this year, but now, for the first time in five years, have started rising and stabilising. As a result, we have seen intensive buying of office spaces, both by investors and end-users, resulting in a 132 per cent increase in office sales in the first eight months of 2021, according to CRC data.

SALES SURGE

Such impressive growth rates haven’t been seen for years when it comes to the commercial property market. While the notion that office sales are up to such an extent might sound counterintuitive, given that remote working has seen a massive spike during the pandemic, our figures clearly say the market has awoken. Managers and deci-sion-makers have realised that work from home is not a permanent solution and that a physical office is still essential for most businesses. So why are prices on the rise? Well in the early 2000s, Dubai’s commercial property market saw a massive increase in the supply of office space, and as a result, there was oversupply in the market, which caused prices to decrease and led to the construction of any new major commercial developments being stopped.However, increasing demand in the last few years absorbed the majority of this oversupply, and we are at a turning point where demand is starting to outstrip supply. With no new major developments on the horizon, this trend is set to continue, and as such, prices have to go up.

How Dubai’s commercial property market is at an inflection point
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RENTS STABILISE

Rental prices for offices have begun to see signs of change for the first time in five years. Rents at prime office addresses have started to stabilise as demand builds up among tenants for bigger floor spaces and flexible fit-outs. With demand for these spaces increasing, potential investors and buyers see new opportunities in the market. This is especially the case when one considers that Expo 2020 is expected to bring in new business opportunities for the city. As new companies decide to enter the Dubai market, this will only increase demand for office spaces.Demand is primarily focused on prime office spaces that are move-in ready. This means buyers are looking for spaces that are fully fitted and ready so that they do not have to spend money before tenants sign a leasing contract. Therefore, it is the expectation that current landlords who own shell and core spaces will convert them to be fully fitted and even furnish them to satisfy current demand.

INCREASING DEMAND FOR WAREHOUSES

The demand for warehouses has soared from late 2020 and this trend has continued in 2021 as many businesses are shifting their work-ing models to hybrid or online. In additions, a number of commercial and recreational entities such as gyms and children indoor playgrounds see warehouses as perfectly suited locations for activities that can run throughout summer. The aver-age rental prices for warehouse range between Dhs25-50 per sqft depending on the activity and zoning of the warehouse.

Behnam Bargh is the director, CRC

Taken from Property Finder’s Prestige special report in Gulf Business’ November issue

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