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Dubai’s office rents continue to decline

Dubai’s commercial occupier market saw lacklustre performance in 2016 as a result of slower economic growth. The strong US Dollar since May 2014 has proved to be a strong headwind for Dubai’s economy, said a report by Knight Frank.

“However, despite interest rate hikes by the Federal Reserve, the US Dollar has depreciated rapidly in the first seven months of 2017 (6%), registering the longest period of deprecation since 2010,” it said. “Given the Dubai’s reliance on foreign consumer spending, this is likely to provide a boost to economic growth and may encourage firms to resume capital expenditure.  This in turn may lead to increased employment which would translate into additional demand for commercial offices. Market activity has remained relatively subdued in the first half of the year. On average office rents across Dubai fell 4.5 per cent in the year to Q2 2017, with the performance of prime and secondary markets continuing to diverge over the same period.”

Dubai’s GDP increased by 2.9 per cent in 2016, down from 4.1 per cent in 2015. Lower oil prices, higher interest rates and a strong US Dollar have underpinned the slowdown in GDP growth. As the economy adjusts to the new norm in oil prices and diversifies in line with Dubai Plan 2021, the slowdown in GDP growth is expected to bottom out in 2017 and begin to strengthen in 2018. Employment is forecast to grow 1.63 per cent in both 2017 and 2018. Business sentiment remains upbeat with the Purchasing Managers Index remaining positive at 55.

Prime rental performance remained relatively stable with average rents shifting 1.3 per cent higher in the three months to June 2017. Demand in these locations remains high due to limited new supply, Free zone Status, international regulatory standards and the quality of local infrastructure.

“Vacancies in DIFC remains low with DIFC phase I registering vacancy at 1 per cent as at Q2 2017. However even within these prime locations, for periphery offerings  absorption rates remains low. Although, as the master plan is finalised we expect this absorption rate to steadily increase as the “core” expands. This trend maybe further heightened with the move towards mixed use developments which encourage urban living by linking business, cultural and lifestyle environments,” it says.

Grade A office market rents, which includes Downtown Burj Dubai, Sheikh Zayed Road and the Trade Centre District, fell 4.4 per cent year-on-year and 2 per cent over the last three months.