Prices are still on the rise in the commercial property market amid heightened demand

The commercial property boom has yet to cool off: Sales and rental prices for office space in Dubai continued to rise in 2Q 2024, while seeing slower growth in Abu Dhabi, according to two separate reports picked up by Khaleej Times. Despite an increase in prices, the volume of sales fell slightly — down 2% y-o-y to 2.9k — on the back of the April floods and public holidays, with the value of sales falling 6% y-o-y according to Betterhomes.

THE OFFICE MARKET-

Dubai upped workplace offerings in 2Q 2024, with some 20k sqm of new office space added, raising its stock to over 9.3 mn sqm, according to a JLL’s latest UAE real estate market overview report cited by Khaleej Times. The emirate expects to see an additional 18k sqm of space become leasable in the next two quarters.

Office space got more expensive: The average selling price for secondary office spaces in the emirate hit nearly AED 1.4k per sq ft in 2Q 2024, up 22% y-o-y. The total value of sales rose 17% y-o-y to AED 1.36 bn during the quarter.

Growth in sales came alongside a 1% y-o-y increase in office transactions, with 764 transactions recorded, indicating sustained demand for office spaces, despite the persistent supply crunch for Grade A office spaces in Dubai, according to Betterhomes. The supply crunch also created a “seller’s market,” allocating high bargaining power for landlords, with many issuing stricter lease terms.

The breakdown: Business Bay stood center for 43% of total office transactions, followed by Jumeirah Lakes Towers, which comprised 32%. Dubai Silicon Oasis made up 5% of total transactions, while Arjan and Jumeirah Village Circle accounted for 4% each.

Rentals were also on the rise: Grade A rents in Dubai’s Central Business District increased 15% y-o-y to AED 2.6k per sqm on the back of strong demand and increasing leasing activity, with office vacancies in CBD falling to 8% during the period.

Abu Dhabi’s office supply remained stable at 3.95 mn sqm, though it has some 125k sqm scheduled for delivery in 2H 2024. City-wide office vacancy rates dropped to 21% during the quarter, while Grade A rents inflated by 10% y-o-y to a little over AED 2.1k per sqm per year.

RETAIL AND HOSPITALITY-

The two emirates maintained their retail stocks in 2Q, despite heightened demand for space, particularly in well-performing super regional and regional malls. Dubai kept total stock at 4.8 mn sqm and expects to deliver 58k sqm of new retail space by the end of the year. Neighboring Abu Dhabi held retail stock still at some 3.2 mn sqm, but has 85k sqm of retail GLA in its pipeline within the year, with a focus on community and regional malls.

Limited retail availability drove rentals up: Dubai saw average rental rates in primary and secondary malls rise by 16% y-o-y, while Abu Dhabi logged an 11% y-o-y increase, according to JLL.

The emirates added a scarce amount of new keys to their hospitality segment in 2Q 2024, despite heightened tourism, with Dubai logging a 10% y-o-y increase in international visitors this year, as of May. Dubai plans to introduce an additional 4.5k keys in 2024, while Abu Dhabi will roll out 800 keys during the same period.

Still, hospitality revenues were on the rise: Revenue per available room (RevPAR) in Dubai increased by 6% y-o-y, on the back of a similar 5% y-o-y increase in average daily rates. In Abu Dhabi, RevPAR jumped by 24% y-o-y, with daily rates increasing by 13% y-o-y.

THE INDUSTRIAL MARKET-

Dubai saw robust demand for quality industrial assets, particularly in established freezones, which spiked rental rates by some 14% y-o-y across all submarkets, JLL said.

Abu Dhabi also saw heightened demand for warehouse space, posting 10% y-o-y rent growth during 2Q, driven by strong demand for vacant Grade A spaces in the Industrial City of Abu Dhabi and Kezad, which logged an 88% occupancy rate.

Tenants are snagging office space before it's on the market: Dubai saw a rise in pre-leases — unconventional before now in the emirate’s office market — with tenants securing spaces before availability.