DIFC is getting bigger — which could mean pricing pressure could start easing in surrounding areas

Dubai approved on Tuesday night an AED 100 bn expansion of DIFC — a development experts say could not only plug a supply gap but also ease pricing pressures in surrounding areas that have seen significant spillover due to a lack of Grade A supply in the financial hub.

The expansion, which should accommodate some 42k companies and 125k workers, comes against the backdrop of unrelenting demand that has seen occupancy rates hit 99.8% and prompted another expansion, set to wrap in 1Q this year, which should boost office space by 600k sq ft.

The AED 100 bn buildout is welcome news given that this year’s expansion, while still significant, is not expected to sufficiently meet pent-up demand, particularly since most of it has already been pre-leased, though it will help “at the margin,” Adam Wynne, partner and head of commercial agency at Knight Frank MENA, told EnterpriseAM UAE. This means the supply shortfall is expected to persist in the near term, he added.

The move came only a few days after another AED 11 bn expansion was announced for Dubai Silicon Oasis, signaling a major strategy to expand commercial space offerings and help accommodate an expected influx of new companies and expats alike. This is even as more companies eye alternatives in the region like Riyadh and Abu Dhabi, which are themselves expanding to accommodate rising demand.

The expansions come as a direct response to market demand, Cavendish Maxwell Research Manager Ali Siddiqui said, noting that other financial hubs like Riyadh’s KAFD and Abu Dhabi’s ADGM each offer their own distinct propositions, so the strategy to expand is “less about reacting to competitors and more about reinforcing Dubai’s long-term position in the region.”

The planned supply expansion could help tamp down on further strong rental growth, said Faisal Durrani, Knight Frank’s head of research for MENA. But demand won’t go anywhere: Dubai’s population is set to grow to 5.8 mn by 2040, and the emirate’s strategy aims to put it among the top five financial and trading hubs globally within the next 15 years, Durrani noted.

SMART POLICY- The emirate is bringing in supply slowly, not all at once. The phased delivery of new supply, with the first phase of expansion not handed over before 2030, and the fact that a huge chunk of new supply is likely going to be absorbed through pre-leasing arrangements, will keep impact on prices minimal, Siddiqui said. This will also help limit any significant yield compression. “The market has demonstrated resilience in absorbing new supply over the past few years, and the gradual rollout provides time for demand to keep pace with additional inventory,” he added.

Areas like Business Bay, which have been popular alternatives for companies looking to operate in the center of Dubai in close proximity to DIFC, could see prices cool down as new DIFC stock comes in and those who were eyeing DIFC for its regulatory framework and ecosystem access move to the hub, Siddiqui said.

PLUS- Business hubs like Business Bay have developed their own appeal with competitive pricing, modern buildings, and strong connectivity, so demand should be sustained even as DIFC capacity expands, he added.

Options remain limited in the near term: As companies looking to expand in or into Dubai await new supply, their only options until then are pre-lets, early commitments on upcoming schemes, or looking at best-in-class alternatives nearby, Wynne said.