Office rents continue to rise due to growing economy and increasing business confidence
Office rents in Dubai are still rising, with average prime Central Business District (CBD) rents up 3% quarter-on-quarter and 25% year-on-year, according to the Q2 2014Dubai MarketView by global property advisor CBRE.
Mat Green, Head of Research & Consultancy UAE, CBRE Middle East, said, “The average prime rental rate now measures AED 1,884/m2/annum and this figure is expected to increase further within the short term amidst strong economic growth and rising business confidence.”
According to the CBRE report, the CBD market also continues to face a diminishing availability of good quality office accommodation, specifically offices that are capable of accommodating large corporate space occupiers over contiguous floors. Occupancy rates within prime CBD offices have been rising steadily over the past 12 months, with less than 16% vacancy rate compared to an average of 40% vacancy for all Dubai office stock.
“Secondary office locations continue to see an improving performance with average rents rising from AED924/m2/annum in Q2 2013 to AED1,148/m2/annum in Q2 2014. This reflects growth of 24% in just one year with a 5% rental growth recorded during Q2 2014,” added Green.
With limited availability of good quality office accommodation in prime areas, we can expect to see demand spill-over into some secondary locations, particularly for single owned properties in close proximity to transport links.
“Office stock in Dubai continues to see significant growth with over 1.8 million m2 set to be delivered by the end of 2017. However, whilst there is a large pipeline of new supply, the majority of this space will be negatively impacted by its strata ownership title. During 2014, almost 0.5 million m2 is scheduled for completion, with over 30% of this total to be delivered in the Business Bay area,” further commented Green.
According to the report, Dubai’s residential sector continues to experience strong demand from both occupation and transactional sources. However, there has been a slowdown in the number of transactions for ready to move in properties.
According to the Dubai Land Department (DLD), the number of transactions dropped 10% quarter on quarter and 18% year on year, with a total of 3,545 real estate transactions completed during the second quarter.
According to the DLD figures, the value of real estate transactions has perhaps started to stabilise, with second quarter sales exceeding a value of AED 7.7 billion, with first quarter transactions valued at AED 7.6 billion. However, the off-plan market remains buoyant, further underlining concerns over speculation.
Despite recent regulatory changes, both rentals and sales prices continue to rise, albeit at a marginally slower rate than was recorded during the previous quarter. The residential development pipeline is still increasing, with a rising number of new projects being launched month by month. Whilst this pipeline is still far smaller than witnessed during the last cycle, it is nonetheless growing quickly and is certainly something to monitor carefully, with a danger that further down the line supply could again start to exceed demand fundamentals, stated the CBRE report.
“During 2014, close to 17,000 new units are expected to be completed with the majority of these set to be delivered in secondary locations such as Dubailand, Jumeirah Village Circle and Silicon Oasis. Over the next four years roughly 65,000 new units are penned for completion, with 83% of these apartments, and villas and townhouses comprising the balance,” commented Green.
The overall Dubai Residential Price Index is showing rental increases of almost 20% over the last year, with apartments registering an increase of 21% whilst villa rentals have grown by almost 10%, noted the report.
Quarter-on-quarter, rental growth has been more marginal at around 3.2%, with apartments rising by 3.6% and villas by 1.4%. The strongest sub-markets for apartments were Business Bay, The Greens, Sports City, International City and Motor City.
For the sales market, the quarterly change in sale prices was registered as a little over 5%, the same figure that was recorded the previous two quarters, suggesting that demand remains strong despite the implementation of higher transaction fees. On an annualised basis, prices are now 31% higher than the same period last year. Similar to the leasing market, growth was strongest amongst the more budget focussed locations including International City and Jumeirah Village Circle.
“With sustained demand for both occupational and investment properties, we anticipate that residential rental and sales growth will continue throughout 2014. However, we expect growth levels to be lower than 2013 performance as affordability becomes a more influential driver of property moves.” concluded Green.