Quarterly Report Dubai Q1 2020: Office Market Overview
Unprecedented market conditions to add more challenges for both occupiers and landlords
The outbreak of COVID-19 pushed government authorities to impose restrictions on individuals’ movement, which has affected most business activities. All office-based activities, including companies working in the professional services sector, have now implemented a ‘work-from-home’ strategy.
Local authorities introduced measures that will offer economic relief to UAE businesses suffering under the strain of COVID-19 ramifications. The Dubai government announced an AED 1.5bn business stimulation package involving a reduction in fees payable by companies for three months. Abu Dhabi announced a similar 16 point stimulus plan involving fee exemptions, fine waivers, and SME support initiatives.
Additional steps have been introduced in the private sector. Large real estate companies have offered reduced rent or exemptions from rental payments for commercial tenants that have had to temporarily shut due to COVID-19. Various banks, property developers, and even utility suppliers have also offered payment reliefs and have deferred evictions and legal collections in the light of the current situation relating to COVID-19.
There have been no notable new office buildings delivered during Q1 2020. C&W estimates the current office market supply is approx. 8.03 million sq m (city-wide). Looking ahead, if construction progress continues as planned, another 423,000 sq m is slated to complete by the end of 2020, which will increase total office space in the city to 8.45 million sq m. Major completions expected during 2020 include ICD Brookfield Tower in DIFC and Mashreq Bank Headquarters in Downtown, although some completion dates may be pushed back to 2021, given the current situation.
There has been little demand for new office space in recent months. The enforced work-from-home strategies may, in time, lead to a move to more flexible work-space solutions not only in Dubai but across the globe. Office utilization rate should remain lower than usual throughout 2020, although uncertainty remains about the direction the office market will take in the long term.
While there was no impact on occupancy rates in Q1, occupancy levels are expected to decline over the next year as a result of ongoing disruption to business activities caused by the coronavirus outbreak.
Quoted office rents in well-established districts declined by an average of 2% Q-o-Q to AED 1,325 per sq m per annum compared to AED 1,350 per sq m per annum in Q4 2019. In the wider market, average rents remained relatively stable at AED 890 per sq m per annum compared to AED 895 per sq m per annum in Q4 2019. Sale values for Grade A offices remained stable over the past quarter, with average prices reflecting approximately AED 13,000 per sq m.