Dubai’s demand for office space is outstripping supply, and the emirate may run out of Grade A office space next year.
With an increase of foreign companies establishing regional headquarters in Dubai, many landlords and free zones are upgrading older office space to meet rising demand and capitalize on higher rents.
According to Prathyusha Gurrapu, director and head of research and consultancy at Cushman & Wakefield Core, developers, and free zones are expected to begin the next phase of office projects; however, no relief is expected until 2026 due to a minimum of two to three years of construction time.
“As most of the upcoming Grade A supply is highly likely to be pre-leased, limited substantial new supply is expected to be brought to market in the foreseeable future, deepening the supply shortage,” she added.
Gurrapu revealed that with office demand continuing to outstrip supply and the majority of handovers being pre-leased, occupancy levels are expected to rise steadily, with Grade A office occupancy expected to reach nearly 95% by the end of 2024 and hovering near full by 2025 – even though other global markets have much lower office occupancy levels.
She expects citywide occupancy levels of Grade A, B, and C Stock to exceed 90 to 92 percent over the next year as demand spreads to Grade B and Grade C spaces.
According to Behnam Bargh, managing director at CRC, one particularly significant trend within the office segment has been a 15% increase in secondary sales prices, indicating increased demand and value appreciation in this sector. This upward trend in secondary sales prices highlights the appeal of Dubai’s office market to investors and businesses alike, which could be fueled by factors such as economic stability, infrastructure development, and favorable regulatory frameworks.
According to Betterhomes, the average sale price in the secondary office market was Dh1,062 per square foot, up from Dh927 for the same period last year. Prices have risen above the Q1 2019 level of Dh933 per sqft, but remain below previous years.
No new supply in Q1
Prathyusha Gurrapu stated that no new office supplies were delivered in the first quarter of this year.
“We foresee over 1.85 million sqft of gross leasable area to be handed over in 2024, including the next phases of Expo City Dubai, Wasl Tower, Millennium Downtown, and the next phases of Innovation Hub and Dubai CommerCity,” she said.
She added that many major landlords and free zones are currently launching projects to meet rising demand.
“Immersive Tower in DIFC is the first of multiple developments within DIFC expected to begin construction along with DMCC and Tecom set to launch their next phases. We are also witnessing a rising number of landlords upgrading older office stock to address rising demand and capitalise on higher rents. A small section of secondary stock is expected to be brought to market as some technology and services sector tenants consolidate – albeit marginally easing the supply crunch,” she added.