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Rising demand for quality office space to spur development of new projects in 2024

Dubai is scheduled to add an additional 44,000 sq. m., while Abu Dhabi is expected to introduce approximately 112,000 sq. m. of new office space in 2024

Office

In 2023, the UAE once again proved its economic strength and adaptability, thriving amid challenging global economic circumstances. The government remained steadfast in its commitment to diversify the country’s economy away from oil, implementing various development plans and initiatives in the non-oil sector.

This was evident in the impressive growth of the UAE Purchasing Managers’ Index (PMI), reaching a noteworthy 57.0 in November. This came on the heels of the strongest reading at 57.7 since the onset of the pandemic. Looking to the future, the latest report from Oxford Economics (OE) forecasts a 2.4% growth in GDP for 2023, with a projected increase to 4.8% in 2024 – almost double the current rate, stated ‘A Year in Review 2023’ – a report by JLL.

The UAE real estate market experienced a consistent upward trend in all of its major asset classes. Specifically, the office market saw a significant surge in demand for office spaces in both cities.

The demand-supply ratio in the office market              

In the year 2023, a whopping 92,000 sq. m. of gross leasable area (GLA) was completed in Dubai, with a large majority boasting Grade-A specifications. This impressive expansion brought the total amount of stock to a staggering 9.2 million sq. m. In contrast, the capital city of Abu Dhabi saw no significant changes in its total stock, which remained at 3.9 million sq. m. Looking forward to 2024, Dubai is projected to add an additional 44,000 sq. m., while Abu Dhabi is estimated to introduce a substantial 112,000 sq. m. of new office space, the report elaborated.

The evolving rental scene

The JLL report further went on to add that Dubai’s Central Business District (CBD) saw a remarkable surge in average Grade-A rents as the final quarter came to a close. With a 15% year-on-year (Y-o-Y) increase, the rates reached an all-time high of USD ≈660 (AED 2,425) per sq. m. per annum, surpassing the previous record set in 2016 by an impressive 6%. The bustling leasing activity in the area also led to a decline in office vacancies, bringing the number down to just 8%.

In Abu Dhabi, the demand for Grade-A office spaces continued to drive the market, resulting in a noteworthy 12% Y-o-Y growth in average city-wide rents, totalling at USD ≈544 (AED 2,000) per sq. m. per annum. At the same time, the vacancy rate in the capital marginally decreased to 22%, further reflecting the strong demand for prime office spaces.

As the demand for space within Dubai’s CBD continues to exceed availability and rents soar, occupiers are facing limited bargaining power during lease negotiations with landlords. This has resulted in tenants either agreeing to less desirable terms or expanding their search to secondary and tertiary areas, despite the potential decrease in the quality of available space.

What will drive the office market ahead?

The office market is experiencing a strong surge in demand, fuelled by both new players entering the market and established businesses looking to expand. Additionally, there is a growing preference for top-notch office spaces, and the industry is seeing a shift towards environmentally sustainable practices. All these factors together will propel the market forward and lead to a bright future.

Faraz Ahmed, Research Director at JLL MENA

Faraz Ahmed, Research Director at JLL MENA, mentions, “Throughout 2023, the UAE’s real estate industry remained a top performer, particularly the office and residential sectors where there was a substantial increase in stock driven by strong demand. With the government focused on strengthening and diversifying the country’s economy, real estate will continue to be a key driver owing to the robust demand and favourable investment climate in the country.”