Offices and warehouses lead the demand in the commercial real estate sector in Dubai

According to Spring 2022 Dubai & Abu Dhabi Industrial Markets Review, average warehousing lease rates in Dubai are recovering rapidly. In particular, Al Quoz has registered the largest increase both on a quarterly and annual basis. In fact, of the 9 industrial sub-markets that Knight Frank follows in Dubai, all except for 2 recorded rental increases this year (2022). Particularly in the areas of JAFZA (AED 19, USD 5 per sq. ft) and National Industries Park (AED 25, USD 6.8 per sq. ft) which have had stable prices regarding Grade B during this time period.

As stated by the partner and head of Middle East Research, Knight Frank, Faisal Durrani, thanks to the efficient COVID-19 response, the pandemic has fuelled a permanent shift in consumer shopping habits which is subsequently pushing demand for distribution and warehousing facilities. Additionally, as Dubai’s economy continues to recover, the confidence amongst businesses is spurring and this has had a positive impact on the warehousing demand.

Other factors that have had an influence on the surge in rentals of residential and industrial properties include an array of economic stimulus measures, a range of new visas, and the ability for international businesses to fully own and operate businesses in over 1,000 sectors inside Dubai free zones without an Emirati partner. It is worth noting that instead of signing a short-term lease contract, many international and local investors opt to sign longer leases with no breaks. This is being achieved by the introduction of various incentives, such as extended rent-free periods. As a result, yields in the logistics and industrial sector are highly likely to slip to 8% from about 8.75%.

At the same time, office rentals in Dubai have also recovered to pre-COVID-19 levels in 5 out of 27 locations, as reported by Knight Frank. Judging by the current trends, the demand is being  driven by technology businesses, in particular start-ups. The main issue on the commercial real estate market in Dubai is undersupply of prime quality office stock. This leads to an increased pressure on rents and stability in rates for the best buildings in the city. As remote working is trending, the serviced office sector also continues to expand, offering greater lease flexibility and plug n’ play space. According to Durrani, amidst the rebound of the economy in Dubai, large companies have requested employees to get back to a workplace, whereas smaller businesses are sticking to hybrid working models or serviced office solutions.

It is worth noting that according to the Savills Prime Office Costs report, Dubai took the 14th spot, with prices set at USD 93.86 per sq. ft, which is well below London (West End and City), New York (Midtown and Downtown), Tokyo, Hong Kong, Shanghai, Beijing and Singapore. At the moment, the emirate is the only EMEA city to register the highest office occupancy levels. That being said, about 70% of workers in Dubai returned to offices in some shape or form.