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Government innovation drive spurs office sector in Dubai

23 January 2017

Dubai office market outlook spring 2017

Spurred by the government’s innovation drive and desire to position the city as the regions’ leading tech hub, real estate indicators show that the technology-media-telecoms (TMT) sector is amongst the most active in Dubai.

Cluttons’ bi-annual Dubai Office Market Bulletin for Spring 2017 confirms that the government’s push for this sector has undoubtedly fuelled activity in this increasingly significant area, where high levels of expansionary activity have been recorded.

Faisal Durrani, head of research at Cluttons said: “The rising star in the office occupier market is certainly the TMT sector and the Internet City and Media City remain the core focus of this rapidly expanding and ever important sector for Dubai’s economy. The government’s recent Future-Accelerators Programme is paving the way for further strong expansion in this area over the short term.

"However, with limited amount of space available in high demand locations, interest is likely to rise in complimentary free-zones such as Dubai Science Park. Samsung, for example, has recently trebled its floor space, while Amazon Web Services announced plans to establish a new Middle East office in the emirate as it works to grow its presence in the region.”

Durrani concluded, “While 2016 was broadly punctuated by high levels of consolidation activity, notably from the oil and gas sector, but also existing occupiers looking at efficiencies through single-hub operations, a lot of that activity has all but subsided.”

According to the report, overall activity in Dubai’s office market remains muted. Throughout the course of 2016, 10 of the 23 submarkets Cluttons monitor registered decreases in upper limit rental rates, with Garhoud (AED 90 psf) ending the year 18.2% down while Al Barsha (-10%) and Deira (-9.1%) were the next weakest performers.

On the other hand, DIFC (AED 370 psf) emerged as the city’s best performer last year, with upper limit rents rising by 5.7%. Cluttons’ research indicates that these upper limit rents are reflective of rates in and around the Gate core, where as standalone third party schemes continue to command higher vacancy rates and lower rents.

DIFC aims to continue its successful performance in 2017 through the recently announced launch of the first FinTech accelerator in the Middle East in Q1 of this year. The FinTech accelerator will bring cutting-edge financial services technology to the regional markets, while providing a platform that brings financial and technology firms together.

Murray Strang, head of Cluttons Dubai said: “Looking ahead, ‘The Avenue’, DIFC’s retail parade, is expected to spur overall activity and take up across the district. The Avenue is expected to bring increased connectivity as DIFC matures into a more pedestrian friendly environment. For now, core buildings command very low vacancy rates of sub 5% and we expect this to persist.

The shortage of space in this part of DIFC is hampering activity, however we have recorded a few small relocation deals within the finance and banking sector of under 3,000 sq ft.”

Strang added: “No supply relief is expected until early 2019, when the USD 1 billion ICD Brookfield Place is expected to complete. The development will provide 900,000 sq ft of Grade A space. Nearby, One Central may offer further significant Grade A space when a further two buildings in phase 2 complete later this year.”