UAE offices in demand – in contrast to the West

Anna Bizoń/Alamy via Reuters Connect

• Influx of foreign businesses continues
• Western offices selling at discount
• Grade A rents up 22% in Dubai

Offices in the UAE are outperforming Western equivalents, with a steady influx of foreign businesses and local developers’ preference for residential projects.

“The need for more Grade A office space is becoming increasingly urgent,” Behnam Bargh, managing director at real estate agency CRC, told AGBI.

“Addressing this issue will be crucial for maintaining the country’s competitive edge.”

The transition to widespread remote or hybrid work since the pandemic has hit the office sector dramatically in the US and Europe. Landmark high-rises from Washington DC to London are selling at steep discounts, about 60 to 90 percent below where they traded in 2019.

The picture in Dubai and Abu Dhabi is remarkably different.

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According to real estate consultancy JLL, in the first quarter of 2024 both Emirati cities saw a “significant upsurge” in prices as modest office supply growth lagged behind robust demand. 

Annual average Grade A rents in Dubai’s central business district, where vacancies hovered around 6-7 percent, increased 22 percent year on year to hit AED2,600 per square metre (sq m), while in Abu Dhabi they grew 14 percent to reach AED2,045 per sq m, JLL found. 

By comparison, in San Francisco, whose office sector has been badly hit, vacancies hit a new high of over 32 percent in the first quarter of the year, while rents remained 30 percent lower than in 2019, JLL said separately.

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The reasons for such divergence are multifold, according to industry professionals.

Foreign companies are attracted by the UAE’s prompt return to the office after the pandemic and its rising reputation as a global business centre.

A similar trend is visible in Saudi Arabia, said Tim Martin, managing director of global architecture firm Gensler’s Middle East operations.  

“The market over here has been a lot more buoyant, a lot of talent is coming,” Martin said. “The Middle East is uniquely positioned right now in terms of growth and a lot of the big HQs are coming here.” 

Savills

The workers that dominate the UAE landscape, typically ambitious foreign go-getters without family nearby, might also be more amenable to being in the office, Martin said.

Another factor is the trend for developers to favour residential projects to quickly profit from the waves of arrivals, leading to a “bottleneck” for Grade A offices, according to CRC’s Bargh.

“The minimum square footage requirement per employee per visa adds another layer of complexity,” Bargh said. By law, employers must guarantee a certain amount of space for every employee whose visa they have sponsored.

According to Savills’s Q1 analysis, expanding visa options, full foreign ownership rights and tech-friendly initiatives like FinTech Hive – an accelerator programme for financial technology start-ups hosted by DIFC – have fueled global investors’ demand.

Singaporean, Chinese and UK firms in legal services, wealth management, technology and media are leading the way, Savills found, noting that in areas such as Jumeirah Lake Towers, Business Bay, Dubai Marina, One Central and DIFC rents have soared upwards of 20-30 percent.

Flexible options

Ben Johnston, director for offices and business space leasing at JLL, said only about 11,000 sq m of new Grade A space is slated for delivery downtown in the next two years.

“We anticipate that vacancies will continue to decrease, leading to further price increases in prime markets,” Johnston said.

“Furthermore, there is an opportunity for landlords who can swiftly refurbish well-positioned Grade B assets.”

The UAE seems poised to avoid the Western office slump, but there are signs that change might be afoot, if not in demand volume, at least in its quality.

Savills found that in Q1 “flexible or serviced” spaces became increasingly en vogue in Dubai, with existing players such as ServCorp, IWG and the Executive Centre expanding to meet demand and new operators launching for the first time.

Foreign businesses seeking their first foothold in Dubai are driving this trend, along with established firms that are adopting flexible work, Paula Walshe, director of transactional services at Savills Middle East, said in a statement.