Many landlords and free zones are upgrading older office stocks to meet the growing demand

Demand for office spaces is outstripping supply in Dubai and the emirate could well run out of Grade A office space next year.

With the inflow of foreign companies that are setting up regional headquarters in Dubai, many landlords and free zones are upgrading older office stocks to meet the growing demand and capitalise on higher rents

Prathyusha Gurrapu, director and head of research and consultancy at Cushman & Wakefield Core, said developers and free zones are expected to initiate the next phase of office projects, however, no relief is expected until 2026 due to a minimum of a two-to three years' time for construction.

“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 most handovers being pre-leased, occupancy levels are to see sustained upward pressures with Grade A office occupancy expected to be near 95 per cent by the end of 2024 and hovering at near full by 2025 – albeit, contrary to other global markets which are at much lower office occupancy levels.

She expects city-wide occupancy levels of Grade A, B and C Stock to breach 90 to 92 per cent over the next year as the demand trickles down to Grade B and Grade C spaces.

Behnam Bargh, managing director at CRC, said one particularly significant trend within the office segment was the 15 per cent increase in the secondary sales price, indicating heightened demand and value appreciation in this sector. This upward trend in secondary sales prices underscores the attractiveness of Dubai's office market to investors and businesses alike, potentially fueled by factors such as economic stability, infrastructure development and favourable regulatory frameworks.

According to Betterhomes, the average sale price of the secondary office market stood at Dh1,062 per sqft, up from Dh927 for the same period last year. the prices have risen above the Q1 2019 level of Dh933 per sqft, but still below the previous years.

No new supply in Q1

Prathyusha Gurrapu revealed that no new office supply was handed over 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 activating projects now to address the growing 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.

The office sector soars with 29.9 percent annual increase during the quarter

The Dubai real estate market experienced during the first quarter of 2024 significant expansion in both its residential and commercial sectors, as evidenced by the most recent data from the Valustrat Price Index (VPI)

In the residential segment, the VPI for capital values demonstrated a substantial increase of 6.4 percent on a quarterly basis and 24.7 percent annually, reaching 167.5 points, compared to the base of 100 points in Q1 2021.

This growth was primarily driven by a 5.7 percent quarterly and 20.1 percent annual surge in apartment valuations, particularly in mid-affordable communities.

Villas remained resilient and reached 211 points, marking a 29.6 percent annual increase and achieving the highest values in ten years for prime villas.

Additionally, the office sector witnessed remarkable growth, with office unit valuations surging by 29.9 percent annually, reflecting sustained demand for high-quality office spaces.

The VPI for office capital values reached a record high of 194.2 points, indicating a robust market.

Prominent business districts such as DIFC, Jumeirah Lake Towers, and Business Bay experienced significant annual growth, further solidifying Dubai’s position as a regional business hub.

In the industrial market, the VPI for Dubai Industrial capital values reached 135 points, demonstrating a 15 percent annual increase and a 3.5 percent quarterly increase in logistical warehouses.

This growth underscores the resilience and adaptability of Dubai’s industrial sector, which continues to attract investments and expand its presence.

Furthermore, strong rental growth was observed across all segments, further emphasizing the robust performance of the real estate market.

Residential asking rents

Residential asking rents experienced an annual surge of 11.7 percent, with villa rentals increasing by 6.1 percent annually and apartment rents growing by 16.4 percent on a yearly basis.

Moreover, the latest data from the ValuStrat Price Index highlights the strength and dynamism of Dubai’s real estate market.

The report emphasizes that with consistent growth in the residential, office, and industrial sectors, Dubai remains an attractive destination for investors and businesses, positioning itself as a premier choice for real estate investment in the region.

Dubai’s real estate market shattered records in Q1 2024 with over 34,000 transactions, driven by robust demand amidst supply constraints, a thriving luxury segment, and rising rental prices across communities

Property Monitor, a real estate research and data platform, revealed that the Dubai property market has witnessed an increase in new project launches on the map. On average, more than one project is launched daily in 2024, with a rate of a new project every 18 hours.

According to the March report from Dubai's real estate market, issued by the institution and obtained by Al Bayan, the initial figures for new projects on the map showed the launch of nearly 10,000 units for sale during March. These projects contributed to an unprecedented total of 34,000 units distributed across 120 projects in the first quarter of this year, with a new launch occurring approximately every 18 hours.

The report highlights that this significant level of activity in the market does not indicate any signs of decline in the near future. With the recent announcement of three new major developments, along with the upcoming launch of the "Ghaf Gardens" project designed by Majid Al Futtaim, the available options for eager investors and end-users are expected to grow further.

The diverse mix of projects and options presents an increasing challenge for developers. Intense competition, high buyer expectations, and greater scrutiny in choosing the best investments are all factors to consider.

The report also notes that established and larger developers will be better positioned to benefit from the comprehensive market due to their pricing flexibility. Specialized developers focusing on luxury and ultra-luxury segments will also have a strong presence, even with fewer project launches, as they target specific markets.

New entrants to the market, competing face-to-face with the mentioned developer groups, may find it challenging to differentiate themselves. They might need to revert to traditional commercial offerings that appeal to buyers, such as gifts, post-delivery payment plans, and developers covering land and property fees.

March Performance

After several months of slight price increases, property prices in Dubai saw a significant rise in March. Monthly gains reached 2.37%, marking the largest monthly increase since May 2023.

According to the Property Monitor's Dynamic Price Index (DPI), current property prices in Dubai stand at AED 1,325 per square foot, representing a 7.4% increase compared to the previous peak in September 2014.

This substantial increase can largely be attributed to the significant differences in trading prices between existing homes and newly planned properties, deviating from the trend that began in late 2023.

Luxury Properties

The report also highlights the market share of properties priced above AED 10 million, which increased to 2.7% in March. Additionally, properties priced between AED 5 million and AED 10 million accounted for 6.3% of sales, while those in the AED 3 million to AED 5 million range saw their share rise to 13.8% of market sales during March.

Residential communities and villas in Dubai have suffered the brunt of the record-breaking downpours in the UAE this week, with many properties being submerged in floodwater.

Many families across the emirate have seen their belongings destroyed, while some have been forced to evacuate their homes after the highest ever-recorded rainfall in over 75 years brought country to a standstill.

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As the country works overtime to clear water-clogged streets, felled trees, and abandoned cars, property developers have said they also are doing their bit to help residents in affected homes and neighborhoods.

Free home repairs

Emaar properties said it will repair homes damaged in the Dubai rains and floods at no cost to the residents.

The Dubai-based company said on Friday that it would repair all old and new homes within Emaar communities if damaged by the unprecedented downpour that brought the country to a near standstill.

“…I am pleased to announce that Emaar will undertake the repair of all properties within our communities that have been damaged by the recent rains at its own cost to ensure that our residents can return to their daily lives as swiftly and smoothly as possible,” Emaar founder Mohamed Alabbar said in the statement.

“…as a responsible company, we undertake to provide all possible support in such situations including complete repair of our customers’ homes,” the founder said.

 

The Emirati owned company also said dedicated teams are coordinating with local authorities to assess and restore damaged properties and communities. This includes clearing water logging.

Residents with damaged properties can contact the call center to file their claim.

Emaar operates the world’s largest mall, Dubai Mall, and built the world’s tallest building, the Burj Khalifa. It also built and operates a range of residential communities and shopping centers across the city, and accounts for 30 percent of Dubai’s property market.

It is a Public Joint Stock Company (PJSC) listed on the Dubai Financial Market.

 

A person walks in flood water caused by heavy rains, with the Burj Khalifa tower visible in the background, in Dubai, United Arab Emirates, April 17, 2024. (Reuters)

Prompt action

DAMAC, another popular Dubai-based real estate developer, told Al Arabiya English that it worked round the clock with the local government authorities and private firms to safeguard its residents.

“To ensure the safety and safe-guarding of our residents and their properties, we have been working round the clock by liaising with all governmental and private bodies,” a DAMAC spokesperson said Friday.

They reportedly deployed several tankers to collect floodwaters and maintained direct lines to hear from residents.

The day after the storm, the DAMAC spokesperson said that major accumulation of flood water was drained from the roads and sand removal trucks were deployed. “This helped us ensure that residents were not stuck on the roads due to the flooding. Our landscaping team were also active to clear the aftereffects of the winds and storm,” the spokesperson added.

“Our ground staff, with strong support from the local authorities worked tirelessly to ensure that the communities were up and running in a matter of hours after the storm hit, to ensure that there was no disruption to the communities and its members.”

The teams on the ground will carry fogging treatment and routine pest control in the water features to “contain infestation of any kind,” the spokesperson said.

The DAMAC official added that their upcoming projects and developments have not been affected by the flooding and that the safety of their workers were ensured.

Cars drive through a flooded street during a rain storm in Dubai, United Arab Emirates, April 16, 2024. (Reuters)

Temporary accomodation

Hotels across Dubai reported a surge in guests looking to escape flooded homes, low on supplies and some without water and electricity access.

Near Mudon, one of the worst affected areas of Tuesday’s record rainfall, Sid Sattanathan, general manager of the Radisson Hotel in Damac Hills, told Al Arabiya English that the hotel has been “very, very busy.”

“We are almost full because of the flooding,” he said. “People who have issues at home – especially in Mudon – have come to stay.”

“Also, restaurant sales have doubled as there are no food deliveries (because of the weather). People are turning to hotels.”

But, Sattanathan said the hotel has, in turn, seen food supplies dwindle because of the demand and the struggle of getting supplies through flood-stricken roads to the hotel.

“We almost ran out of food because we had so many guests,” he said. “We are in a strategic location, so we have seen a lot of demand. Our team had to be really creative and went to the local supermarket to get supplies.”

The record rainfall meant many members of staff had to sleep in the hotel as they could not venture on the roads to head home.

“We turned our meeting rooms into bedrooms to house our team members as they could not travel,” said Sattanathan.

People look out at floodwater covering a major road in Dubai, United Arab Emirates, Wednesday, April 17, 2024. (AP)

Financial assistance, discounts

Emirati businessman Khalaf Ahmad al-Habtoor said he would donate more than $4 million to assist UAE nationals in repairing damaged homes.

The Habtoor Group, which owns several hotels in Dubai, reportedly provided free hotel stays for affected Emirati families.

Other hotels have offered discounted rates to Dubai residents.

Vehicles drive on a flooded road during torrential rain in the Gulf Emirate of Dubai on April 16, 2024. (AFP)

Country-wide impact

UAE financial capital Dubai and neighboring Sharjah were most affected by the rain-storm that was the highest ever in a 24-hour period since climate data recording began in 1949.

Although remote working and learning, and weather warnings, were put in place by the government ahead of time, the downpour affected everything from homes to public spaces and parking lots.

Low-lying areas saw high levels of stagnant water, while many of the country’s world-class highway systems were gridlocked. Motorists were trapped in vehicles submerged under water or stranded on the roadside due to the rising water levels around them.

On Friday, Filipino officials confirmed to the media that three UAE residents had died from the weather. Two women suffocated inside their vehicle during the flooding while one man died when his vehicle fell into a sinkhole. The latest reported death brings the death toll to at least four after a 70-year-old man was swept away in his vehicle in Ras al-Khaimah.

Public transportation networks also came to a halt, with water levels and damage to metro station infrastructure impacting travel.

Flights were also disrupted by the weather, with some of the country’s international airports slowly restarting service on Friday for select travelers.

The UAE President has ordered a review of the country’s infrastructure, directed support be provided to families impacted by the severe weather, and ordered the transfer of affected families to safe locations.

A view of aeroplanes parked on a flooded tarmac seen through a plane's window at Dubai International Airport, United Arab Emirates, April 16, 2024, is seen in this screen grab obtained from social media. (Reuters)

In the first three months of 2024, 105 homes priced above $10 million were sold in the emirate

In the first three months of 2024, 105 homes priced above $10 million were sold in Dubai, a 19 percent increase compared to Q1 2023, according to the latest analysis from global property consultant Knight Frank.

Faisal Durrani, Partner – Head of Research, MENA, explained that the demand for luxury homes in Dubai remains strong, particularly from international high-net-worth-individuals seeking the city’s most expensive properties. This high demand has led to a 59 percent reduction in the volume of $10 million+ homes for sale across Dubai over the past 12 months, leaving just 864 such homes available.

Read more: Abu Dhabi approves $593.62 million housing package for 1,502 citizens

The total value of luxury homes sold in Q1 2024 reached $1.73 billion, a 6 percent increase from Q1 2023. This solidifies Dubai’s position as the world’s busiest $10 million+ homes market, having recorded 431 such sales in 2023 – nearly 80 percent more than the next closest city, London (240 sales).

Palm Jumeirah remained the dominant luxury home market, accounting for 36.3 percent of Q1 2024 sales by value, worth $628 million. Jumeirah Bay Island (11.1 percent) and Dubai Hills Estate (7 percent) followed in second and third place, respectively.

While Palm Jumeirah led in the total number of luxury homes sold (39), other emerging markets like Palm Jebel Ali (10 sales) and Business Bay (7 sales) also saw strong demand for high-end properties.

According to Knight Frank, Dubai Hills Estate is quickly becoming a new hotspot for luxury home buyers, with its proximity to Downtown and New Dubai, access to international schools, and abundance of green space driving increased interest and price growth of nearly 11 percent over the past 12 months.

Knight Frank’s Destination Dubai 2023 report found that access to parks and green space is the most important consideration for global high-net-worth-individuals when investing in Dubai.

Prime residential market

Moreover, Dubai’s prime residential market, encompassing areas like Palm Jumeirah, Jumeirah Bay Island, and Emirates Hills, has surged, growing by 26.3 percent over the last 12 months – one of the fastest rates globally. Despite these strong growth rates, Dubai’s luxury homes remain comparatively affordable, with $1 million securing 980 square feet of prime residential space, compared to just 366 square feet in New York, 355 square feet in London, or 172 square feet in Monaco.

Prices of $10 million-plus homes in Dubai grew at one of the fastest rates globally, as overseas demand for prime residences in the emirate continues unabated.

Dubai’s prime residential market, which includes The Palm Jumeirah, Jumeirah Bay Island and Emirates Hills, saw prices grow by more than 26 per cent last year, property consultancy Knight Frank said in a report on Tuesday.

There were 105 recorded sales of homes priced at more than $10 million during the first three months of the year, up 19 per cent on the same period last year. Palm Jumeirah accounted for just over a third of transactions during the quarter.

“After growing by 16.3 per cent in 2023, following an extraordinary 44.4 per cent increase during 2022, Dubai’s prime residential market has grown by 26.3 per cent over the last 12 months, easily making it one of, if not the fastest, growing prime residential market globally,” said Faisal Durrani, partner and head of Middle East research at Knight Frank. 

The total value of luxury homes sold in Dubai during the first quarter was $1.73 billion, which is up 6 per cent on the same period in 2023, further adding to the emirate's position as the world's leading market for luxury home sales.

Knight Frank's report in January found that Dubai's luxury home market reached record levels in 2023, with sales of $10 million-plus homes nearly doubling to $7.6 billion and outstripping London and New York.

Dubai's global connectivity, favourable interest rates and policies that encourage long-term residency have helped sustain wealthy overseas buyers' interest in its property market.

Mr Durrani said high demand in the prime residential sector has led to a sharp fall in supply.

“The level of deal activity in Dubai continues to strengthen, particularly at the top end of the market, where the near-constant stream of international high-net-worth individuals vying for the city’s most expensive homes persists,” he said.

“The laserlike focus of the global wealthy on Dubai is best reflected in the rapid deterioration in the volume of $10 million-plus homes for sale, which has fallen by 59 per cent across the city over the last 12 months to just 864 homes.”

Despite higher prices, Dubai’s luxury homes market remains one of the most affordable in the world, Mr Durrani said.

“Indeed, $1 million secures some 980 square feet of prime residential space in Dubai, compared to just 366 square feet in New York, 355 square feet in London, or 172 square feet in Monaco,” he said.

Palm Jumeirah dominated sales in the first quarter of the year, with registered deals worth $628 million, accounting for 36.3 per cent of sales by total value.

Jumeirah Bay Island (11.1 per cent) and Dubai Hills Estate (7 per cent) were the next most popular.

Future growth

Knight Frank predicts that Dubai’s prime market will see a more moderate increase of 5 per cent this year, while the overall market is expected to grow by 3.5 per cent.

“Our forecasts are not without risk,” said Mr Durrani.

“A global economic slowdown and the knock-on impact on the local economy, combined with the risk of an escalation in regional tensions are medium to high risks, with the latter potentially emerging as a key trigger for higher oil prices.”

This in turn could fuel global inflation and higher interest rates, “which could drive up borrowing rates further and therefore dampen demand”, he said.

A potential oversupply of homes is a lower risk to the market, Mr Durrani said.

“In our view, the city remains undersupplied, particularly given the population growth projections and the dearth of new homes in prime neighbourhoods as well as in the upper echelons of the price spectrum.”

Knight Frank said one of the emirate's fastest-growing prime areas for domestic buyers is Dubai Hills Estate.

“The relative proximity to both Downtown and new Dubai, combined with access to international school, excellent neighbourhood facilities and amenities and, of course, its abundance of green space is quickly making Dubai Hills Estate one of Dubai’s most desirable neighbourhoods,” said Will McKintosh, regional partner and head of prime residential Mena at Knight Frank.

“Prices have unsurprisingly responded to the growing demand to live here and have risen by almost 11 per cent in the last 12 months, while the number of homes available for sale has fallen by 75 per cent to just over 1,000 units this past March.”

John Lyons, managing director of Espace Real Estate, which handled 20 per cent of villa sales on Palm Jumeirah in 2023, said off-plan properties are largely responsible for the increase in sales in the first quarter of the year.

“In the secondary market of completed properties, the market has remained steady with 18 transactions above the $10 million price point compared to 21 in Q1 2023,” he said.

“By contrast, the off-plan market above $10 million has accelerated with more than double the number of transactions, demonstrating the market's ability to absorb the increasing supply of luxury real estate.”

Several high-end off-plan projects have been launched on Palm Jumeirah in recent years, including Omniyat’s Orla collection and Arada’s Armani Beach Residences.

In the first week of sales, Arada said it sold more than 20 per cent of the 53 ultra luxury apartments at Dh8,000 per square foot.

Mr Lyons said further increases in sales on the Palm will depend on future supply.

“The demand for luxury real estate Dubai is high and rising,” he said.

“As developers increasingly build new supply to satisfy this demand, Dubai will further cement its position as a major destination for the global elite.”

Demand for ready properties grew in the UAE in the first quarter of 2024 as tenants are increasingly opting for ownership to beat rising rentals.

According to the data released by Property Finder, the first quarter of 2024 opened up to strong demand for existing projects across both Dubai and Abu Dhabi unlike the first quarter of 2023 where off-plan transactions soared high.

Rents have been consistently on the rise over the past three years after the pandemic. It is expected that this upward rental trend will continue in 2024 also due to unprecedented demand from the rising population. Rising rentals have prompted residents in the UAE to resort to buying properties in Dubai and Abu Dhabi, which will help residents save on rentals and also see their property value appreciating.

“2024 has opened up to an interesting and promising phase of growth. We can see a more diversified demand and we are positive of the impact this will have in the months to come,” said Cherif Sleiman, chief revenue officer, of Property Finder.

Data showed that the existing/ready market in Dubai registered almost 19,600 transactions in Q1 2024, increasing its market share to 54 per cent of the total transactions compared to around 15,000 transactions, which contributed 48 per cent of the total transactions in Q1 2023. This performance witnessed a notable volume growth of 30 per cent compared to Q1 2023.

By reaching Dh78.2 billion, transaction values in Q1 2024 contributed to 68 per cent of the existing sales transaction value, compared to 60 per cent in Q1 2023. Consequently, the existing/ready transaction value witnessed a significant increase of 46 per cent compared to Dh53.6 billion in Q1 2023.

Data from the Dubai Land Department (DLD) showed a significant surge in total sales transactions in Q1 2024. The number of transactions recorded was the second highest transaction for the quarter ever recorded, with more than 36,000 transactions compared to 31,000 transactions in Q1 2023, reflecting a substantial increase of 17 per cent.

There were around 16,600 off-plan sales transactions compared to 16,000 transactions in Q1 2023, representing 46 per cent of the total transaction volume compared to 52 per cent of the total transactions in Q1 2023.

814 TRANSACTIONS IN ABU DHABI

Abu Dhabi real estate in Q1 2024 recorded 814 residential transactions representing around 38 per cent of the total transactions compared to 628 transactions that contributed to 27 per cent of the total transactions in Q1 2023. This was a notable growth of 30 per cent from Q1 2023. By reaching Dh1.74 billion, the existing/ready transaction value in Q1 2024 contributed to 29% of the total sales transactions value compared to 27% in Q1 2023.

The Department of Municipalities and Transport (DMT), Abu Dhabi, saw a slight decrease in total sales transactions (both residential and commercial) as the number of residential transactions reached a quarter around 2,145 transactions compared to 2,286 transactions in Q1 2023.

In the UAE capital, the off-plan market registered around 1,331 sales transactions compared to 1,658 transactions in Q1 2023 representing 62 per cent of the total transactions compared to 73 per cent of the total transactions in Q1 2023, recording a significant year-on-year decline of 20 per cent in terms of volume.