Further UAE office rent declines expected by year-end

Global economic headwinds, leading to redundancies in the oil and gas, finance and banking sectors have stifled demand for office space across the UAE, according to Cluttons.

In its latest report the real estate consultancy said it expected office rent declines of close to 5 per cent in Abu Dhabi and Dubai and closer to 10 per cent in Sharjah by the end of the year.

“Global economic headwinds in the form of the Chinese slowdown, the era of $40 per barrel oil, the ongoing sovereign debt issues in the EU and the global fall out now playing out as a result of Britain’s decision to leave the EU are amongst the most significant growth dampeners for the UAE,” said Faisal Durrani, head of research at Cluttons.

“Despite the relatively diversified economy across the emirates, the non-oil economy is being subjected to a deterioration in sentiment and overall confidence; vital ingredients for sustaining positive growth. This is undermining rents and capital values, which are, for the most part, weakening across the board as the office market across the UAE waits in anticipation to feel the Expo effect.”

In Abu Dhabi, the firm said there were Dhs100 per-square-metre declines seen in secondary and tertiary locations in Q1 but rates remained largely unchanged in Q2.

A similar impact was seen on the Grade A market, however Cluttons said there were instances where transactional rates had been lower than the asking rents.

“With mute economic conditions expected to persist in Abu Dhabi in the short term, the prospect of seeing a surge in take up activity remains low,” Cluttons said, indicating firms were either combining offices or taking a wait and see approach before relocating to secondary locations.

Edward Carnegy, head of Cluttons Abu Dhabi, said rents would likely remain under pressure as the year progresses and could depress further if there is another wave of redundancies in the oil and gas sector.

This followed predictions in Cluttons’ Spring outlook that reduced housing allowances and an oil-linked economic could lead to further declines in residential and office rents in the emirate this year.

Read: Abu Dhabi residential, office rental declines forecast as slump continues

In Dubai, Q2 office rents were almost unchanged with the exception of Deira where upper and lower limits were seen to be converging to range from Dhs60 to Dhs105 psf.

Murray Strang, head of Cluttons Dubai said the market remained active but less so than last year, with the company continuing to see requests from clients to downsize or consolidate operations.

Dubai International Financial Centre was the only location where a rent increase was seen, with core rents rising by 6 per cent to Dhs370 psf during Q2. Strata owned buildings in the wider area had yet to receive maximum occupancy, however, according to the firm.

Strang said the wider market had remained resilient given prime, secondary and tertiary rents, averaging Dhs240, Dhs110 and Dhs60 psf respectively, were still 49.51 per cent, 63.3 per cent and 76 per cent below their Q3 2008 peaks.

Earlier this year, rival real estate consultancy JLL said Dubai’s office and residential rentals faced a “downward slope” following the United Kingdom’s exit from the European Union.

Read: Dubai office, residential rents face ‘downward slope’ following Brexit

Further north in Sharjah rents are starting to fall after six months of stability, according to Cluttons.

Declines of Dhs5 psf were seen in the prime areas of Al Majaz (Dhs70 psf) and the fringer areas (Dhs65 psf) in the second quarter.

Suzanne Eveleigh, head of Cluttons Sharjah said prime office supply in the emirate remained limited but the economic environment had limited demand from SMEs and the banking and finance sector.

“Our expectation is for further decreases in average office rents in the region of Dhs5 psf before the year is out, taking the total decline during to 2016 to about Dhs10 psf,” she said.

Looking ahead, Durrani said he believed the UAE market would be spurred next year as preparations began for the Expo 2020 event.