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Commercial property demand in UAE continues to slow

Office interior with panoramic windows revealing Dubai cityscape. Image used for illustrative purpose.

Office interior with panoramic windows revealing Dubai cityscape. Image used for illustrative purpose.

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13 August 2017

Demand for commercial property space is continuing to fall in the United Arab Emirates as economic growth slows, according to a report published by the Royal Institution of Chartered Surveyors (RICS) on Sunday.

The professional trade body for the surveying industry said in its latest UAE Commercial Property Monitor that demand from occupiers of office, retail and industrial space fell for the seventh consecutive quarter in the three months to June, with a net balance of 31 percent of surveyors reporting a contraction in headline demand.

RICS said that the slowdown in demand was in line with expectations of slower growth in the UAE economy, and that surveyors expect rents to continue weakening over the next 12 months as the amount of new supply increases.

On average, commercial rents are expected to fall by about 2 percent as declines are expected across most secondary markets, although the medium-term outlook is expected to remain flat, with marginal growth expected in prime office and retail markets.

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Demand for commercial property from domestic investors also fell for the seventh consecutive quarter, with a net balance of 15 percent of surveyors forecasting a 'near term' decline in capital values. The net balance in enquiries from potential foreign buyers also remains negative, RICS said.

Some 57 percent of the surveyors polled for the report stated that they believed the market was in the middle of a downturn, but 21 percent said the market is now near the bottom.

The RICS report chimes with other recent data from commercial property experts in the UAE. Last month, JLL reported that both Dubai and Abu Dhabi were continuing to operate as "two-tiered" markets, with demand for prime office space in Dubai pushing annual rents up marginally (by 1.3 percent year-on-year) to 1,947 UAE dirhams per square metre by the end of June, but rents in secondary markets dropped by 37 percent year-on-year as a result of a "sustained oversupply of strata office product and a general softening of demand".

The firm also reported a decline in retail rents, which fell by 4.5 percent year-on-year for primary space in Dubai - again, due to tougher market conditions and increasing supply.

In Abu Dhabi, meanwhile, JLL said that the "tough macroeconomic environment" had led to job losses and reduced demand at a time when more space is due to be handed over. It said vacancy rates for offices, which already stand at 22 percent of the total available space, are likely to increase as a result.

© Zawya 2017
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