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Office investments in key cities including Dubai face some pressure from the global macro-economic environment, but strong fundamentals will help maintain volumes, according to Savills.
The real estate company said investment yields should be stable in Dubai as leasing activity has remained strong over the last six months.
The city has benefitted from the availability of Grade A space at affordable cost compared to other office hubs in the EMEA region, the company said, in its first Global Capital Markets Quarterly update.
Savills said office markets in Paris, London, Sydney and Mumbai should also stay stable thanks to their strong fundamentals.
“The office market in Dubai remains an attractive investment opportunity with estimated cash-on-cash prime office yields over eight percent, second only to Mumbai and highest among the western and Asian countries ranked,” said Edward Price, Savills’ associate director, Capital Markets Middle East.
Savills said, the likely interplay between the top-down factors – inflation, interest rate rises, geopolitical uncertainty, and bottom-up factors, limited availability of stock and weight of money causing competition between investors, had been assessed for the report.
The US may be the most exposed to macro top-down factors, with expectations of a significant tightening in financial conditions and limited pricing power for landlords potentially leading to yields rising in New York and Los Angeles, the report said.
European investors meanwhile may continue to benefit from solid occupier demand and a lack of supply in the prime and core segments of the market, keeping yields stable.
In Asia, domestic market-specific characteristics dominate the regional narrative with cash-on-cash returns remaining attractive, given little upward pressure on interest rates, which will support further yield compression, the report added.
The outlook for Shanghai has however deteriorated amid a challenging domestic economic backdrop.
Increased uncertainty will underpin a flight to safety which, combined with an increasing focus on ESG, will favour Grade A office buildings in major cities, Savills concluded.
(Writing by Imogen Lillywhite; editing by Seban Scaria)
