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|16 October, 2018

Business consolidation weighs on Dubai office market

Performance across all real estate sectors continued to soften in Q3

Image used for illustrative purpose. UAE, Dubai, Sheikh Zayed Road, two photographs of the same scene taken at different time of day and merged together in a single image to show the transition from dusk till dawn.

Image used for illustrative purpose. UAE, Dubai, Sheikh Zayed Road, two photographs of the same scene taken at different time of day and merged together in a single image to show the transition from dusk till dawn.

Getty Images/Shomos uddin

UAE - The office market in Dubai saw an increase in relocation and consolidation activity over 2018, with many international occupiers consolidating their portfolio either into purpose-built facilities or more competitively priced office premises, according to Core's Q3 report.

Supply growth continued to outpace demand, led by the completion of a number of large commercial developments, adding 1.3 million sqft to the market and bringing the total existing stock to 100.83 million sqft.

Joel McQueen, head of commercial at Core, said: "Despite job growth gradually gathering momentum, we anticipate a pause on spatial expansion for most firms as near-term resource growth is expected be managed within existing portfolios or by consolidating multiple offices into a central location."

Although the first few months of the year did see slightly weaker enquiries and transaction volumes, VAT implementation had a marginal impact on the office market. The effect of VAT was mostly absorbed, as landlords and tenants adjusted to the administrative requirements of the tax.

According to JLL's Q3 report, all market sectors experienced subdued conditions in Q3. Further declines in rents and sale prices are projected over the next 12 months.

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"The implementation of new policies and the relaxation of regulatory restrictions will provide a boost to the real estate market in 2019," said Craig Plumb, head of research, JLL, Mena.

The residential market continued to soften, with both sale prices and rents declining further during Q3. Developers focused on the sale of existing inventories by offering increasingly generous payment plans to investors.

Hotel performance remains under pressure, as occupancy levels and room rates have softened further in Q3. However, the JLL report notes that Dubai welcomed 8.1 million visitors over the first 8 months of the year, with major source markets including Western Europe (21 per cent), the GCC (19 per cent) and South Asia (18 per cent).

Dubai's retail sector remains the most challenged in the face of increased supply and the growth of online retailing. More malls are now offering leasing incentives and even 'turnover only' leases to retain existing and attract new tenants.

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