17 April 2019

Dubai Office: Metamorphosis

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The structure of the Dubai Office market has been continually evolving since the inception of freehold and free zones almost two decades ago. Till today most of the supply is skewed towards the DED jurisdiction (58%), followed by Free zones (36%) and DIFC (6%). However, an analysis of upcoming supply reveals that DIFC has the highest contribution of supply under construction. This number is expected to increase with the DIFC 2.0 initiative that is underway. In addition, freehold office space now accounts for 62%, whereas until 2002 it was nonexistent.

Existing Office Supply

The creation of freehold has been the main driver in converting Dubai from a small trading city into the one of the top 10 cities in the world. Over the last 16 years we can witness that the bulk of the supply has been driven by development in the Freehold space. Going forward, with the development of upcoming districts such as Dubai South, as well as the expansion of the current free zones, supply of offices is expected to further tilt towards the freehold sector, allowing for an influx of funds similar to the residential sector.

 

Given the home office initiative that has been launched, the supply of “pure play” office buildings will restrict to grade A districts with specialized licensing functions.

 

This restricted supply implies greater upside potential for such districts. For the SME space, price appreciation will be a direct function of the number of developers that will offers such “rezoning” schemes; in either scenario, capital appreciation prospects for the commercial sector are expected to increase over the next few years (as evidenced by the rising volumes in the first quarter of this year).

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