Dubai’s commercial real estate (CRE) market witnessed remarkable growth during the second quarter of 2023, contributing to the emirate’s real estate record performance. Dubai’s fast-paced economy, high return on investment, and relaxed government initiatives have contributed to enhance the demand of Dubai’s CRE market.
According to Dubai Land Department (DLD), Dubai’s office market experienced a substantial growth in Q2 2023, where 20,953 new rental registrations were recorded, marking an increase of 58.5% YoY. Over this period, the average occupancy rate climbed to 92.7%.
The office demand was originating from a diverse mix of tenants from all sectors, with Technology and Financial Services (namely investment funds) driving the demand over this period. An influx of corporates from the US and Europe was driving the leasing activity in the emirate, along with a gradual inflow of companies from India and China. However, there were no significant office space handovers in Q2 2023, keeping the total supply stable at around 98 million sq. ft.
Driving the uplift in average rents remains arguably the occupancy ratio; where the average rents in Q2 2023 for Prime, Grade A, Grade B, and Grade C increased by 17.2%, 11.0%, 16.4%, and 30.0%, respectively. Given the lack of available quality stock, limited amount of upcoming supply, and strong pre-leasing activity, we expect rents to further increase throughout the remainder of 2023.
It is worth mentioning that existing occupiers, given the current demand and supply dynamics, are weighing up downsizing their overall footprint, as less is required due to hybrid working. Hence, companies can use the cost savings to improve the quality of their current space occupied, facilities, and employees.
Dubai’s retail market witnessed a 1.3% YoY increase in rental contracts, totaling 17,463 in Q2 2023. Throughout this period, the number of renewals increased by 11.9%, according to data published by the DLD.
Prime retail spaces remain the highest demand in Dubai, though the market lack the availability of such vacant outlet spaces. While the footfall continued to be dominant in larger regional and superregional malls, a marginal drop was witnessed in community malls and retail developments in secondary locations. The F&B sector continues to be a key driver of footfall in retail developments, witnessing growing importance to all forms of entertainment in their various guises.
Dubai witnessed a strong growth in rental rates, where the average rents reached AED472 per sq. ft. in Q2 2023, marking a 38.0% YoY increase.
The second quarter of 2023 witnessed the addition of around 64,580 sq. ft. of retail space in Dubai, increasing the stock to about 50.5 million sq. ft. Around 890,000 sq. ft. of retail GLA is expected to be delivered in the remaining months of this year, the majority of which is in the form of new neighborhood malls and expansion of a super-regional mall.
Dubai’s resurgent tourism industry witnessed a remarkable surge in H1 2023, after welcoming a record 8.55 million international visitors, exceeding the pre-pandemic figure of 8.36 million tourists in H1 2019 and contributing to the Dubai Economic Agenda 2033.
The performance of the first half of 2023 was the best H1 performance seen, further bolstering Dubai’s aim to become the world’s most visited destination and one of the best spots in the global economic landscape.
The growth witnessed in Dubai’s tourism was supported by the launch of new initiatives aligned with the UAE 2031 Tourism Strategy, which aims to increase the sector's contribution to Dubai’s GDP by attracting 40 million visitors by 2031. Additionally, Dubai has unveiled new regulatory initiatives that facilitates the entry for travelers including a 60-day tourist visa and a Five-Year Multi-Entry Visa for employees of multinational companies. In H1 2023, Dubai’s hospitality sector outperformed pre-pandemic levels across all hospitality KPIs. The market’s average occupancy rate of 78% is 2.2% higher than the occupancy achieved in H1 2019. Over this period, the emirate’s visitors and residents could choose from a total of 810 hotel establishments, which is 13.0% higher than the number of hotels in H1 2019. The hotel establishments were open with 148,689 rooms in H1 2023, representing an increase 26.0% compared to the total number of rooms available in H1 2019.
The first half of the year witnessed an average daily rate (ADR) of AED534, which is 20.0% higher compared to H1 2019. The market also recorded a revenue per available room (RevPAR) of AED415 in H1 2023, marking an increase of 24.0% compared to H1 2019. Moreover, the average length of stay of guests increased to 3.9 nights, up from 3.5 nights in H1 2019, highlighting Dubai’s appeal for longer-stay travelers.
Dubai’s industrial and logistical space witnessed a surge in demand, where a total of 2,248 rental transactions were registered in Q2 2023 according to DLD, marking an increase of 3.6%YoY.
The demand for industrial and logistical space mainly originated from existing occupiers looking to expand. The manufacturing sector was the key driver of the demand, followed by third-party logistics players, e-commerce companies, and companies from oil and gas sector.
Due to the strong demand in the year to Q2 2023, average rental rates increased by 19.0% YoY, with average rents standing at 41 per sq. ft. The leasing activity was concentrated in prominent non-bonded warehousing hubs including Al Quoz, Dubai Investments Park (DIP), and National Industries Park (NIP). The Grade A warehousing rents witnessed a growth of 14.0%, 8.6%, and 8.0% in NIP, DIP, and Al Quoz, respectively. Due to the scarcity of Grade A stock, the rental growth of the Grade B stock was prominent across most micro-markets, where an increase of 37.5%, 11.1%, and 6.7% was witnessed in Al Quoz, NIP, and DIP, respectively.
A growth in the warehousing capacity and demand was also witnessed in Jebel Ali Free Zone (JAFZA) due to the close business relationships with India and China. About 500,000 sq. ft. of international quality space due to be completed in JAFZA by 2025 to keep up with the growing demand. Dubai South’s industrial area also witnessed a surge in occupancy owing to its extensive land offerings for different warehouse facilities. The long-term growth witnessed in the free zones is supported by the presence of several e-commerce companies, EZDubai initiatives, and the stable supply of residential communities.
The supply of industrial and logistics space has increased across Dubai in line with the demand. Close to 1 million sq. ft. of supply is under construction across JAFZA, Dubai South, DIP, and NIP.
Dubai's CRE market continues to thrive through Q2 2023, with substantial growth in office spaces, innovative retail properties, hotel inventory, and expanding industrial zones. The market witnessed significant interest from both investors and end- users, which indicates the international appeal and global interest in Dubai’s CRE market.
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