A golden opportunity waiting - Analysis

An overview of the Dubai and Abu Dhabi real estate market.

The spectacular Abu Dhabi skyline (photo credit: WIKIPEDIA)
The spectacular Abu Dhabi skyline
(photo credit: WIKIPEDIA)
The two largest cities in the United Arab Emirates are Abu Dhabi, the capital, with 4,200,000 square meters of gross leasable office area, and Dubai, the commercial center, with 9,800,000 sq.m. of gross leasable office area.
Both cities have several free-trade zones, each designed around one of more business categories, and they offer licenses to companies within these categories. Free-trade zones exemptions include 100% foreign ownership of the enterprise, 100% import- and export-tax exemptions, 100% repatriation of capital and profits, corporate-tax exemptions for up to 50 years, no personal income taxes and assistance with labor recruitment, sponsorship and housing.
Typical market practices
Abu Dhabi and Dubai have similar office-market practices, with one main difference: In Abu Dhabi, the basis of measurement is in square meters, while in Dubai square feet are used.
In both Abu Dhabi and Dubai, rental fees are quoted on the basis of measurement per annum, based on either net rentable area for a small office space, or gross area if a tenant takes up a floor or a series of floors in a building.
A service charge is often included in the rental fee, but in some of the newer office developments, rents are quoted exclusive of service charge. A 5% VAT is applicable on all fees.
It is very rare that landlords provide a Tenant Improvement (TI) Allowance. For new leases, landlords generally offer rent-free equivalent for one to two months for every year leased and additional car parking spaces instead. Traditionally, leases were for one year and renewable yearly. Recently, corporate tenants have been negotiating three- to five-year leases, and some landlords are willing to offer longer leases.
Dubai expects 8% supply growth over the next three years, with the newly constructed 800,000-sq.m. adding pressure to the existing stock and increasing vacancies, particularly within lower-quality office buildings. Some 24% of this upcoming supply is the Jumeriah Lake Towers project near Dubai Marina.
In 2014, most of the office supply (57%) was Grade B, whereas today, Grade B accounts for just under half (47%) of all leasable office space. Grade A rental fees in the central business district are 115 to 180 United Arab Emirates dirhams (AED) per square foot per annum, which translates to 103-161 AED (NIS 95-NIS 149) per sq.m. per month, and secondary space has rates of 85-165 AED per square foot per annum, which translates to 76-148 AED (NIS 70-NIS 136) per sq.m. per month.
Global corporations have a significant impact on Dubai’s office sector. They have impacted the office sector in Dubai in several ways, including by keeping demand levels for Grade A strong as international companies actively seeking quality space and workplace efficiency. More specifically, the consolidation of large companies has led to both a higher demand in single-owned office buildings and longer-lease terms.
In addition, corporations increasingly view flexible office space as a key element of their portfolios and consider wellness in the workplace a core pillar of real-estate strategy. This could impact demand for specific design elements, such as large virtually column-free floor plates, higher floor-to-ceiling clearance and additional services and amenities.
Since 2017, free-zone companies in Dubai can operate outside their respective free-zone boundaries, which has led to an increased level of governance, transparency and compliance that benefits business in the free zones and contributing to the growth of Dubai and the UAE.
There are 25 free zones in Dubai, including Dubai Science Park (key tenants: Bayer, IFF, Bristol-Myers Squibb), TECOM (Google, Walk Disney, DXC Technologies, Juniper Networks, Expedia, Hewlett Packard), Dubai Healthcare City (Johnson & Johnson, Gilead, Eli Lilly, Nova Nordis), Dubai International Financial Center (Clifford Chance, Citibank, Marriot, Lloyd’s of London, JPMorgan Chase Bank, Bloomberg, Linklaters, Standard & Poor’s), Dubai Design District Adidas, Lego, Puma) and Dubai Airport (Abbot Laboratories, The Hershey Company, Lexmark, Boeing).
Abu Dhabi
An additional 500,000 sq.m. is expected to be completed over the next three years in Abu Dhabi, reflecting a supply growth of 12%.
Prime office on-shore rental rates are 1,600-1,800 AED per sq.m. per annum, which translates to NIS 123-NIS 138 per sq.m. per month. Free-zone rental rates are higher at 1,900-2,200 AED per sq.m. per annum, which translates to NIS 146-NIS 169 per sq.m. per month.
There are more than six free zones in Abu Dhabi. Abu Dhabi Global Market is an award-winning International Financial Center. Twofour54 is home to Abu Dhabi’s media and entertainment industry. Masdar Future Energy Company is a global leader in renewable energy and sustainable urban development. Tawazun Industrial Park is earmarked as the epicenter of advanced precision industries. Abu Dhabi Airports Free Zone operates a logistics park, business park, business center and one-stop shopping services. KIZAD is a post-integrated industrial zone and leading hub for manufacturing, logistics and trade across diverse sectors.
Key tenants in Abu Dhabi include PWC, WeWork, IWG, Clifford Chance BNP Paribas, Airbus, HSBC, Palantir, SAAB, BAE Systems and IBM.
The writer is head of the international department of CBRE Group, a real-estate company.