Dubai's Commercial Rent Index Sparks Tenant Relocations
Tenants Move to Cheaper Areas and Secure Long-Term Leases Ahead of Commercial Rent Index Rollout
Dubai's commercial real estate market is undergoing significant changes in anticipation of the upcoming introduction of a commercial rental index. Many tenants are striving to stay ahead of the expected price increases, while landlords are already raising rent prices, particularly in sought-after areas. The new index aims to make the market more transparent and provide more accurate appraisals for tenants with the help of the Dubai Land Department (DLD).
Earlier in the month, the Dubai Land Department launched the smart residential rental index, which is built on artificial intelligence and offers fairer and more accurate valuations. This will soon extend to the commercial real estate market and bring about numerous changes. Market leaders indicate that landlords are currently trying to achieve higher base values in commercial rents to start from a favorable position once the index is introduced. This trend is particularly visible in premium (Grade A) office areas, where limited supply and high demand have already led to significant price increases.
According to the CEO of Commercial Real Estate Consultants (CRC), landlords are also placing a strong emphasis on modernizing and making properties more sustainable to attract higher-value tenants.
Tenant Strategies: Cheaper Locations, Smaller Offices, Flexible Contracts
Tenants are employing different strategies to adapt to market changes. The following solutions have become common:
1. Moving to cheaper areas: Many companies are relocating to less sought-after city districts to reduce costs.
2. Securing long-term contracts: More tenants are renegotiating and renewing their leases in advance to lock in current rates and avoid future fluctuations.
3. Requesting flexible payment terms: Tenants seek to improve cash flow, for example, through installment payments.
4. Reducing office space or opting for co-working spaces: Transitioning to smaller offices or seeking co-working solutions is also increasingly popular.
Growth and Challenges in the Commercial Real Estate Market
In 2024, Dubai's commercial real estate market achieved remarkable results with 9,038 transactions, marking a 24% growth year-on-year. The total value of transactions reached 90.1 billion dirhams, an 11% increase from the previous year. However, the shortage of premium office space remains a significant challenge.
The biggest shortage is in the Grade A category offices, where the occupancy rate is over 95% in key locations such as DIFC, Downtown Dubai, Business Bay, and Sheikh Zayed Road. Although more than 9 million square meters of new office space is expected by 2028, including the Tecom Innovation Hub phase 2, Al Wasl Tower, and DIFC 2.0, current demand significantly exceeds supply.
Growing Demand for Sustainability and Premium Offices
The demand for sustainable and premium category office spaces is clearly growing. This trend has become particularly prominent due to the expansion of international companies and regional firms seeking higher quality, modern offices.
The market is responding to the changes, with several new premium commercial projects emerging, such as The One by Prestige One or Capital One. These projects aim to meet the increasing demand for premium categories while further intensifying competition among landlords.
What to Expect in the Future?
The introduction of the commercial rental index will have a significant impact on the market as it makes pricing more transparent and creates fairer conditions for tenants and landlords. However, the index is expected to continue to pressure rental rates in premium areas, especially in the Grade A category.
The combination of new office project rollouts and market regulations promises a dynamically changing but ultimately stabilizing commercial real estate market in Dubai. However, for tenants, now is the time to act: either lock in current rental rates through long-term contracts or consider seeking more cost-effective solutions.
