Press release
High levels of demand continue to drive the UAE’s commercial real estate market in Q3 2023
CBRE releases its UAE Office, Retail & Industrial Market Review Q3 2023
November 2, 2023
Associated Contact
Taimur Khan
Head of Research
Activity levels within the UAE’s commercial market remained solid over the third quarter of the year, and this continues to drive performance.
Office
Leasing activity in Abu Dhabi’s occupier market remained relatively solid over the third quarter of 2023, where the total number of rental registrations reached 8,814, recording a year-on-year increase of 9.8%. Over this period, new rental registrations increased by 25.2%, whereas renewed registrations dropped by 9.9%. The vast majority of occupational activity within Abu Dhabi continues to originate from government-related entities in both on-shore and off-shore locations. That being said, over the past quarter, we have seen increased demand from private sector occupiers across a range of businesses, where the legal and financial services entities have seen marked growth in occupier activity. The market-wide average occupancy rate in institutional-grade buildings tracked by CBRE reached 90.8% in the third quarter of 2023, up from 87.1% a year earlier. Rental performance has improved further on the back of the rising levels of demand, where in the year to the third quarter of 2023, average Prime, Grade A, and Grade B rents increased by 7.0%, 8.6%, and 13.0%, respectively. Moving forward, we expect that rental growth within the Prime and Grade A segments of the market will continue to be relatively strong owing to the lack of quality stock resulting from the scarcity of new developments, alongside the elevated levels of demand.
Robust levels of demand continue to be seen in Dubai’s occupier market in the third quarter of 2023. Data published by the Dubai Land Department show that a total of 35,822 rental contracts were recorded, registering a rise of 40.7% from the year prior. During this quarter, the number of new rental registrations totalled 26,568, up 50.1% compared to the previous year. Over this period, the total number of renewed contracts reached 9,254, registering a year-on-year increase of 19.2%.
The supply and demand imbalance remains one of the major concerns, and this continues to underpin a landlord-favoured market. The prevailing market backdrop is putting additional pressure on businesses. Global corporates, which usually have lengthier decision-making processes are, more often than not, failing to meet landlords’ tight decision-making timelines, with many landlords operating on a first-come, first-served basis. Many occupiers are instead choosing to renew leases and often committing to longer lease terms in order to ensure certainty. However, for some, this will, in the medium to long term, impact their businesses’ growth plans. More so, with limited new developments in the pipeline and those which are seeing strong pre-leasing activity, this trend is likely to underpin the market for some time. Another notable trend which has been witnessed during this quarter is the marked increase in demand for fitted and serviced spaces, given the cost-effective/ flexible solutions provided.
The average occupancy rate within this market segment reached 92.4% in Q3 2023, up from 86.9% a year earlier. The lack of availability of quality stock, paired with the elevated levels of demand, continues to drive rental growth, where in the year to the third quarter of 2023, average Prime, Grade A, Grade B, and Grade C rents increased by 10.7%, 14.4%, 20.1% and 30.0%, respectively. As at Q3 2023, average rents within the Prime, Grade A, Grade B, and Grade C segments reached AED 249, AED 178, AED 146, and AED 125, respectively. With the delivery of new stock remaining limited over the upcoming period, we anticipate that the performance within this segment will remain steadfast going forward.
Retail
Leasing activity in Abu Dhabi’s retail market was relatively restrained in the third quarter of the year, where the number of rental contracts registered a marginal decline of 1.4% in the year to the third quarter of 2023 to reach a total of 6,990. Over this same period, new rental contract registrations grew by 21.2%, whereas renewed contract registrations declined by 10.7%. In Dubai, the total number of tenancy contracts recorded within the retail segment of the market reached 17,495 in Q3 2023, up by 10.7% from the previous year. This growth has been supported by a 17.9% increase in renewed registrations, whilst new contracts registered marginally dropped by 0.8%.
While a large portion of demand continues to stem from the Food and Beverage sector, we are seeing growing levels of demand for retail spaces coming from global and international retail brands. The lack of availability of prime assets continues to hamper potential activity levels, where retailers are looking to expand, notwithstanding the elevated occupancy levels and lack of availability of vacant quality stock. In the year to the third quarter of 2023, significant growth in lease rates has been witnessed in both Abu Dhabi and Dubai, with average rents rising by 16.9% and 36.8%, respectively. In both Dubai and Abu Dhabi, demand remains skewed towards quality assets, particularly within core and primary locations. However, the limited availability of such stock remains one of the main challenges being faced, and this is something that we expect to continue to drive rental growth.
Industrial
In the third quarter of 2023, activity within the industrial and logistics sector remained relatively subdued, given the lack of available stock. This has resulted in a more landlord-favoured market, where occupiers are pushed to comply with landlords' conditions, and the incentives provided continue to be relatively constrained. In the year to the third quarter of 2023, the total number of rental contracts registered in Abu Dhabi marginally grew by 0.5%. New rental registrations increased by 13.5%, whilst renewed contracts registered dropped by 7.5%. In Dubai’s industrial and logistics market, data from the Dubai Land Department showed that Ejari registrations totalled 2,227, up 10.9% from the previous year. Over the same period, new rental contacts registered dropped by 6.1%, whilst renewals increased by 20.4%.
These market fundamentals continued to drive higher leasing rates in Abu Dhabi and Dubai, where rental rates grew by 7.5% and 17.7%, respectively, in the year to the third quarter of 2023. Based on recent data, the Transportation and Logistics sector grew by 10.5% mid-way through the year, registering the most significant contribution to the emirate’s GDP growth with a 42.8% contribution to the headline growth rate while achieving an added value of AED 31.4 billion. The considerable performance within this sector will continue to attract capital and demand. That being said, the lack of availability of vacant stock that resulted from the scarcity of new developments will remain a notable issue. Although development opportunities within this segment are substantial, the availability of appropriate infrastructure continues to pose significant hurdles. On the back of the current market backdrop, further increases in rental rates are expected moving forward in both Abu Dhabi and Dubai, however, not at the same pace
For more market insights, visit our Insights & Research platform.
Office
Leasing activity in Abu Dhabi’s occupier market remained relatively solid over the third quarter of 2023, where the total number of rental registrations reached 8,814, recording a year-on-year increase of 9.8%. Over this period, new rental registrations increased by 25.2%, whereas renewed registrations dropped by 9.9%. The vast majority of occupational activity within Abu Dhabi continues to originate from government-related entities in both on-shore and off-shore locations. That being said, over the past quarter, we have seen increased demand from private sector occupiers across a range of businesses, where the legal and financial services entities have seen marked growth in occupier activity. The market-wide average occupancy rate in institutional-grade buildings tracked by CBRE reached 90.8% in the third quarter of 2023, up from 87.1% a year earlier. Rental performance has improved further on the back of the rising levels of demand, where in the year to the third quarter of 2023, average Prime, Grade A, and Grade B rents increased by 7.0%, 8.6%, and 13.0%, respectively. Moving forward, we expect that rental growth within the Prime and Grade A segments of the market will continue to be relatively strong owing to the lack of quality stock resulting from the scarcity of new developments, alongside the elevated levels of demand.
Robust levels of demand continue to be seen in Dubai’s occupier market in the third quarter of 2023. Data published by the Dubai Land Department show that a total of 35,822 rental contracts were recorded, registering a rise of 40.7% from the year prior. During this quarter, the number of new rental registrations totalled 26,568, up 50.1% compared to the previous year. Over this period, the total number of renewed contracts reached 9,254, registering a year-on-year increase of 19.2%.
The supply and demand imbalance remains one of the major concerns, and this continues to underpin a landlord-favoured market. The prevailing market backdrop is putting additional pressure on businesses. Global corporates, which usually have lengthier decision-making processes are, more often than not, failing to meet landlords’ tight decision-making timelines, with many landlords operating on a first-come, first-served basis. Many occupiers are instead choosing to renew leases and often committing to longer lease terms in order to ensure certainty. However, for some, this will, in the medium to long term, impact their businesses’ growth plans. More so, with limited new developments in the pipeline and those which are seeing strong pre-leasing activity, this trend is likely to underpin the market for some time. Another notable trend which has been witnessed during this quarter is the marked increase in demand for fitted and serviced spaces, given the cost-effective/ flexible solutions provided.
The average occupancy rate within this market segment reached 92.4% in Q3 2023, up from 86.9% a year earlier. The lack of availability of quality stock, paired with the elevated levels of demand, continues to drive rental growth, where in the year to the third quarter of 2023, average Prime, Grade A, Grade B, and Grade C rents increased by 10.7%, 14.4%, 20.1% and 30.0%, respectively. As at Q3 2023, average rents within the Prime, Grade A, Grade B, and Grade C segments reached AED 249, AED 178, AED 146, and AED 125, respectively. With the delivery of new stock remaining limited over the upcoming period, we anticipate that the performance within this segment will remain steadfast going forward.
Retail
Leasing activity in Abu Dhabi’s retail market was relatively restrained in the third quarter of the year, where the number of rental contracts registered a marginal decline of 1.4% in the year to the third quarter of 2023 to reach a total of 6,990. Over this same period, new rental contract registrations grew by 21.2%, whereas renewed contract registrations declined by 10.7%. In Dubai, the total number of tenancy contracts recorded within the retail segment of the market reached 17,495 in Q3 2023, up by 10.7% from the previous year. This growth has been supported by a 17.9% increase in renewed registrations, whilst new contracts registered marginally dropped by 0.8%.
While a large portion of demand continues to stem from the Food and Beverage sector, we are seeing growing levels of demand for retail spaces coming from global and international retail brands. The lack of availability of prime assets continues to hamper potential activity levels, where retailers are looking to expand, notwithstanding the elevated occupancy levels and lack of availability of vacant quality stock. In the year to the third quarter of 2023, significant growth in lease rates has been witnessed in both Abu Dhabi and Dubai, with average rents rising by 16.9% and 36.8%, respectively. In both Dubai and Abu Dhabi, demand remains skewed towards quality assets, particularly within core and primary locations. However, the limited availability of such stock remains one of the main challenges being faced, and this is something that we expect to continue to drive rental growth.
Industrial
In the third quarter of 2023, activity within the industrial and logistics sector remained relatively subdued, given the lack of available stock. This has resulted in a more landlord-favoured market, where occupiers are pushed to comply with landlords' conditions, and the incentives provided continue to be relatively constrained. In the year to the third quarter of 2023, the total number of rental contracts registered in Abu Dhabi marginally grew by 0.5%. New rental registrations increased by 13.5%, whilst renewed contracts registered dropped by 7.5%. In Dubai’s industrial and logistics market, data from the Dubai Land Department showed that Ejari registrations totalled 2,227, up 10.9% from the previous year. Over the same period, new rental contacts registered dropped by 6.1%, whilst renewals increased by 20.4%.
These market fundamentals continued to drive higher leasing rates in Abu Dhabi and Dubai, where rental rates grew by 7.5% and 17.7%, respectively, in the year to the third quarter of 2023. Based on recent data, the Transportation and Logistics sector grew by 10.5% mid-way through the year, registering the most significant contribution to the emirate’s GDP growth with a 42.8% contribution to the headline growth rate while achieving an added value of AED 31.4 billion. The considerable performance within this sector will continue to attract capital and demand. That being said, the lack of availability of vacant stock that resulted from the scarcity of new developments will remain a notable issue. Although development opportunities within this segment are substantial, the availability of appropriate infrastructure continues to pose significant hurdles. On the back of the current market backdrop, further increases in rental rates are expected moving forward in both Abu Dhabi and Dubai, however, not at the same pace
For more market insights, visit our Insights & Research platform.
The UAE’s commercial market maintained strong performance levels during the third quarter of 2023, bolstered by the country’s hub status that continues to support strong levels of inbound investments. Despite the increasingly uncertain global economic backdrop, the UAE’s robust fiscal position and ease of doing business are expected to inhibit any potential downside risk. Over the remaining quarter of the year, strong activity and performance levels will continue to be seen; that being said, we anticipate that the rate of growth in both activity and asset performance will likely moderate. The former will be underpinned by the lack of quality stock and the latter by the more uncertain global economic backdrop.
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The CBRE UAE Office, Retail & Industrial Market Market Review for Q3 2023 provides an analysis of recent trends and market projections in Dubai and Abu Dhabi.