Dubai: Tenants move to cheaper areas, lock long-term leases before commercial rental index rollout

Khaleej Times

27-01-2025

Ahead of the launch of the commercial rental index in Dubai, many tenants of commercial properties are relocating to more affordable areas, while some are renegotiating as well as renewing leases early and securing long-term agreements to lock in current rates.
Industry executives say landlords in Dubai are increasing rents of commercial properties in prime locations prior to the launch of the index.
As reported by Khaleej Times earlier, the Dubai Land Department is working to launch a rental index for commercial properties in the first quarter of 2025.
The launch of the commercial properties index will follow the launch of a smart rental index for residential properties launched by the Dubai Land Department (DLD) earlier this month.
Using AI technology, the smart rental index is built on a classification system and provides fair and accurate valuations for tenants.
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'Ahead of the launch of DLD's commercial rental index, several trends are shaping the market. A few notable things we have witnessed are landlords raising rental prices in prime locations to lock in higher benchmarks. Secondly, there is an evident, growing focus on sustainable, premium spaces, with landlords upgrading their assets to attract higher-value tenants. Lastly, tenants are seeking longer-term agreements, which are to secure current rates and avoid vast fluctuations,' said Ben Bargh, managing director, Commercial Real Estate Consultants (CRC), an affiliate of Betterhomes.
He added that many tenants are relocating to more affordable areas, downsizing office spaces, or shifting to co-working setups to manage expenses.
'Others are renegotiating leases early, securing long-term agreements to lock in current rates, or requesting flexible payment terms to improve cash flow,' said Bargh.
Landlords increasing pre-emptively
The managing director of Commercial Real Estate Consultants (CRC) noted that many landlords are focusing on upgrading and modernising properties to align with the growing demand for premium and sustainable office spaces, ensuring their assets remain desirable in a potentially more transparent and regulated market once the index is implemented.
'Additionally, many are increasing rents pre-emptively, especially in high-demand areas, to secure higher base rates before the index sets clearer benchmarks. This is particularly evident in Grade A office spaces, where rents have already surged due to limited supply and strong demand,' added Bargh.
Dubai's commercial real estate market has achieved unparalleled growth in 2024, recording an impressive 9,038 transactions, reflecting a 24 per cent year-on-year increase, while the total transaction value surged to Dh90.1 billion, marking a 11 per cent year-on-year growth.
Shortage of office space
Dubai is experiencing a significant shortage of premium office space, driven by robust business growth and a surge in new company registrations.
'For a long time, occupancy rates in prime office areas have stayed above 95 per cent, leading to substantial rises in rentals. Despite plans to add over 9 million sq ft of office space by 2028 through major developments, like Tecom's Innovation Hub Phase 2, One Za'abeel Tower, DMCC's Uptown Tower Phase 2, Al Wasl Tower, and DIFC 2.0, the current supply remains insufficient. This imbalance is expected to persist in the near future, maintaining pressure on both occupancy rates and rental rates,' said Ben Bargh.
He added that the maximum shortage in Dubai's office market is undoubtedly in Grade A office supply.
'This trend reflects a growing demand for premium, high-quality spaces from both multinational corporations and regional companies expanding their presence in the city. Occupancy levels for premium offices are at an all-time high, with some reports citing rates of over 95 per cent in key locations such as the DIFC, Downtown Dubai, Business Bay and Sheikh Zayed Road. As a result, there have been a number of off-plan commercial projects coming to the market, predominantly offering Grade A offices. These include the likes of The One by Prestige One, Capital One and more,' added Bargh.