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Dubai: Commercial Intentions
UNITASCONSULTANCY
A GLOBAL CAPITAL PARTNERS GROUP COMPANY
Q2 2017
Executive Summary
An examination of rental growth rates across jurisdictions in various communities in the freehold and leasehold commercial space reveals that
Business Bay, JLT, and Barsha Heights have outperformed Trade Center (SZR) and Deira by more than a factor of 2 in the last 5 years. The different
growth rates can be attributed towards the fact that the former are located in freehold areas, compared to the DED jurisdiction. In prices
(measured by median listed prices) JLT office space has outperformed the other communities such as Business Bay, DSO, and Barsha Heights.
The creation of freehold areas have been one of the key factors in stimulating commerce within Dubai. This is reflected in the growth of both the
supply of free zone office space along with company formation. Over the last 5 years DMCC has grown an incredible 283% in registered companies,
whereas DED formations have grown by 34%. In order to cater to this demand office supply in free zone areas have accelerated. In 2002, 94% of
the commercial supply in monitored areas were under the DED jurisdiction. However, by the end of 2016 both jurisdictions contribute equally to
the supply.
Since the inception of freehold and expansion of freezone areas supply in the commercial real estate space has risen by more than 650%; 1.3m to
9.6m square meter (in monitored areas). Whilst this growth rate is expected to moderate, the absolute numbers are expected to ratchet higher at a
similar trajectory with the development of new business districts such as Dubai South.
An analysis of the commercial real estate transactions reveals that since the peak in 2013, activity has declined by more than 50%. However,
interestingly during the same period the mortgage to sales ratio has increased by more than 5 times. This increase (similar to the residential space)
indicates the rise of end user activity. A closer look into buying patterns shows a shift in preference for smaller offices. In 2010, 21% of office sales
were below 1000 sqft, whereas in 2016 this has nearly doubled. This is inline with the mandate of Dubai SME to foster an entrepreneurial culture
and develop a competitive SME culture within the emirate.
Given the growth of the SME space that has been witnessed, it appears as if investors have gravitated towards purchasing smaller offices and have
increased leverage as a way of capitalizing on rents. We opine that the preference for smaller offices will continue, and the continued growth of
business districts like Business Bay and Dubai South will be replete with offerings of smaller offices.
Content
01
03
02
04
Growth Rates of Prices and
Rents in the Commercial
Market
Dubai Commercial Supply
Analysis
An Examinational of
Commercial Transactional
Activity
A look in the DED and Free
zones
Dubai Commercial Supply Analysis
“If statistics are boring, then you’ve got the wrong numbers”
Edward R Tufte
Dubai Office Supply (1979 – 2016)
Dubai Office Supply (1979– 2016)
The above graph shows the growth of office space in Dubai from 1979 to 2016. The major boom in commercial infrastructure took place
in 2002 after the creation of freehold and the growth of free-zone areas. Since 2002, commercial areas in Dubai has grown by 648%;
1.3m to 9.6m square meter.
Source: Reidin
-
1
2
3
4
5
6
7
8
9
10
1979 1980 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
SQM
Mill
ion
Creation of Freehold
Dubai Office Supply Completion Rates
Office Completion Rate (2014 – 2016)
A realization of supply analysis in the commercial space reveals that the completion rate in 2015 and 2016 has been below 50%, similar
to the trend that has been witnessed in the residential space. In 2014, realized supply exceeded what was estimated by analysts,
indicating yet again the flaw in analyst estimates that did not account for the backlog of projects coming to completion. This is a trend
that is expected to continue in the years ahead.
Source: Reidin
0%
20%
40%
60%
80%
100%
120%
140%
0
200
400
600
800
1,000
1,200
1,400
2014 2015 2016
SQM
Th
ou
san
d
Expected Realized Completion Rate
Dubai Office Pipeline Supply (2017 – 2018)
Office Supply (2017-2018)
Dubai developers are expected to hand over 0.75 million square meter of commercial space in 2017 and 0.45 million in 2018. These
supply figures will likely be lower given the historical trend; however we expect realization rates to ratchet higher in 2019 and 2020 as an
increasing number of projects come to completion.
Source: Reidin
-
100
200
300
400
500
600
700
800
2017 2018
SQM
Th
ou
san
d
Growth Rates of Prices and Rents in the Commercial Market
“If you can’t feed a team with two pizzas, it’s too large.”
Jeff Bezos
Price Analysis in the Commercial Space in the 2nd Cycle (2012-2016)
The above graph reveals the price growth (using data from median listed prices) of various commercial districts from 2012 to 2016. JLT
has incurred the highest growth rates followed by Business Bay, DSO and Barsha Heights. From the above analysis, it appears as if
investors as well as end-users preferred freezones, although it is a multivariate function of supply and infrastructure growth as well.
Source: Reidin
56%
72%
52%55%
38%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Dubai JLT DSO Business Bay Barsha Heights
Office Price Growth Rates* (2012 – 2016) by Category
Freehold and Freezone
Freehold and DED
*Price Growths are based off median listed prices
Rental Analysis in the Commercial Space in the 2nd Cycle (2012-2016)
Office Rental Growth Rates (2012 – 2016) by Category
An examination of rental growth rates in the second cycle, reveals that Business Bay, JLT, and Barsha Heights have had superior growth
rates relative to Trade Center (SZR) and Deira. The different growth rates can be attributed towards the fact that the former are located
in freehold areas, compared to leasehold areas. Rental rates in freehold areas have risen more than twice to those in the lease hold
areas. The growth rates of rentals indicate a continued preference for not only the freehold areas but specifically freezones as well,
indicating a continuing shift towards these districts on the part of companies.
Source: Reidin
24%
49%
52%
49%
19%
13%
0%
10%
20%
30%
40%
50%
60%
Dubai JLT Business Bay Barsha Heights Deira Trade Centre(SZR)
Freehold and Freezone
Freehold and DED
Leasehold and DED
An Examinational of Commercial Transactional Activity
“If you can’t explain it simply, you don’t understand it well enough”
Albert Einstein
Dubai Office Transactions (2010 – 2016)
Office Transactions (2010 – 2016)
The above graph shows the city wide transactions of Dubai offices from 2010 to 2016. From its peak in 2013 transactional activity has
declined by 54%. The decline in activity has been witnessed in the residential space as well, although by a lesser extent.
We also witness an increase in mortgage activity over the last few years in the commercial space (5x).The trend of increasing mortgages
has been due not only to investors capitalizing on the higher rental yields, but also, similar to the residential space, an indicator of rising
activity by ”end users”, indicating that the market has become less speculative.
Source: Reidin
0%
10%
20%
30%
40%
50%
60%
2010 2011 2012 2013 2014 2015 2016
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2010 2011 2012 2013 2014 2015 2016
Mortgage to Sales (2010– 2016)
Dubai Office Transactions by Size
Office Transactions by Size (2010, 2013 & 2016)
A dissection of the transactional activity by size reveals a shift in preference for smaller size offices. In 2010, 21% of office sales were
below 1000 sq/ft, whereas in 2016 this has nearly doubled. This attests to the growth of smaller businesses and startups within the
emirate.
Source: Reidin
79%
21%
66%
34%
Above 1000 Sqft Below 1000 Sqft
61%
39%
2010 2013 2016
Dubai Office Transactions by Size
JLT Commercial Transactions by Size (2010-2016)
A closer look into JLT and Business Bay attests to the growing demand of smaller office spaces which is inline with the mandate of Dubai
to foster an entrepreneurial culture and develop a competitive SME culture within the city. From 2010, office transactions for below 1000
sqft space have increase from 23% to 42% in JLT and 26% to 38% in Business Bay.
Source: Reidin
77%
67%74%
71% 72% 72%
58%
23%
33%26%
29% 28% 28%
42%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016
Above 1000 sqft Below 1000 sqft
74%70%
66% 63% 63% 63% 62%
26%30%
34% 37% 37% 37% 38%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2011 2012 2013 2014 2015 2016
Above 1000 sqft Below 1000 sqft
Business Bay Commercial Transactions by Size (2010-2016)
A look in the DED and Freezones
“Human progress is neither automatic nor inevitable... Every step toward the goal of justice requires sacrifice, suffering, and struggle; the tireless exertions and
passionate concern of dedicated individuals”
Martin Luther King, Jr.
Dubai Office Supply by Jurisdiction
Office Supply by Jurisdiction (1979 - 2016)
A closer look into the growth rates of supply of office space by jurisdiction reveals that freezones have had higher growth rates than the
DED jurisdiction. In 2002, 94% of the commercial supply in monitored areas were under the DED jurisdiction. However, by the end of
2016 both jurisdictions contribute equally to the supply. Given the projected rise of Dubai South, we opine that the scales will further tilt
in favor of freezones in the coming years.
Source: Reidin
0
1
2
3
4
5
6
1979 1980 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
SQM
Mill
ion
Ded Freezone
Explosion of Free zones
Company Registrations Growth by Jurisdiction (2011 – 2016)
Over the last 5 years growth rates in company formations in freezones have exceeded those of DED. DMCC located in the freehold area
of JLT has experienced the highest growth rate increasing more than 250% in 5 years. We expect the growth trajectory of freezones
licenses to continue as Dubai cements its status as regional hub for business and trade activity.
Source: GCP
253%
186%
94%
34%
0%
50%
100%
150%
200%
250%
300%
DMCC DSO DIFC DED
Upcoming Supply by Jurisdiction
An analysis of the upcoming supply by jurisdiction reveals that 83% is allocated towards the DED jurisdiction and balance towards free
zones. However, we expect this ratio to shift towards new free zones as new developments in the pipeline get announced in areas such
as Dubai South - Commercial City.
Source: Reidin
83%
17%
DED Freezone
Office Supply by Jurisdiction (2017-2018)
Conclusions
Dubai Commercial Supply Analysis Growth Rates of Prices and Rents in the Commercial Market
A dissection of the
transactional activity by size
reveals a shift in preference
for smaller size offices. In
2010, 21% of office sales
were below 1000 sqft,
whereas in 2016 this has
nearly doubled
An Examinational of Commercial Transactional Activity A look in the DED and Free zones
Since the inception of freehold
and expansion of freezone
areas supply in the
commercial real estate space
has risen by more than 650%;
1.3m to 9.6m square meter
The major boom in commercial infrastructure took place in
2002 after the creation of freehold and the growth of free-zone
areas. Since 2002, commercial areas in Dubai has grown by
648%; 1.3m to 9.6m square meter.
Dubai commercial realty is expected to add over 1.2 million
square meter of office space n the next two years. These supply
figures will likely be lower given the historical trend; however
we expect realization rates to ratchet higher in 2019 and 2020
as an increasing number of projects come to completion.
In 2002, 94% of the commercial supply in monitored areas were
under the DED jurisdiction. However, by the end of 2016 both
jurisdictions contribute equally to the supply.
An analysis of the upcoming supply by jurisdiction reveals that
83% is allocated towards the DED jurisdiction and balance towards
free zones. However, we expect this ratio to shift towards new free
zones as new developments in the pipeline get announced in areas
such as Dubai South - Commercial City.
An analysis of price action (measured by listed prices) in the office
space reveals that since 2012, citywide rates have increased by
66%. JLT has incurred the highest growth rates followed by
Business Bay, DSO and Barsha Heights
In the rental space a community-wise analysis reveals that Business
Bay, JLT, and Barsha Heights have outperformed Trade Center (SZR)
and Deira by more than a factor of 2 in the last 5 years. The
different growth rates can be attributed towards the fact that the
former are located in freehold areas, compared to the DED
jurisdiction
Over the last 5 years transactional activity in smaller offices
space (below 1,000 sqft) has increased from 21% to 39%.
Given the growth of the SME space that has been witnessed, it
appears as if investors have gravitated towards purchasing
smaller offices and have increased leverage as a way of
capitalizing on rents.
We opine that the preference for smaller offices will continue,
and the continued growth of business districts like Business
Bay and Dubai South will be replete with offerings of smaller
offices.
Dubai: Commercial Intentions
GCP believes in in-depth planning and discipline as a
mechanism to identify and exploit market discrepancy
and capitalize on diversified revenue streams.
Our purpose is to manage, direct, and create wealth for
our clients.
GCP is the author for these research reports
REIDIN.com is the leading real estate information
company focusing on emerging markets.
REIDIN.com offers intelligent and user-friendly online
information solutions helping professionals access
relevant data and information in a timely and cost
effective basis.
Reidin is the data provider for these research reports
Indigo Icon, 1708 Jumeirah Lake Towers,
PO Box 500231 Dubai, United Arab Emirates
Tel. +971 4 447 72 20
Fax. +9714 447 72 21
www.globalcappartners.com
Concord Tower, No: 2304, Dubai Media City,
PO Box 333929 Dubai, United Arab Emirates
Tel. +971 4 277 68 35
Fax. +971 4 360 47 88
www.reidin.com
Our Aspiration and Motto
“No barrier can withstand the strength of purpose”HH General Sheikh Mohammed Bin Rashid Al Maktoum
The Ruler of Dubai and Prime Minister of UAE
REIDIN – DUBAI OFFICE
Concord Tower, No: 2304,
Dubai Media City, PO Box 333929
Dubai, United Arab Emirates
Tel: +971 4 277 68 35
Fax: +971 4 360 47 88
www.reidin.com [email protected]
