Alarm bells are ringing loud across businesses in Dubai in the wake of a runaway increase in office and retail spaces rentals – estimated to be up to 300 percent in some of the prime areas in the last 24 months – due to an acute demand-supply crunch in the commercial real estate sector in the city, industry insiders said.
The steadily deteriorating situation is said to be giving sleepless nights to commercial tenants – especially to small business owners operating on single-digit profit margins – as many of them are either slapped with eviction notices on reaching end of contract periods or asked to pay huge increases in rentals.
The lack of new commercial real estate spaces is also causing huge worries to new investors and companies entering the emirate – about 30,000 new companies set up with the Dubai Chamber of Commerce in the past six months alone – as they compete to get spaces to operate.
“I believe we are witnessing the first signs of a commercial real estate crisis, where supply coming into the market is far below the current level of demand,” Lewis Allsopp, CEO of Allsopp & Allsopp Group, a Dubai-based independent real estate agency, told Arabian Business.
“Allsopp & Allsopp’s first-party DataHub shows a 30 percent increase in demand for commercial office spaces in 2023, while annual rents in prime locations increased by 200-300 percent over the past 24 months,” he added.
Allsopp also pointed out that the dwindling commercial space is also leading to a very real and unpleasant situation for many commercial tenants nearing the end of their current contracts and for new companies trying to acquire office space in Dubai.
Several business owners confirmed what the Allsopp & Allsopp chief referred to.
“We were looking for an office for the last 7 months and managed to find one just last month,” Kushal Desai, co-founder and COO of Publsh, a Dubai-based media management company, told Arabian Business.
He said it was astonishing to find out that even shared offices – or co-working spaces – rent per month would be at an average of AED7,000 – 8,000 for an office which fits up to 5 people.
“The issue we faced was that if we liked the office, the rentals would skyrocket and the ones in budget weren’t spacious enough to fit the team and work creatively,” Desai said.
Allsopp also revealed that his firm also faced a piquant situation at the start of this year.
“After careful consideration and the uncertainty around future rental contract renewals, we decided to acquire 30,000 square feet of new commercial office space, safeguarding the future growth of our company,” he said.
This accounts for just a paltry 0.02 percent of the total real estate sector transactions in the city, compared to the 60,000 residential sales registered at the Dubai Land Department this year.
“Whichever way you slice and dice the data, the lack of new commercial real estate space coming into the market is frightening, given Dubai’s ambitious growth plans,” Allsopp said.
The situation assumes added significance considering the excellent job brand Dubai has done welcoming over 100,000 new residents to the city in the first half of 2023, offering favourable business conditions.
“With new businesses flocking to Dubai in record numbers, and a 52 percent increase in Golden Visas issued to highly skilled and talented individuals by the General Directorate of Residency and Foreigners Affairs (GDRFA), one question remains… Where will these people all work faced with little or no new available commercial office space coming into the market,” Allsopp asked.
A city-based management consultant said unless the supply side issue in the commercial spaces segment is addressed on an immediate business, it could impact the surge in new business entry into Dubai.
