Space optimisation drives demand for leasing in Dubai in H1'20

Published: 23 October 2020 - 8:10 a.m.

Despite the unprecedented times caused by the outbreak of the COVID-19 pandemic, leasing activity in the first half of 2020 remained largely, according to the latest Dubai Office Report by Savills, the global real estate advisors.

The report revealed that similar to the last few years, the demand was driven by consolidation and space optimisation strategy by existing corporate occupiers in the city.

In fact, the pandemic further accelerated this trend as companies tried to rationalise their office space requirements as the need for flexi-working including an extended work from home arrangements witnessed a surge.

Talking about the trends, Paula Walshe, director for International Corporate Services at Savills said: “The majority of enquiry levels and transactions during the first half of the year were for small and medium sized office space in the range of 464.5m2 – 1,393.5m2.”

“However, a few large sized office transactions were concluded by global tech companies in H1 2020 as the city continues to lead the region as a preferred base for corporate occupiers across sectors. This was also evident from the other transaction closures during the first half of the year as clients from the financial services, technology, life sciences and manufacturing sector leased space across Grade A developments in Dubai.”

Walshe added: “Companies across most sectors have been impacted to some extent by the pandemic and a simultaneous fall in oil prices has put further strain on government finances and investments.”

“As a result, most landlords have been working closely with tenants to help them through the challenging period. As most companies are still operating at reduced capacity and are anticipating their overall headcounts to reduce going forward, many landlords have been offering rental rebates and postponing rental collections to support companies with the much-needed cash flow.”

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According to Savills’ report, the market remained tenant favoured as landlords continued to offer flexible commercial terms including rent-free periods, additional car parking, lease flexibility through increased break opportunities with minimal penalties, and — in limited cases — upgraded space from shell and core to Category A fit-out (CAT A) as part of any new lease discussion. Their strategy and priority continue to be on securing and sustaining longer-term lease agreements.

Dubai continued to record exceptional growth in foreign direct investments (FDI) during H1 2020, with 190 projects worth $3.2bn (AED12bn), as compared to the sharp slowdown in domestic economic activity, due to the pandemic induced lockdown.

The long-term impact on demand for office space has been a key topic since the onset of COVID-19, with much written on both sides of the debate. Savills conducted a survey over the summer, to understand the long-term impact on office real estate.

It was found out that 89% of respondents believed the office will remain a necessity for corporate organisations, with 47% believing this to be the case in the future, and 42% believing this to be the case at least in the short-term.

The survey also found that the role of the office as a hub for in-person collaboration, innovation, and the reinforcement of a company culture will carry more weight than before as it looks to differentiate between the home environment. The focus going forward will be to ensure the office is designed and managed to best serve the needs of the workforce.

Meanwhile, Swapnil Pillai, associate director, Research Middle East at Savills said: “The sector is undergoing a structural change and this trend has been accelerated by the pandemic. There is an increased interplay between technology and real estate and a conscious focus of the health and wellbeing of employees.”

“This has led to strong increase in demand for international quality developments which offer better building ventilation, increased security and connectivity and other add-ons such as advanced air filtration systems. Landlords have been reacting to this trend by focusing on refurbishing/ upgrading their asset quality to improve value for existing tenants and making it more attractive to new occupiers.”

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