Commercial property downturn in UAE extends into ninth quarter

The Dubai commercial property market continues to struggle with downward pressure on rents. (AFP)

LONDON: Demand for commercial space in the UAE fell for the ninth consecutive quarter in the last three months of 2017, with a marginal decline seen in office rentals, but a steeper deterioration affecting industrial and retail space.
Even as demand falls, leasable space continues to increase, alongside the value of incentive packages offered to tenants. According to the UK’s Royal Institution of Chartered Surveyors (RICS) latest global commercial property survey, respondents also expect headline rents to drop by 2.7 percent over the next 12 months, with rents expected to fall across all areas of the market.
Despite these downbeat forecasts, during Q4 2017 the Occupier Sentiment Index moved to -36 from -49 in Q3, indicating a gradual improvement, with the average three-year rental projection being comparatively upbeat.
In the UAE’s investment market, momentum worsened further, signaled by a fall to -38 from -28 of the Investment Sentiment Index. Investment enquiries continued to deteriorate, with the steepest drop in demand from foreign investors seen across the industrial sector.
The current property cycle in the UAE is “in a downturn” phase according to 53 percent of respondents to the RICS survey, whereas 35 percent of those surveyed believe it is “approaching” the bottom.
In a statement, RICS said: “The actual performance of property in the (UAE) has been hitherto rather more resilient than its regional peers because of the more diversified nature of the economy.”
Elsewhere, investors continue to find London attractive, despite it being seen as “expensive,” with about 60 percent of respondents seeing the property cycle in a downturn phase.
But investors are increasingly optimistic that London can sustain these elevated levels, which is evidenced by continued interest from overseas buyers. RICS added that besides London, other well-established markets in Europe, such as Berlin, Amsterdam, Frankfurt and Madrid, continue to be the most attractive to investors and tenants alike.