Dubai office rents shoot up 15%-20% as landlords waste no time
Dubai: Rent hikes of 20% in prime sites and structures. If the tenant won’t let that, then notices of eviction. And — of course — the landlords already have waiting lists for whatever spot comes available because the eviction is being done.
All this and more this time, in Dubai’s office lease. Whether it is a Grade A or Grade B let the landlords are upping rents at renewal by most cases the maximum increase of 20% as per RERA. Most of the time, tenants are being coerced into paying more – even if they agreed to a better rate at the last year’s lease renewal.
Why have new rent increases for Dubai office exploded in speed?
‘Yes, there is the demand which naturally is driving rents higher, but you also have the landlords wanting to trigger the rate higher before the digital real-time Rental Index becomes active for commercial space, too,’ said the owner of multiple office blocks in Dubai.
"Because if Dubai Land Department does that, then the rent going forward will be based on the star rating system per building. As they already do for apartment rent arrangements".
It wasn’t until this month that Dubai released the Real-Time Rental Index, and not the annual changes in residential rental rates. That meant more parts of the city were covered by the new Index. Originally announced at Land Department, a similar program will in time extend to office and commercial leases.
Developers, landlords waste no time
A timeframe for introducing an office rental index was not set, but building developers and landlords of office properties aren’t stalling. For them, the next renewal thrown their way is a chance to hike rates to a level that they can live with.
So if the tenant isn’t in, let that company go, is how landlords want to operate. And making it happen.
"With the RERA rental calculator open, that number can jump as high as 20% for tenants," said Robert Thomas, Director - Head of Agency, Cushman & Wakefield Core "Tenants are (still) renewing at lower rates from before and during Covid.
"As office assets Grade B will receive higher percentage increases than Grade A. This is because Grade B properties are usually operated by small, non-institutional managers that value rent increases over lease terms or lease terms more than lease length.
"Institutional Grade A landlords tend to prefer good tenant covenants and strive to keep international tenants by maintaining a long term relationship," he said.
Business tenants are getting worried
Those who live in office buildings in Deira, Al Quoz or Ghusais are getting bogged down by the hikes too. "We were just hit with a 20% increase after paying only 7% for each of the past 2 years," says the owner of a mid-sized business. "We have been in this office for 17 years and our complaints are not even heard by the landlord.
"All office landlords want rates to climb the highest before RERA takes real-time Rental Index and adds it to office leases too," said Sheila.
Dubai office needs are not declining, and neither is Dubai’s office appetite.
"Vacancies are as low as 5%-10% in Grade A office buildings," said Harish Fabiani, founder of Indialand Group and owner of various floors/office buildings in Dubai. But because those are perhaps shell-and-core, they take longer to get up and running. Tenants, so, would love factory fitted offices.
"It’s no problem that rents are up 15-20% and even way more in some cases. Offices in Tier 2 have seen same rent hikes as well, even big businesses are doing it now because Grade A rents are way too high".
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