Knight Frank report also forecasts that employment will grow in Dubai by 1.6% both this year and next
Average office rents across Dubai fell 4.5 percent in the year to the second quarter of 2017, with the performance of prime and secondary markets continuing to diverge, according to a new report.
The Knight Frank Q2 2017 Dubai Commercial Market Review report also forecast that employment will grow in the emirate by 1.6 percent both this year and next.
It said prime rental performance remained relatively stable with average rents shifting 1.3 percent higher in the three months to June. Demand in these locations remains high due to limited new supply, Freezone status, international regulatory standards and the quality of local infrastructure.
The report added that vacancies in Dubai International Financial Centre (DIFC) remains low.
Knight Frank said Grade A office market rents, which includes the following areas Downtown Burj Dubai, Sheikh Zayed Road and the Trade Centre District, fell 4.4 percent year-on-year and 2 percent over the last three months.
Increased levels of supply and lower levels of demand have contributed to the fall in rental values, either via concessions or headline rates.
In the city-wide market, the spectrum in quality of product has led to varying rates of both market performance and occupancy levels. On average rents fell 7.5 percent in the citywide market in the year to June and 0.7 percent over the three months.
Key locations where demand from occupiers is centred such as Internet City, Media City and Knowledge Park have maintained low vacancy rates ranging 2-3 percent and therefore rents have remained relatively stable.
In Business Bay, where supply continues to rise there is a downward trend in rental rates which has led to increased demand for space in strata titled buildings, the report noted.
It added that Dubai's commercial market activity is expected to pick up in the latter half of the year with rental trends likely to continue their currently trajectory given the
embedded supply dynamics in place.
"High occupancy in prime markets will continue to support rents, which supports our view that prime rents will rise further this year," Knight Frank said.
It added: "The delivery of additional Grade A stock will off-set any potential upside in rental values. In the citywide sector we expected pockets of outperformance to be sustained due to limited availability of good quality stock in preferred locations, however on average rental value are expected to continue to fall marginally.
"Lastly, whilst Dubai’s economy is not as dramatically impacted by swings in oil prices, it is positive news for the region that prices have recently settled at around $50 per barrel, up from lows of $27 per barrel in January 2016."