The UAE’s commercial real estate market is changing significantly, with its appeal to international businesses stronger than ever. In the first half of 2024, about 34,075 new companies registered in Dubai, showing a 5% year-on-year increase as global firms continue to show growing interest.
Beyond Dubai’s business-friendly policies, the UAE’s non-oil gross domestic product is projected to grow by about 4% in 2024, according to the Central Bank. This highlights the UAE’s focus on economic diversification, which makes it an increasingly attractive destination for foreign investment.
However, as businesses adapt to the post-pandemic era, they are rethinking how and where they work. The big question remains: Is hybrid working here to stay, or are we moving back to a mostly in-office culture?
The Rise of Hybrid Working and Flexible Workspaces:
The Covid-19 pandemic brought significant changes to workplace dynamics, impacting the office market in lasting ways. Many businesses now prioritize flexible workspaces to fit hybrid work models, leading to a rise in co-working spaces managed by providers such as The Executive Centre, Cloud Spaces, Servcorp, IWG, and WeWork.
These co-working spaces offer scalability and adaptability, making them especially appealing to start-ups and new businesses entering the market. This shift reflects a broader move away from rigid, traditional office setups toward more dynamic and flexible environments.
Strong Demand for Prime Office Locations:
At the same time, prime districts such as DIFC, Downtown Dubai, and Business Bay have seen a strong recovery. Grade A office spaces in these areas now have occupancy levels nearing 97%. Rental values for Grade A spaces increased by 25% year-on-year in the third quarter of 2024, with Business Bay and Downtown Dubai experiencing rental growth of 44% and 36%, respectively.
This renewed demand indicates a return to in-office operations, but with more flexible lease terms and layouts to accommodate modern business needs.
Sustainability Takes Center Stage:
Sustainability has become a major focus for businesses. Many companies now prefer office spaces that align with their environmental goals. This has led to increased demand for buildings with green certifications, energy-efficient systems, and wellness amenities. Such spaces not only meet regulatory requirements but also appeal to a workforce that values well-being and environmental responsibility.
Growth in Secondary Markets:
Secondary markets, such as Dubai Science Park and Dubai Investments Park, have seen a resurgence after Covid-19. These areas have recorded significant rental growth of 37% as businesses seek cost-effective alternatives without sacrificing quality. This trend highlights how companies are balancing cost-consciousness with employee needs when choosing office locations.
Challenges Facing the Market:
Despite these positive developments, challenges remain. Supply constraints in prime business districts have driven up rents, which can impact lease terms and tenant retention.
Additionally, as more companies adopt hybrid work models, some are downsizing or rethinking their office space needs. This puts pressure on landlords to offer flexible lease terms and adaptable office layouts to meet changing demands.
Developers must now focus on designing spaces that can shift between collaborative areas and private offices as needed, catering to both hybrid and traditional work models.
What Lies Ahead?
Looking forward, rental growth for Grade A office spaces in central districts is expected to continue. In contrast, growth in secondary markets may stabilize, offering affordable options for budget-conscious firms.
The UAE’s strong commitment to infrastructure, innovation, and an open business environment will continue to drive demand for commercial real estate.
Ultimately, the shift in the commercial property sector is about more than just choosing between hybrid and office-based work. It’s about creating office spaces that enhance productivity, meet environmental standards, and align with the expectations of today’s workforce.
Toby Hall is head of commercial agency at Savills Middle East.
