Dubai’s commercial market to moderate in 2017

Based on international property consultant Cluttons' recently released Dubai Spring 2017 Property Market Outlook report, a slowing rate of decline across all sectors of the Dubai real estate market suggests increasing stability and the expectation of the market 'bottoming out' before the end of 2017, but the planned introduction of VAT on January 1, 2018 is already causing nervousness amongst existing commercial tenants. Cluttons reports Dubai's office rents across most of the 24 submarkets monitored remained relatively steady throughout 2016, following strong growth in the preceding 12 to 18 months. However, global economic anxiety and a subsequent scaling back or delaying of short term expansion projects, particularly amongst international corporate occupiers, has begun to impact on the resilience of rents. Murray Strang, Head of Cluttons Dubai noted, "Furthermore, uncertainty stemming from the proposed introduction of a Value-Added-Tax (VAT) is causing some nervousness in the market. For many international occupiers, it is likely that this is something they will be able to take in their stride, given that they are used to taxation regimes in their own home markets; however, for international occupiers from the UK, or Europe, the prospect of a 5% tax on rental payments, combined with a rise in operational costs fueled by the strength of the US dollar, may dampen take up activity in the short to medium term. It remains unclear at this stage whether firms operating within free-zones will be exempt from any potential VAT charges, however it is our expectation that any new tax will be applied across the board to limit an exponential rise in requirements for free-zone office space." In general, however, Cluttons claims the overall slowdown in activity levels has resulted in headline rents dipping back marginally. Strang concluded, "High demand areas such as TECOM's Internet City and Media City, in addition to core locations within the DIFC remain well let, with stable rents. A limited supply pipeline in both markets is clearly supporting the stability in rents. Equally, demand from occupiers to secure a presence in these key areas is reflected in the fact that the DIFC's new eight story Gate Village 11 Building, The Exchange, has been reportedly pre-leased, with completion not expected until late 2017, or early 2018".