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VAT launch has ‘no impact’ on Dubai office market so far

Published : 8 Mar 2018 ,      Source : Arabian Business

Cluttons says office rents in Dubai have continued to moderate during early 2018

Office rents in Dubai have continued to moderate during early 2018 as occupiers “rightsize” to suit their business needs, against the backdrop of rising inflation and global economic factors, according to a new report.

Cluttons said that while the level of office market activity remains mixed throughout Dubai, its Spring Office Market Bulletin indicates growing maturing and a healthy outlook for the sector.

It also noted that the introduction of VAT has not had any real impact on landlord behaviour so far since its launch in the UAE on January 1.

The report showed that headline rents in the city’s top tier free zones have remained largely steady, bar one or two low quality buildings.

Away from prime Grade A buildings, which remain well let and in high demand, landlords are demonstrating greater flexibility and are largely receptive to rent reductions at renewal, Cluttons said.

Faisal Durrani, head of research at Cluttons said: “Global economic factors continue to have a direct impact on the real estate market in the UAE. In the office market, upper limit headline rents have been affected, with occupiers either sitting tight, regearing leases, or continuing to consolidate operations.”

Just five of 24 submarkets registered minor downward adjustments during the final quarter of last year, with the weakness persisting into 2018, he said, adding: “It is our view that this will continue for the remainder of the year with rents set to fall AED5-20 per sq ft. However, core free zones are likely to buck this trend, with rents holding steady.”

Cluttons’ latest report also indicated that while overall conditions may seem flat, landlords are not yet at the stage where large discounts and extensive incentives need to be offered.

Paula Walshe, director of International Corporate Client Services at Cluttons added: “So far, the introduction of VAT has not had any real impact on landlord behaviour but we are monitoring this closely. While absorbing the 5 percent VAT costs does not appear to have been considered yet, this may well emerge as an option should rental weakness linger into 2019.”

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