Investments in the Dubai office market under pressure; returns will be stable

Office investments in key cities, including Dubai, are under some pressure from the global macro environment, but strong fundamentals will help sustain volumes, according to Savills.

The property company said investment returns are expected to be stable in Dubai as rental activity has remained strong over the past six months.

The city has benefited from the availability of Class A space at an affordable cost compared to other office centers in EMEA, the company said in its first quarterly Global Capital Markets Update.

Savills said office markets in Paris, London, Sydney and Mumbai should also remain stable thanks to their strong fundamentals.

“The office market in Dubai remains an attractive investment opportunity with prime office yields estimated at over eight percent, second only to Mumbai and the highest among the Western and Asian ranked countries,” said Edward Price. , Associate Director of Savills, Capital Markets Middle East.

Savills said the likely interaction between top-down factors – inflation, rising interest rates, geopolitical uncertainty and bottom-up factors, the limited availability of stocks and the weight of money causing competition between investors, had been assessed for the report.

The United States could be the most exposed to top-down macro factors, with expectations of a significant tightening of financial conditions and limited pricing power for owners, which could lead to higher yields in New York and Los Angeles, according to the report.

Meanwhile, European investors could continue to benefit from strong user demand and a lack of supply in the core and core segments of the market, keeping yields steady.

In Asia, specific domestic market characteristics dominate the regional narrative, with cash yields remaining attractive, given little upward pressure on interest rates, which will support further yield compression, the report adds.

However, the outlook for Shanghai has deteriorated in a difficult domestic economic environment.

Heightened uncertainty will underpin a flight to safety which, combined with a growing focus on ESG, will favor Class A office buildings in major cities, Savills concluded.

(Writing by Imogen Lillywhite; editing by Seban Scaria)

[email protected]

Jose C. Birney