Are Landlords Pushing Rents Too Fast in Key Commercial Areas?

Are Landlords Pushing Rents Too Fast in Key Commercial Areas?

Ask whether rents in Dubai’s most sought-after commercial areas have moved further than demand can support, and the honest answer depends entirely on which district is being asked about. Rent growth is not behaving uniformly across the city, and treating it as a single market is where landlords in secondary locations misprice their own renewals.

It is a distinction that matters more this year than last, because renewal negotiations have become noticeably more contested than they were eighteen months ago, and both sides are arriving at the table with a sharper sense of what the alternative looks like.

Our own transaction data shows that in areas with genuinely constrained supply, including parts of the central business district and select logistics corridors, rent growth has tracked demand closely. Occupiers are still signing at the new levels, and renewals in these pockets are being achieved without extended vacancy.

Where the Strain Is Starting to Show

In a number of secondary locations, however, we are seeing landlords apply increases in line with central business district benchmarks without central business district levels of demand behind them. The result is a widening gap between what is being asked and what tenants are prepared to sign at.

That gap tends to show up as longer void periods rather than as achieved higher rents. An asking rent only reflects market value if a tenant is willing to sign at it. Where they are not, the property simply sits, and the true achieved rent ends up lower than the original increase implied.

What This Means for Renewal Strategy

Tenants are increasingly asking us whether it is worth waiting out a renewal rather than accepting an increase outright. In the areas under strain, our view is that the answer is often yes. There is enough alternative stock coming through in these locations to give tenants genuine leverage they did not have previously. Before setting a renewal figure outside the prime pockets, three things are worth establishing:

• What comparable units in that specific micro-market have actually signed at this year, not what is being asked
• How much competing stock is due to complete within the term being negotiated
• What a three to six month void would cost against the increase being sought

Where this leaves the market: rent growth in Dubai’s tightest, most supply-constrained commercial pockets looks sustainable and is being validated by signed transactions. Outside those pockets, some landlords are pricing ahead of demand, and the market is correcting that gap through extended vacancy rather than through lower headline figures.

For landlords in secondary locations approaching a renewal, benchmarking against the central business district alone is unlikely to reflect what tenants in that specific micro-market are actually prepared to pay. Worth revisiting over the next two quarters as more renewals come through.