UAE employment data suggests office rental market strength no fleeting matter

The current strength of the commercial real estate market in the UAE, especially in Dubai, seems to have taken many by surprise, with large increases in rental values being reported across the city. Knight Frank, for example, have reported increases in rent in Q3 2022 versus Q3 2021 of over 10% in numerous districts. In Business Bay, they reported an increase of 35%. At the same time, Asteco, another valuer and broker, has reported an increase in Dubai’s average office rent of 17% in 2022 versus 2021; and their estimate for Business Bay is 24% year-over-year.

In this environment, businesses and market observers need to bear in mind two things: firstly, that today’s rental values are still over 20% below the last peak of 2015; and secondly, that the recent upturn in the office market is likely not a flash in the pan, set to burn out no sooner as it has begun.

Private sector workforce data recently published by the UAE Ministry of Human Resources and Emiratisation provides insight into how the economic fundamentals have turned around, spurring increases in office rents that are unlikely to be reversed any time soon.

Let’s consider the number of private sector workers engaged in business activities and finance. The first thing to note is the relatively slow rate of growth between 2015 and 2019, suggesting weakish incremental demand for office space. Then, look at the dramatic shift in numbers between 2019 and 2022 (there is no data for 2020 and 2021). While it’s impossible to know how many of these additional workers are based in offices, it’s not beyond our imagination to see this recent leap upwards as a proxy for the strong new demand that’s currently being exhibited in the market.

To evaluate the supply side of the equation, we have construction worker data. While we don’t know how many of these construction workers were active at office development sites, the picture matches what we know of the last decade. Falling worker numbers at the start of the 2010s and low supply additions laid the groundwork for the mini boom in rents between 2013 and 2015. Additional workers in the latter half of the decade enabled increases in the supply of office space that were released into a market with structurally weak demand; thereby precipitating rental declines. Now in 2022, the number of construction workers are back to 2013 lows, again seemingly supporting what we already know – that supply additions for the next few years will be lower than they were in the years leading up to 2020.

We’re not saying that workforce data is definitive; the data is not detailed enough and there are many other factors to consider, for instance the impact of Expo 2020. But the numbers do tell a story that fits with what we’ve seen and what is being witnessed currently in the office market: a turnaround in rental values and, potentially, the beginning of a sustainable upturn.