Landlords across Dubai and Abu Dhabi held firm on their pricing positions in the second quarter, offering only selective incentives even as tenants moved quickly to secure space in an increasingly tight office market, according to JLL.
While some tenants temporarily paused expansion plans amid prevailing uncertainties, downsizing activity remained minimal, and sustained demand from both new and incumbent occupiers meant available space was quickly absorbed by other occupiers – preserving rental stability and keeping negotiating leverage firmly with landlords in the UAE office market, JLL said in its latest report – UAE Market Dynamics Q2 2026.
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Despite cautious near-term decision-making, corporates continued advancing their long-term real estate strategies, signalling confidence in the markets’ underlying fundamentals.
That dynamic was reflected in a sharp rise in rental contract registrations.
Dubai’s total registrations rose 24.6 per cent year-on-year and 15.1 per cent quarter-on-quarter, driven largely by a surge in new contracts that JLL said reflected stronger business confidence and the city’s resilience to regional uncertainties.
Abu Dhabi recorded steadier, more moderate growth, with registrations up 5.4 per cent annually and broadly flat quarter-on-quarter, led by a 7.1 per cent annual rise in contract renewals – a signal, according to JLL, that existing tenants remain confident in the capital’s office market fundamentals even as new entrants continue to explore opportunities.
Market activity across both cities improved from the more cautious stance seen in the first quarter, particularly in new enquiries. While some prospective tenants remained hesitant to commit immediately to leases, they continued actively exploring available space and monitoring market developments as they reassessed their strategies, the report added.
Vacancy at record lows
Both cities maintained extremely tight vacancy levels through the second quarter.
Dubai’s average citywide vacancy rate fell to 6.1 per cent, down from 7.7 per cent a year earlier, with limited premium office supply pushing occupiers toward Grade B and even Grade C buildings. Grade B vacancy dropped to 8 per cent from 10.9 per cent a year ago, while Grade C fell to 10.9 per cent from 12.7 per cent.
Prime space availability held steady at 0.7 per cent quarter-on-quarter, while Grade A vacancy edged up marginally to 4.2 per cent.
Abu Dhabi’s vacancy rate was even tighter, at 1.4 per cent citywide, with prime space availability at just 0.1 per cent, Grade A at 1.4 per cent and Grade B at 2.7 per cent – reflecting stable market fundamentals with minimal movement either annually or quarterly, JLL said.
Rents climb
In Dubai, Grade B properties led rental growth with a 31.5 per cent annual and 8.7 per cent quarterly increase, followed closely by Grade A space, which posted 26.2 per cent annual and 8.8 per cent quarterly growth. Prime rents rose 13.6 per cent year-on-year.
Abu Dhabi’s rental performance was more mixed. Prime rates grew 11.7 per cent annually but slipped 0.3 per cent quarter-on-quarter. Grade A and Grade B rents were largely stable quarterly but posted annual gains of 5.1 per cent and 4.2 per cent respectively.
JLL flagged that the new “Rent Freeze” regulation, introduced at the close of the second quarter, is expected to constrain further quarterly rental escalations in the capital in the short to medium term.
Supply pipeline under pressure
Abu Dhabi added roughly 38,000 square metres of Grade A gross leasable area in the second quarter, lifting total office inventory to around 4.2 million square metres. No major completions were recorded in Dubai, where total office stock remained at 101.4 million square feet.
Looking to the second half of the year, Abu Dhabi has around 57,000 square metres of office space in its pipeline, while Dubai is expected to deliver nearly 940,000 square feet.
Several previously operational buildings in Dubai have also been temporarily taken offline for refurbishment to meet rising demand for higher-quality space, JLL said, while developers continue to navigate supply chain challenges affecting material imports.
Given the supply shortage relative to strong demand, and with numerous projects already secured through pre-lease commitments, landlords are prioritising timely delivery despite these challenges, the report added, with developers placing greater emphasis on cost efficiency and quality assurance.
The flexible workspace segment continued to expand as companies sought lower-risk alternatives with reduced capital requirements and shorter lease commitments, JLL said.
The growing integration of AI and automation into business operations is reshaping workforce needs, making flexible office solutions increasingly attractive to organisations navigating operational transformation and market uncertainty.
Outlook
Regulatory changes are set to shape the next phase of the market, particularly in Abu Dhabi, where the Rent Freeze policy – which restricts rental increases except within Abu Dhabi Global Market or in newly completed projects – is expected to cap sharp quarterly rate rises.
Annual rent growth, however, is still expected to continue through year-end across both emirates, according to JLL.
Source: Khaleej Times