Dubai's Commercial Property Soars to All-Time Low Vacancy, Driving Rental Hikes and Global Inflow

Dubai's commercial real estate market is currently experiencing an unprecedented boom, with vacancy rates plummeting to an all-time low of 8.6 percent. This surge is primarily fueled by a significant influx of foreign businesses and a rapid increase in new company registrations, according to Sapna Jagtiani, director and lead analyst, Middle East at S&P Global Ratings. The soaring demand for commercial spaces is, in turn, pushing up rental prices across the emirate, particularly for prime and Grade A office spaces.

Jagtiani attributes this robust growth in commercial property to several key factors: Dubai's business-friendly regulations, its dynamic economic environment, and the highly attractive low-tax regime offered to businesses. These elements create a powerful magnet for international enterprises seeking a strategic foothold in the Middle East and beyond.

The positive trend isn't confined to commercial offices alone. Dubai and Abu Dhabi are also witnessing resilient demand and moderate rental growth in the retail real estate sector. Prime super-regional malls continue to dominate the market, prompting mall owners to expand their offerings to cater to evolving consumer preferences. Industry insiders note that popular malls in Dubai even have waiting lists for new clients, a clear indication of the high demand and low vacancy.

Evolving Retail Landscape and Cautious Consumers

Jagtiani further elaborates on the changing landscape of retail, highlighting that shoppers across the Gulf Cooperation Council (GCC) are actively seeking unique concepts, new brands, and immersive experiences. This trend, coupled with rapid urbanization, especially in cities like Riyadh and Jeddah, is driving demand for modern retail formats and omnichannel strategies. Mall owners who fail to innovate and stay aligned with these evolving trends risk facing rental pressure and higher vacancies.

While luxury spending remains robust in the region, particularly benefiting prime malls, consumer spending in general is characterized by caution. This guarded approach is influenced by prevailing economic uncertainties, relatively high interest rates, and ongoing inflationary pressures. This nuanced perspective underscores the need for retail establishments to offer compelling value and experiences to attract and retain consumers.

Residential Market: A Moderate Correction on the Horizon

Looking ahead, Jagtiani projects a potential moderate price correction in Dubai's residential property market within the next 12-18 months. While a significant increase in new supply is anticipated, the degree of correction is expected to be mild compared to previous downturns, not exceeding 15 percent as projected in May 2025. Despite these forecasts, the demand for residential real estate remains remarkably high, with presales in Dubai consistently breaking records.

The residential market's resilience is notable, persisting even amidst escalating geopolitical tensions between Israel and Iran and other tariff disruptions. Favorable visa reforms and Dubai's high quality of life continue to attract high-net-worth buyers. This sustained appeal is evident in the remarkable 60 percent year-over-year increase in sales volume for luxury units priced above Dh10 million ($2.72 million) in the first half of 2025. This surge in luxury sales reinforces Dubai's position as a global destination for discerning investors and residents alike.

Dubai as a Safe Haven: A Historical Advantage

Historically, the UAE and specifically Dubai have consistently benefited from regional and global geopolitical conflicts. Their reputation as a safe haven has consistently attracted population growth and significant investment inflows during periods of instability. This inherent advantage continues to play a crucial role in underpinning the resilience and growth of Dubai's real estate sector.

In conclusion, Dubai's commercial real estate is experiencing an unprecedented boom, driven by strong business fundamentals and an attractive economic environment, leading to record-low vacancy rates and rising rents. While the retail sector navigates evolving consumer preferences, the residential market, despite a projected moderate correction, continues to demonstrate remarkable demand, particularly in the luxury segment. This enduring strength, coupled with Dubai's long-standing status as a safe haven, positions its real estate market for continued stability and growth in the years to come.