12 Cities: The Rise of The Digital City

12 Cities
 
Market In Focus: New York & Dubai

5 October 2015, by Paul Tostevin

An in-depth look at the key factors affecting the property markets of New York and Dubai.

 

New York

Manhattan is in the midst of its biggest office development surge since the 1980s. Between 15 and 25 million sq ft of new office development is set to be added in the coming years. Hudson Yards, the biggest private real estate project currently under construction in the US, together with surrounding projects, will alone add roughly 10 million sq ft to Manhattan’s skyline.

As the urban environment becomes the unit of value rather than purely an area of office space available, a retail setting that appeals to both office tenants and residents is increasingly seen as essential for drawing both audiences to property. Hudson Yards will dramatically expand the residential and commercial base of the Far Westside, adding several thousand more residential units to those that have already been built in the past few years. Luxury retail, along with entertainment venues such as the ‘Culture Shed’, will provide added attractions.

Lower Manhattan, or LoMa, once the domain of daytime office workers, is now considered a desirable place in which to live and work – the residential population of the area has doubled in just a decade. More business occupiers have also been drawn to the area, not just because of lower rents and tax incentives, but also because of a vastly improved retail and hospitality offering.

While the financial sector has scaled back its floorspace requirements, the tech industry has come to the forefront of occupier demand. Tech firms are paying top dollar for space that may be lacking in modern amenities purely to be in the ‘right location’ (see fig. 13). In New York, this means Union Square, Williamsburg, Bushwick and Dumbo. Recognising that the appetite for space has become more geographically flexible, developers are scrambling to meet demand. In Brooklyn, for example, Industry City will turn a late 19th-century manufacturing facility into 6 million sq ft of space for the innovation economy.

FIGURE 13

Manhattan office asking rents

 
Figure 13

These new occupiers covet non-traditional office locations that are part of wider, mixed-use environments that often include independent retailers, cafes, bars and homes. This is extending to other industries too, as employees rediscover the appeal of city living and a shorter commute. This will continue to have repercussions for old, traditional business districts and property types. We expect to see many of these districts reinvent themselves for the digital age.

 

 

Dubai

Modern Dubai is a late-20th century zoned automobile city. While the tech sector has been drawn to cities such as New York, Dubai has attempted to zone and build for the tech industry in specific locations.

Dubai Internet City and Dubai Silicon Oasis are free economic zones that have been successful in attracting established foreign tech companies seeking to do business in the region. More business park than city, they are tailored to international corporate occupiers.

In an industry where chance meetings and collaborations can add so much value, many of the more creative global tech occupiers are moving away from the single-use environment and toward high-quality urban environments. This is at odds with the single-use out-of-town approach of the free-trade zones of Dubai. It is perhaps telling that many of Dubai’s own grass-roots creative companies are concentrated around the inner streets of old Deira, characterised by its souks, shisha cafes and grocers.

Dubai is coming out of a period of very high office supply delivery (see fig. 14), which has contributed to falls in rental values. Rents of the type of property occupied by financial firms fell by 6.7% in H1 2015, and further falls are anticipated over the next 18 months.

FIGURE 14

Dubai office supply annual increases

 
Figure 14

Developers in Dubai seeking a point of difference in a high supply market have now picked up on trends in US and European cities. They have increasingly turned to pedestrian-friendly granular developments that provide an authentic urban experience. Citywalk, a low-rise retail and residential development built around streets, is an early example.

As the city matures, occupiers will demand more from the urban environments in which they are based. Dubai is responding to these challenges, moving away from the planned zoning of the city and big buildings. Downtown Dubai and Business Bay achieve this at a city level, enabling residents to live, work and play within a single district.

A more human-scale Dubai will help foster a more sustainable city and, in turn, encourage interaction and innovation. This will require more mixed-use streetscapes. The challenges here will come from Dubai’s climate, which makes life outside of air-conditioning difficult for much of the year, although inspiration from traditional architecture may help.

 

 
placeholder

Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883

 

Subscribe to Savills research

 

Would you like to be notified via email about new property research?