Colliers International, in its Dubai real estate overview of the second quarter of 2008, said demand for absolute Grade A office space continued to grow as Dubai contractors tried to catch up with the short supply, UAE daily Business 24/7 reported on Sunday.

The report states: "Limited delivery of new office accommodation has resulted in a continued undersupply precipitating double-digit growth of rental rates year on year, supported by vacancy rates less than two per cent across the market."

Demand for office space was particularly strong along Dubai's main commercial arteries owing to the robust economic conditions in these areas.

Although a significant amount of supply is expected to be released into the market in the next one to two years, the delivery of stock will be uneven rather than measured, according to the report. By 2010, the total office supply is expected to increase to 5.92 million sq m.

Free zone clusters continue to attract blue-chip tenants wishing to base their regional expansion in Dubai, adds the report.

The average asking rent for Class A office space in Dubai is AED3,230 per sq m and for Class B space it is AED1,876 per sq m.