Healthy increase in occupier demand in Dubai office market, report shows

The Dubai office market has shown healthy increase in occupier demand during the first three months of 2011, fuelled by a number of factors, namely the increased affordability of office rents, the choice and variety of stock on the market and the slow return of confidence in both the local and global economies, according to a new report.

Dubai is still viewed as an important and strategic location for businesses to have a presence, the report from real estate specialist Cluttons shows.
With the city becoming affordable, this is a good time for foreign companies to establish themselves within Dubai, in addition to long established firms looking to take advantage of newer, higher spec office space, and for corporates already long established there to take advantage of good deals for newer, higher specification office space than their existing premises, it suggests.

Office rents have seen no movement in districts of DIFC, Sheikh Zayed Road, Tecom A&B and Emaar Square in the past three months, with rental values ranging between AED100 to AED 50 per square feet per annum.

Older business districts such as Tecom C, Business Bay, Dubai Silicon Oasis, Deira and Bur Dubai have seen rents falling between 7 to 30% in the last quarter.

Prices have held steady in more prestigious office locations, such as the DIFC and Sheikh Zayed Road in response to demand. ‘This is an encouraging sign that the market is in recovery mode. However, overall, the market still shows a trend of downward pressure on rents that was seen throughout 2010, caused by the oversupply of new office stock,’ the report says.

Cluttons estimates that throughout 2011 an additional 10 million square feet of new office stock will come onto the market, the majority of which will be in new business districts of Tecom C, Business Bay, JLT and Dubai Silicon Oasis. Rents in these areas are predicted to show the largest falls.
‘Despite the high commercial vacancy levels, surprisingly, one feature holding back the commercial market is the mixed ownership of many office buildings and the relative lack of larger space available to lease from a single landlord.  This has led to some firms such as Standard Chartered building its own office space, tailor made to its own specific requirements, the report points out.
Vacancy levels in the market currently stand at an estimated 40% across Dubai. ‘This level appears to be increasing within some of the older, more established districts of the city such as Deira and Bur Dubai, as occupiers migrate to better quality office stock in the CBD areas of Sheikh Zayed Road, Downtown and the DIFC. Stronger demand in these areas has prevented prices falling, indeed these have held fast since the fourth quarter of 2010, it adds.
Cluttons notes the increasing flexibility of lease terms offered by landlords in light of high vacancy levels, who are more willing to offer larger rent free periods coupled with longer leases, and pay agency fees. ‘This is common practice in most foreign markets, and as more landlords attract these strategies, it will help drive Dubai's market to a higher level of maturity,’ it adds.