Dubai office real estate market unlikely to see sustainable levels before 2013, new report suggests

 
Central Business Districts (CBDs) in emerging markets usually outperform other commercial areas and despite the current market situation, Dubai’s office sector can draw strong parallels with such markets, says a new report from real estate consultants Jones Lang LaSalle.
 
‘The clear learning from overseas cities such as Shanghai, Singapore and Moscow is that office markets all go through periods of excess supply similar to those characterizing Dubai at the present time,’ said Graham Coutts, head of management services, Jones Lang LaSalle MENA.
 
‘The experience of these cities is that vacancies do not remain at excessive levels for sustained periods and vacancies for CBD space typically fall to more sustainable and balanced levels within two to four years. We expect Dubai to follow this same pattern with vacancies for CBD space peaking in 2011 to 2012 and then declining again over the following two to three years,’ he explained.
 
Dubai holds the fourth largest ratio of supply per capita of any major global city, behind only New York, Paris and London, with around 34 square feet of office space per person. This figure is expected to increase to around 36 square feet per capita as a result of the additional supply scheduled for completion before the end of 2010.
 
‘Dubai currently has one of the highest levels of office space per person in the world. This reflects the regional and global role of Dubai but does suggest that the level of supply has increased ahead of the maturity of the market,’ added Coutts.
 
He points out that international experience suggests that measures to restrict supply will be critical to the recovery of the Dubai office market. ‘Markets such as Shanghai and Singapore have seen long periods with little or no new space entering the market, which has provided a window of opportunity for the market to absorb excess levels of supply. Another feature of such markets has been adaptive re-use as well as the 'mothballing' of partially completed projects. Both of these initiatives are required to allow for the excess supply currently available to be absorbed,’ he said.
 
Office vacancies in Dubai’s financial centre could hit 40% over the next couple of years as oversupply chokes the emirate’s already battered property market. The inevitable conclusion is that vacancies will continue to rise across the Dubai market in the short term, as the level of office stock increases ahead of demand, the report says.