Consultants predict massive over supply for Dubai office property market
Office vacancy rates in Dubai are expected to exceed 50% over the next year as new supply continues to be released amid fears that the commercial real estate market is unlikely to recover in the short term.
More than two million square feet of office space was completed during the second quarter of this year an another 15 million is scheduled to be completed during the next six months, according to a new report from consultants Jones Lang LaSalle.
Even although further delays in construction and handover are expected to result in much of this space not being available for occupation in 2010 there is still an over supply. City wide vacancy rates have increased to around 38% with levels set to rise further, the report points out.
However, in the CBD area between World Trade Centre and Downtown Burj Khalifa, vacancy rates were significantly lower with just 12% of the single ownership stock currently empty. JLL said that total office stock as at the end of the second quarter of this year was approximately 48 million square feet.
Rents decreased by 2% to around AED135 per square feet over the second quarter of 2010 and by 38% compared to the same period last year. Average rents in the CBD area decreased by 8% to around AED200 per square feet during the second quarter. Average rents have now fallen by between 45 and 60% since their peak in the middle of 2008, the report also shows.
‘Although Dubai’s office market is likely to experience a supply overhang, there is still a shortage of good quality supply, as evidenced by lower vacancies in CBD areas as compared to the rest of the city,’ the report adds.
Consultants CB Richard Ellis is also wary about the recovery in the office market. Managing Director Nick MacLean recently told a conference that Dubai is forecast to see another 20 to 30 million square foot of office space being added to the already cluttered market in the emirate.
‘We have a problem and the government is aware of this problem it has passed primary legislation recently but more needs to be done, otherwise we are going to have a long term unsustainable amount of vacancies,’ he said.
Meanwhile some 40 projects have been shortlisted for the first phase of the Dubai Land Department’s new initiative to offer developers and investors a ‘government guarantee’. The Tayseer system effectively guarantees finance and completion of the selected projects.
The first phase of the initiative is aimed at boosting liquidity in the market and bolstering confidence in the sector, said Sultan bin Butti bin Mejren, director general of the Land Department.
‘Through this and other related initiatives the Department is introducing a different, comprehensive and coherent level of strategic management to Dubai's property sector. This will offer clear transparency and in doing so inspire confidence among developers, end users and all those with an interest in Dubai’s property sector,’ he explained.
Once a project had been examined and approved for Tayseer, it receives the Tayseer trademark, and a government guarantee that it will be completed and by a specific date. ‘This is what the banks have been looking for in order to participate and we clear commitments from a group of banks to participate and offer both construction and end user funding,’ he added.