Dubai Despite reports of rents in the Dubai International Financial Centre (DIFC) remaining relatively immune to the wider price erosion seen in other commercial clusters, a semi-annual CB Richard Ellis (CBRE) survey tracking the occupancy costs of prime office space globally establishes that rents of prime commercial space in the emirate have declined by 12.5 per cent across last year, pushing Dubai to the 12th place in the 175-member rankings.
According to the survey, the rates have dipped to Dh350 per square foot per annum. In the previous report (May 2010), they were pegged at Dh400.
Oversupply
"Occupancy rates are declining throughout Dubai as new supply enters the market in virtually all locations. The widespread downsizing of companies during the economic crisis is also yet to be reversed, with many companies still running off a skeletal staff. This has obviously led to increased vacancy rates, with companies closing offices and finding alternative smaller premises. The worst affected areas at this time are the newer freehold locations," observes Matthew Green, head of research and consultancy, UAE, at CBRE. While the Dubai survey findings are based on DIFC rates, these are not typical "open market" rates since they are controlled by the DIFC Authority.
Apart from benefits in the form of ownership structures and profit repatriation, tenants in free zones are also at an advantage as authorities struggle to maintain occupancies.
"We have already seen rents come down considerably, while a number of tariffs have also been removed which has helped to reduce set-up costs for new entrants. This type of estate and asset management will be an essential tool for landlords across Dubai, not just in the free zones, if they want to maintain occupancy rates in the face of increasing market competition," Green reckons.
CBRE estimates that to date, around 7.5 million square feet of office space has entered the market in 2010, with a further 1.6 million square feet anticipated by the year end should construction continue at the current pace. Compounding the oversupply concerns, over 50 per cent of the space delivered during the year comprises strata-title properties.
"Those landlords holding single ownership assets are, thus, likely to see a premium for their space as many occupiers choose to avoid accommodation blighted by strata ownership," hints Green.
Meanwhile, occupancy costs for prime commercial space in Abu Dhabi have remained largely unchanged since last May. While Abu Dhabi was ranked 19th in the previous edition, it is now ranked 20th. Despite declines in the wider market, rents at Sowwah Square have remained at the top of the market at Dh265 per square foot.
"The Abu Dhabi office market has been severely constrained in recent years, but the imminent completion of significant Grade A space at projects like Sowwah Square and International Tower at the Capital Centre signify a real change in the overall direction for the market. Occupiers are now looking to exploit the more favourable market conditions to secure preferential deals, while also seeking better quality accommodation and moving away from poorer quality older office product in the capital," he explains.
Homeowners' view
- London's West End continues to be the world's most expensive office market
- Hong Kong's Central Business District continues in second place
