Dubai: Not all of the new office towers and the units within — and more of them on the way — can hold back Dubai from being the 25th most expensive global city for commercial tenants. It was ranked in the mid-30s in the previous rankings.
At $92.57 (Dh340) per sq ft, the price for an office tenant to set up a base in Dubai was ranked first among Middle East cities, according to a semi-annual survey put out by CBRE, the real estate consultancy.
Offices in DIFC, a free zone it operates outside of the market dynamics, were fetching the highest rates (inclusive of service charges) in town. In a non-free zone location, prime high-rises in the Central Business District had no problems finding tenants who were willing to pay a premium. Central Hong Kong ($235.23 per square feet) retained its status as the most expensive global market for office space, as Asian metropolises took up four of the top five global rankings in the survey. London’s West End followed in second place ($222.58), with Beijing’s Finance Street and Jianguomen CBD taking the next two spots and New Delhi’s Connaught Place CBD at fifth.
“Despite the high headline vacancy rates for office space in Dubai, at around 45-47 per cent, if one were to drill down to the key sub-sectors such as the Central Business District (CBD) or prime free zones, you will find that the prime office properties are attracting higher demand from tenant prospects and hence are in a position to charge a premium,” said Matthew Green, head of research at the regional office of CBRE.
“In such locations, the situation is closer towards an under-supply and that explains the mark-up in the broader office rentals in Dubai. For tenants looking at, say, premium 100,000 square feet of office space, there’s very little available now.
“It has reached a situation where some developers could even consider creating new capacity in such select locations — and despite the fact that there is over capacity at the city-wide level.”
New York’s Midtown Manhattan made a return to the top 10 rankings after an interregnum in 10th spot, while London City was ninth and Moscow was at seventh.
It is interesting that Dubai’s commercial space has been defying the downward pulls of oversupply and the fact that large and mid-sized office tenants are still feeling their way around new tenancy arrangements following the downturn. Caution is still their abiding sentiment when it comes to taking on higher expenses associated with being sited at blue-chip addresses.
“While commercial rentals have not gone up to the extent that was there in residential, some locations such as Business Bay have emerged as a Grade A location of choice, both among companies looking at relocation as well as newly formed businesses,” said Mahendra Singh, partner at SPF Realty.
“Office rentals have been tracking a 5-10 per cent annual gain in select locations against the 10 per cent you see in prime residential points in the city. But this is a sustainable rally within the office space.”