Dubai: Unlike in its residential space, tenants looking out for office space in Dubai are yet to see the sharp escalation in rental rate demands. It explains why Dubai retained its 23rd spot among the world’s costliest cities for offices in CBRE’s semi-annual survey.
The “occupying cost” for a quality office premise in Dubai is estimated at $92.56 per square foot, compared with the $277.21 per square foot that it would be in London’s West End — the costliest office spot now — and $241.92 per square foot in Hong Kong Central. Two separate commercial locations in Beijing came in third and fourth, in CBRE’s reckoning. (These are based on trends spotted up to March 31 this year.)
Across the city, what office tenants will not want to see is a sudden hike in lease rates, which if it happens would place it on the same trajectory as in home rentals. Landlords with office properties are so far maintaining a prudent policy on renewals, though they may not be as willing to offer longer rent-free periods as in the past.
There have also been some increases in select locations. Tecom, for instance, has just raised rents and service charges across Dubai Internet City, Dubai Media City and Dubai Knowledge Village. The previous Tecom rental ranged between Dh108-135 per square foot, and have now gone up to Dh155 per square foot, while gains on lease renewals are between Dh121-142 per square foot. The new service charge is Dh30 per square foot against the earlier Dh25 per square foot.
All of Dubai’s prime commercial addresses, including free zones, are seeing extremely high occupancy, led by a mix of demand from existing tenants and those new businesses putting up their nameplates. Landlords with new-built offices in secondary locations of Deira are being put up huge banners offering prospective tenants entire floors at optimum rates.
“There are other commercial locations with future possibilities such as Maritime City,” said Samir Munshi, managing director at Orion Holdings. “These locations can accommodate mid-rise properties, and there is a growing demand for such in the marketplace.
“For developers, this will prove a bonanza as they can finish these and start generating income earlier than for high-rises. Only the land cost would be higher for a mid-rise, but that can easily be absorbed into developer calculations.”
Some of Dubailand’s commercial clusters are also seeing new mid-rise projects, which will add to the office and retail property stock.
With gross yields on commercial property now edging ahead of residential in Dubai, at some point it will get the fund-rich institutional investors — and even those from overseas — interested in the possibilities.
“Institutional investors by nature are relatively conservative — their demand is for high quality stock (that is) well-managed and well-let,” said Nick Maclean, regional managing director at CBRE M. E. “If they can find that, then their flows of investment from overseas will increase substantially.”
