JLT right on track to transform its image

In terms of profiling and the image that it exudes, the Jumeirah Lakes Towers may not get talked about the same way as the more glamorous Dubai Marina. But with the launch of full-scale services on the Metro and the two stations near the cluster, many developers who have projects on JLT can now expect to close that gap and catch up with the Marina. But any change in JLT's status for now would be incremental.

"JLT doesn't have a lifestyle yet, however, the Metro will make it more lively like a real city and hopefully encourage retail to set up, (which is) still lacking right now," says Saeed Mirsaeedi, investment manager at Sherwoods.

"The towers which are first in line to Shaikh Zayed Road stand to benefit most — demand for offices and occupancy at Saba Tower located close to the station, for example, is high." The present average occupancy in JLT's completed towers on the commercial side is estimated at 30 to 40 per cent, and rises to between 50 to 60 per cent in the residential ones, of course depending on the building.

JLT will have two Metro stations, one opposite Green Lakes, Fortune Executive and the Mercure Grand, and the other one close to the Indigo, Lake City, Global Lake View and Saba towers.

"People like to be as close as possible to the Metro, and it is certainly factored into the decision-making process by companies who see it as a great transport facility for their staff," Mirsaeedi adds.

The Metro, it is hoped, is going to alleviate parking problems at some of the towers at JLT. Since there aren't any convenience stores yet in JLT, it will save residents the trouble of jumping into a car to pop over to Dubai Marina Mall. Now to meet the shopping needs all one has to do is cross the Metro footbridge.

Segmented price rise

But how is the Metro going to impact the value and rental of properties? "We will not see a drastic jump in commercial prices, but rather a segmentation between the buildings that are located right in front of the two JLT Metro stations and others. Those that are strategically located will see a slight increase in rents and sale," Coldwell Banker's vice-president, Ayman Youssef, forecasts.

The rent for a one-bedroom apartment, now going for Dh55,000 to Dh60,000 could increase to Dh65,000 to Dh70,000. Similarly office rents near the Metro could reach Dh100 to Dh110 a square foot instead of the Dh70 to Dh90 a core-and-shell office fetches right now.

Across the road in Dubai Marina, rents for a one-bedroom hover around the Dh70,000 mark and that is unlikely to change with the arrival of the Metro. "The effect is not as tangible, rents in the Dubai Marina rather depend on the quality of the towers and if a low quality one is next to the station, people are unlikely to pay much more for the convenience, if so, maybe Dh5,000 to 10,000," Mirsaeedi reckons. Sales prices for quality apartments near the stations in Dubai Marina could average around Dh1,100 to Dh1,200 a square foot, while some of the cheaper residential buildings sell at Dh780 presently. However, those buying should well be looking towards JLT instead, where apartments sell close to original prices at around Dh450 to Dh550 a square foot and an office can be had for Dh750 to Dh800 a square foot these days.

Added advantage

"It is a good time to buy in JLT — residential prices have the potential to go up to Dh700 to Dh800 again in the future," Mirsaeedi points out. "It may not be Dubai Marina, but it has an advantage (in that) there is no risk of losing one's original view, thanks to the way the towers are built in clusters."

And why choose JLT over other mixed-use developments, such as Business Bay which is closer to the city centre? "Business Bay requires a DED licence, JLT is unique being a free zone, freehold development," Mirsaeedi says. "Rents at Business Bay are high as well, averaging Dh120 to Dh150 a square foot, so why pay more for an office in an area which is less established than JLT?"

Price is one aspect, but businesses also take regulations and ease of setting up in a specific area into account. Youssef says that many companies haven't relocated to JLT, because it is a very specialised free zone with restrictions on company activities. "It is limited to trading and commodities, and limited liability companies (LLC) cannot have their headquarters in JLT," he says.

However, Mirsaeedi refutes this point. A distinction has to be made between JLT and DMCC licences. The latter is for companies that wish to trade in precious metals and commodities. Those would operate from one of DMCC's dedicated towers, including AG and AU and Almas, the latter housing Dubai's diamond and pearl exchanges, as well as the Dubai Gems Club and the Dubai Multi Commodities Centre. Anyone who wishes to set up a company outside the DMCC licence remit may do so by registering with DMCC, but under a separate JLT licence. This means that general trading, contracting and holding companies cannot be set up within JLT. "All other activities are approved within JLT, whether it is a branch or a new company, including a LLC," Mirsaeedi says.

However, should the activity be licensed by a third party, an NOC is required from them and there is a special agreement for developers and real estate agents. "Developers and real estate agents need to have been operational in Dubai for at least two years before they can establish a subsidiary in JLT," he adds.

Retail distinction

To clear any confusion regarding retail outlets servicing the community, it's important to highlight that selling — but not as a wholesale activity — is permissible.

"Retail activities do not qualify for the distinction between core and non-core activities, for example a gold jewellery outlet could function under a JLT licence as retail is not considered a trading activity," Mirsaeedi says.

The advantages of opening a business in JLT include 100 per cent ownership and 50-year personal and income tax holidays. Setting up an office is made easy via a ‘one-stop' facility. "Once all documents are submitted, the licence approval should not take more than one to two weeks," Mirsaeedi says.

The cost of registering with DMCC and the JLT licence is around Dh32,000, and the renewal fee of a JLT licence is set at Dh20,010 yearly.

A healthy minimum capital of Dh300,000 is also expected. Once registered with the DMCC, the JLT licence requires the former's property department to approve the fit-out. Not everyone agrees it is smooth sailing.

"It does take time to get all the right approvals and to figure out what is allowed and what is not," says a representative at one company. "We only got approvals when we threatened to move out."

The Metro Influence

Can the Metro reverse the downward trend in office prices?

According to Jones Lang LaSalle's Mena Q2 2009 Dubai Office Market Snapshot, rent decline slowed to 25 per cent during this period compared with 45 per cent in the first quarter, or back to mid-2007 levels. This is good news as it makes Dubai more competitive as a business hub again, taking into account that rents are lower than in Paris, London, Moscow, Delhi, Mumbai and Hong Kong, but still about the same as Singapore's.

But is it enough? "We continue to see investors/developers keeping rents at a sustainable level to allow for development instead of chasing the market down," says Matthew Hammond, head of agency at Jones Lang LaSalle Mena.

"There are, however, fewer tenants willing to commit to these rental levels."

Companies prefer to rent offices that are already fitted out, and the report suggests future stock over the next two years could see office buildings remaining half vacant. JLT alone has a huge supply coming on-line, where at present around 40 per cent of the buildings are completed.

Can the Metro mitigate that trend? Coldwell Banker UAE, the real estate agency, expects offices near the stations to do just that.

"Companies will be willing to pay more for these spaces as they will now be able to save on cost of parking spaces for their employees," says its managing director Hesham Elfar.

"The Metro will also increase confidence in the country - infrastructure is a key aspect in most developed nations as it increases the quality of life."