Property | UAE
Corporate tenants waiting for Dubai's rental market to head even lower
In what is fast becoming an occupiers’ marketplace, corporate tenants on the lookout for new premises in Dubai have already started rejecting the rental rates that are being offered now.
- Manoj Nair, Editor
- Published: 10:05 August 18, 2009
- Image Credit: Shutterstock
They believe, and with a good deal of justification on their part, that these are just the exploratory rates being put up by the landlords more in hope than expectation, and that hard bargaining could bring them down even further.
Market watchers affirm that the pace has been slow going for the leasing programmes on recently completed commercial towers in Business Bay and Jumeirah Lakes Towers. Of course, it can be said the onset of summer could have influenced the process, as well as the general uncertainty in the commercial marketplace. Even then, the perception that there is more to the reduced uptake of new office space is entrenching itself.
Robin Teh, valuations and research director at Chesterton International, gives voice to this: “As such there are only a limited number of corporate tenants looking to shift to new premises even at the quite favourable terms that are on offer. They realise that a substantial amount of office stock is going to be ready over the next few months and this could bring additional pressure to bear on the rates on offer.
“Their contention is that the bottom is yet to come in commercial rents, and they could well be right.”
Risky strategy
If this scenario comes to pass, how much more will landlords be able to give? At some point, landlords have to decide whether it makes more business sense for them to stick to their rates and expect the market to pick sooner rather than later.
The risk with this strategy is that a significant number of commercial towers will be hitting the market more or less at the same time. Even if the landlords of some of these towers are willing to quote lower rates, this would leave the others with little room to manoeuvre.
“As of now, towers in Jumeirah Lakes Towers stand a better chance of attracting a tenant’s interest than, say, in Business Bay because of the much advanced stage of their infrastructure works,” Teh says.
“Corporate tenants are becoming even more finicky about costs these days and any impression that rates, including those for service and maintenance are high, will be detrimental to the landlords’ chances of filling up their properties.”
The possible trend
The new office stock will also have to compete with businesses who would rather stick to their existing premises if they are sure of negotiating a better deal for themselves rather than incur the additional cost of relocating to a new place. However, Michael Atwell, regional head at Cushman & Wakefield, reckons that new developments will get more than a look in.
“We expect to see an increase in the number of tenants who will vacate older, poorly constructed buildings in favour of newly completed buildings of better quality, which are often available at lower rents,” he says.
“There will be a flight to quality, with an increase in vacancy among Grade B offices, both new and existing, forcing landlords to look at potential refurbishment and redevelopment scenarios plus increased leasing incentive packages. The softening of the office market has created a number of different dynamics.”
Landlords who are starting out on their leasing programmes for all those new commercial towers will take a lot of heart from Atwell’s projections. Now, only if potential tenants started thinking along similar lines.
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