Wanted! commercial space

Commercial property is the fastest growing real estate sector in the UAE — a reflection of the strong economy.

From hi-tech office towers and glitzy malls to opulent hotel lobbies, the region is witnessing rapid growth in the commercial property sector.

Road diversions, dug-up land sites, the drone of high-powered machinery and innumerable cranes on structures that challenge the skies, the UAE is a country caught in the midst of a construction boom, vowing to build bigger and better than the world has ever seen. The construction is not restricted to Dubai alone — other emirates such as Abu Dhabi, Umm Al Quwain and Fujairah are also jumping into the fray with announcements of multi-million dirham commercial property projects.

"Commercial property is one of the fastest growing real estate sectors in the UAE, driven by the overall growth of the economy. A growing economy, invariably, puts the pressure on commercial space and the UAE is witnessing a strong demand for office space.

Residential property sector, however, is equally robust in the UAE.

In fact, there is a strong link between residential and commercial property growth as both are reflections of economic progress," says an Emaar spokesperson.

Most active real estate market

The UAE has been rated as the most active of all real estate markets in the GCC region. The Global Competitive Report 2004-05 ranking issued by the World Economic Forum, placed UAE among the most competitive countries in the world and a haven for businesses.

Michael Lahyani, managing director, Propertyfinder.ae, says that there is currently more demand for commercial property, relative to availability, than for residential property. "At present most investors are focused on the hot project of the moment — Business Bay. As for the market, it seems likely we will have an oversupply at some point in both commercial and residential property. Helping postpone that day is the fact that new developments are happening in stages; not everything is being delivered at the same time," says Lahyani.

Prices and correction

Most of the data seems to indicate that there might be a small correction for a short period of time, but then the oversupply will be absorbed and the market will kick up again. Prices are rising so quickly that even with a correction, investors in most cases will still be making a profit.

"Also, there are so many companies moving to Dubai, because the government is encouraging large international corporations to establish here. The oil services giant Halliburton has shifted its corporate headquarters from Houston to Dubai, therefore I'm confident that tenants will be on hand to occupy what is being developed," adds Lahyani.

According to Nakheel's spokesperson, Aaron Richardson, the current stock of quality office space in Dubai is relatively limited. "Over the last three years we've seen rates rise by up to 100 per cent.
The rates are about Dh200 per square foot for a top grade office space — this is still not on a par with cities such as London but it is the highest in the MENA region. This is a sign of the lure of Dubai as a destination and how it has established itself as a business hub," he says.

It is important, however, that Dubai does not lose its momentum. "There may currently be a real demand supply imbalance, but there is plenty coming online over the next five years.

Space ahead

In fact Dubai ranks second to Moscow in terms of the amount of commercial floor space being constructed. If there is approximately 30 million square feet of floor space by 2007 in Dubai, by 2010 there will be 86 million square feet. That's a healthy amount, but when you look at the current market and how successfully Dubai is attracting new business to the region with an integrated vision, that much space is required," says Richardson.

Nakheel has a portfolio of projects that spread across more than two billion square feet. "Projects such as The Palm Jebel Ali, Waterfront and The Palm Deira are complete cities and will have tens of millions of square feet of commercial and industrial sectors. In the retail sector alone we will be adding ten million square feet of retail over the coming four years," says Richardson.

What will be available

Dubai-based MAG Group Property Development's current projects are at various stages in the building cycle across the residential, commercial and industrial spectrum. In terms of commercial space MAG's value for money offerings have attracted small to medium size businesses.

The latest MAG projects include the Dh300 million, 27-floor Matex office building at Business Bay overlooking the Burj Dubai Boulevard; the 23-floor MAG 226 residential building in Jumeirah Village valued at Dh115 million and MAG 228A and 228B in phase three of International City with a combined development cost of Dh100 million and consisting of two L-shape buildings of nine floors each. All these projects will be completed by the end of 2009.

"Our property development portfolio in the UAE, has climbed to over Dh3 billion in three years," says Mohammed Nimer, CEO, MAG Group Property Development.

Ominyat's projects

Ominyat's commercial projects in Business Bay include One Business Bay, a freehold commercial tower that is located at the entrance of Business Bay that will be completed by the second quarter of 2008.

The second project is Bayswater, a scissor-shaped 25-storey commercial tower that will be built at a prime waterfront location.

The third is the Binary that will comprise of dual 21 and 25-storey freehold commercial towers, fused at the centre. The Binary is the first to be based on Omniyat's new Oyster concept of office design.
The office tower is currently in the construction phase and is scheduled for completion by the second quarter of 2009.

The Gemini is a freehold commercial project comprising of two distinct 20-storey towers linked by a 15-storey block offering 260,237 square feet of office space. The Gemini is the second tower to be based on the Oyster concept and is scheduled for completion by the third quarter of 2009.

The Opus will be an AAA class commercial tower designed by world-renowned designer and architect Zaha Hadid. Once complete, the building will stand on a two-plot island with panoramic views of the lake on one side and the Burj Dubai on the other.

Emaar's offerings

Emaar has a strong roster of commercial property including the Emaar Business Park and Gold and Diamond Park, which are up and running. Emaar is also developing dedicated commercial space within Downtown Burj Dubai and in the new Dubai Marina Mall complex.

At Downtown Burj Dubai, Emaar has completed the Burj Dubai Square — a dedicated commercial project — which has been handed over to some clients. Emaar also has corporate suites within Burj Dubai.

The Abu Dhabi market

Collier's report on Abu Dhabi's office sector shows growth in spurts between 1978 and 2007. In recent years, growth has not been as dramatic as in the early ‘80s when the supply of office space doubled consecutively in 1982 and 1983. Since 2000, office supply has grown by 50 per cent to a total of 460,000 square metres of gross floor area (GFA). With a spate of projects under construction and planned, Colliers International anticipates that by 2011, existing office space supply will increase by a further 85 per cent to 850,000 square metres of GFA.

According to Colliers, in 2000, there were no destination retail venues in Abu Dhabi. During the intervening period, there has been a notable shift towards the provision of international standard shopping malls, doubling-up as visitor destinations.

The opening of Al Raha Mall and Al Wahda Mall in May and July 2007 respectively increased the existing retail space supply to a total of 172,500 square metres.

In mid-2008, Aldar Properties expects to complete a modern Arabian Souq as part of its flagship Central Market development.

With the addition of this new offering, it is anticipated that traditional modes of downtown retail in Abu Dhabi will change dramatically. 2010 is likely to represent a watershed for retail market performance in the city, with Sorouh Real Estate set to open the Al Reem Mall with 130,000 square metres of GLA (gross lease area) and the Al Yas development adding a further 300,000 square metres of leaseable area.

Hospitality sector

Dubai-based hospitality group Almulla recently launched the world's first Sharia compliant hotel brand portfolio under three core brand names of Cliftonwood, Adham and Wings. The group's strategic plan calls for 30 properties by the end of 2008, with 150 hotels by 2013 with expected total investment of over $2 billion.

"There are a number of individual Sharia compliant hotels throughout the world. However their positioning is usually dictated by the owner, either as an independent hotel, one within a chain or due to the Sharia law of the country where they are situated," says Abdullah M Almulla, Chairman, Almulla Hospitality.

The aim for Almulla Hospitality is to capture the GCC travellers who spend over $12 billion annually on leisure travel. According to the World Tourism Organisation, Saudi Arabia is one of the biggest outbound travel markets in terms of average spend with tourists from the Kingdom spending $6.7 billion annually on overseas travel.
UAE travellers are close behind at more than $ 4.9 billion, an average of $1,700 per trip.

The latest Colliers report states that the limited delivery of new office accommodation over the past few years in Dubai has resulted in a persistent market undersupply, with the result that the market has seen tremendous increases in office rental rates while occupancy rates remain steady at 97 per cent to 99 per cent in most available office buildings.

As is apparent, in contrast to the residential sector, the report appears to be is more bearish about the prospects of the commercial sector.

Despite the collective sentiment that the office sector is currently facing excess demand, by the end of 2009, there will be an increase in total supply from the current 1.6 million square meters to 5.6 million square metres.

However, all signs point towards that fact that the UAE's economic growth and diversity will continue to attract businesses, which will in turn feed the growth of the commercial property market.