Dubai to scale new commercial heights

Dubai, a city of tall towers and even taller ambitions, could soon become the most expensive commercial real estate location in the world.

Does that claim sound outlandish? It's not.

Recent reports already place the emirate sixth on a list of the world's costliest office space cities behind commercial big-hitters London, Moscow, Hong Kong, Tokyo and Mumbai.

In London, currently the world's most expensive location, investors are becoming timid as they sit out the effects of a global credit crunch. Gloomy financial forecasts and belt-tightening measures have contributed to plummeting commercial property values with the latest figures pegging a 20 per cent decline in value and dark rumblings in the financial press that more bad news is on its way.

After more than a decade of good years, with positive returns, it looks like this wintertime could herald a number of barren years for the English capital.

Meanwhile in the shiny, optimistic skyscrapers of Dubai, where the sun always shines, the sky is quite literally the limit when it comes to real estate. Voracious demand for office space is forcing prices through the roof and supply lags years behind.

It's possible that spiralling costs may deter companies from setting up larger headquarter type offices in Dubai, prompting instead the setting-up of smaller, representative arms of businesses giving investors a presence in the Middle East, but not a head office.

It's hard to see prices coming back down to earth much before 2012, but what happens after that is the big question for the UAE right now.

As of today, Dubai has around 19.1 million square feet of office space which boasts an incredible 98 per cent occupancy rate. Of the commercial property that is sold, most is snapped up off-plan as developers strive to keep up with demand.

Between now and 2012, 75.8 million more square feet will enter the market. With more commercial property finally available in the UAE, it will be interesting to see what happens to prices both here and abroad.

London's Olympic Games could be a much-needed shot in the arm for commercial property values in the UK in the run-up to 2012, while places like Singapore and Mumbai will be aiming to steal a slice of Dubai's booming real estate action. But on the other hand there can't be many places in the world with as much development planned as Dubai in particular and the UAE in general.

It would be a very fussy investor who couldn't find something that ticks all their boxes amid Dubai's myriad of imaginative commercial developments. Dubai International Financial Centre, Business Bay, Burj Dubai complex - all these places have been designed to tempt companies to set up shop in Dubai.

Yes, the cost of building supplies will continue to increase as the global market experiences a slow-down, and that may push prices up even further. It could also affect building schedules here, but a quick flick through the raft of mixed-use and office specific developments announced almost daily in the UAE gives some indication of the buoyant optimism in the market here.

Inflation was pegged at 11.3 per cent at the end of 2007, while rent rose by 17.5 per cent. But instead of being a prohibiting factor, these spiralling costs have not seen a slow-down in the property market in 2008.

According to a recent market study, Dubai has seen a 136 per cent increase in property sales in the first-half of the year and there seems to be no sign of this changing at present.

It feels slightly unsatisfying to say 'wait and see' when it comes to the long-term forecast for commercial property prices in the UAE, but in the current climate that's all we can do.

The writer is managing director of Better Homes.