Dubai: More landlords in the UAE are giving tenants at their retail and office properties rent deferments and even full-scale lease renegotiations to help them through the COVID-19 crisis. Even those landlords who had held back from doing anything last year are more willing to come to the negotiating tables.
“Existing tenants are being given the opportunity to scale down their premises until market conditions improve,” said Zain Qureshi, Managing Director and Global Head of Real Estate Finance and Advisory at Mashreq Bank. “With businesses across the UAE coming under increased financial stress from a fall in revenues caused by the pandemic, occupiers are seeking more value out of their properties.”
If so, it’s a case of belated wisdom. A majority of retail landlords, including mall owners, were offering rent deferments last year only for the period when commercial activity was brought to a halt to combat the spread of the virus. Calls from tenants to waive off rents until end of 2020 were by and large dismissed outright.
A gradual recovery
But by now, businesses and landlords have realized that a quick recovery for all is a mirage. Office tenants are seeking “greater flexibility in their leases, particularly to allow for hybrid working, increased collaborative spaces and a generally enhanced offering,” according to a new report from Mashreq.
What this means is that tenants want to achieve these amidst a lower rental outgo – and they expect their landlords to accommodate this. “While businesses are returning to their physical workplaces, the pandemic has served as an opportunity to reassess the amount of real estate they need… and whether a combination of remote and physical working better suits their business model,” said Qureshi.
“The growing demand for flexible workspace is also being driven by freelance workers, start-ups and even some established firms seeking short-term solutions due to the uncertain market conditions. Co-working or shared spaces is foreseen as a trend that will continue to grow, buoyed by supportive initiatives by the government.”
According to a new report from Asteco, office rents in Dubai continued with quarterly and annual drops - of 3 per cent and 18 per cent - in line with “stunted employment/business growth and the continued uncertainty regarding the speed of economic recovery”.
Red carpet treatment
While existing tenants are given a chance for rent deferment, new or prospective ones are being wooed with a whole set of options. “We’ve seen certain situations, especially in new office buildings, where landlords have reserved spaces for a defined period of time, to allow prospective tenants to expand into these reserved, adjacent spaces once conditions improve,” said Qureshi. ”This incentive is over and above more typical rent-free periods and fit-out contributions.”
Flexible spacing and co-working options could be the next big thing for commercial real estate in Dubai. The supply of flexible office in Dubai has been growing at 20 per cent annually and was around 1.6 million square feet at the end of last year. This supply should see increases at a greater speed, as business tenants apprise what they actually need in terms of space.
“Many companies, start-ups and freelancers want to avoid being locked into leases and find co-working spaces as a suitable alternative for the foreseeable future,” added Qureshi. “Initiatives such as freelance and remote-working visas in Dubai are further supporting this trend.”