Location and quality key to office market

Mike Atwell, head of Middle East operations, Cushman & Wakefield, says rent fluctuations will largely depend on location and building calibre.

"I believe quality buildings in quality locations will hold their rental values and enjoy good occupancy levels, but the poorly located properties with poor services or a lack of key infrastructure and tenant requirements will suffer further decline.

"There has not been any significant change in the demand-supply equation in the last few months. Rental decline is still apparent, although at a slower rate [than before]."

Mike hopes the markets will continue to stabilise. "However, the development pipeline will not help the situation as the occupational market will still suffer further. Any revival in the commercial occupational markets will be long-term.

"Prime properties will be the first to recover, and incidentally will not suffer such a fall in values. However, until supply meets demand, there will always be an imbalance, and the rental terms and incentives will reflect that."

Porush Jhunjhunwala, manager, commercial leasing at Better Homes, agrees that rents will depend on location and quality. "Over the past 18 months we have seen rental correction in many projects and locations across Dubai. As we move ahead, any price drops will be a result of location and quality of end-product. We expect some rental correction within the Business Bay area, and for properties between the Trade Centre roundabout and the first interchange rates are still high." Porush also predicts that rents at Jumeirah Lakes Towers (JLT) will remain stable as it's a free-zone area.

Matthew Green, head of research and consultancy, UAE for CB Richard Ellis, says in a downturn there is often a flight to quality, with well managed buildings of higher specification viewed to have greater resilience to the adverse impacts of the market downturn. "We could see a hardening of rents in some of the prime developments, although the first half of the year is likely to be negative for most office products."

According to Landmark Advisory, commercial rents have stabilised in certain areas, but this is only a temporary phenomenon.

"We predict that average commercial leasing rates will continue to decline in 2010 as a natural consequence of the anticipated supply glut materialising," says Jesse Downs, Landmark Advisory's director of research and advisory services.