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Office rents to fall in Dubai

DUBAI — Once the vast quantity of office space under construction in Dubai comes onto the market, office tenants can look forward to a decrease in rents and a greater number of location choices, believes Colliers International, a global real estate consultant.

The volume and timing of forthcoming supply is also expected to shift the market in favour of the tenant and away from the landlord over the next one to five years. Attractive rental price and payment terms, increased rent-free periods and equitable lease conditions, together with improved finishing levels, are expected.

Regional director of Colliers International, Ian Albert, said: "Despite strong latent demand for office space, the sheer volume under construction combined with the period of delivery will have a marked impact on the competition between landlords, with a concurrent softening of rental levels and a greater number of tenant incentives on offer."

In the company's Global Office Real Estate Review 2007, Dubai is ranked third in terms of global office real estate construction activity, behind Moscow and Shanghai. The emirate has in excess of 27 million square feet of confirmed activity under construction - nearly double the existing central business district (CBD) inventory of 15.86 million square feet.

"To put that in perspective, that's approximately the same amount of office space as Geneva, Rio de Janeiro, Beijing and Singapore," said Albert.

Colliers also believe that current high demand and low availability of stock, means that rental levels being achieved in some of the established locations are being inflated as tenants bid for space.

"Prime locations such as Shaikh Zayed Road and DIFC still retain a premium. But there is a lack of price distinction between areas that would have previously taken into account location desirability in their rental rates, as tenants vie for available space," Albert said.

At present, Dubai's prime commercial property rents are still on the rise, with rents in Dubai's CBD offices registering steady increases over the past nine months. According to the Global Review, leases on high-end (Class A) and premium (Top Class A) space are achieving rents between $62 and $83 per square foot per annum respectively — up from $48 and $60 for the same in June 2006.

Despite these considerable rental increases, Dubai is still significantly less expensive than London, Hong Kong, Tokyo, Moscow, Paris, Dublin, New York and both Mumbai and Delhi, and ranks 13th in Colliers' Global Survey of the top 25 Office Occupancy Cost destinations.

Increased competition will also force landlords to reassess their investment objectives in the future, said the Colliers statement. It advises that a thorough identification of risks and opportunities should be a major factor in any investment decision-making process.