Construction delays spark mad rush for office space in Dubai
Companies on the hunt for office space in Dubai are resorting to temporary accommodation, low-grade offices or space in villas and hotels as the emirate struggles to cope with demand for new commercial property.
Market analysts say the commercial vacancy rate in Dubai is just one per cent in both traditional and newer areas of the emirate.
They blame construction delays, which have led to only 20 per cent of expected supply being delivered over the last two years, coupled with Dubais popularity as a financial and business hub.
The results are a 40 per cent increase in office rents this year - making Dubai one of the world's most expensive business cities - as well as frustration for companies establishing or expanding their local headquarters.
"Companies are operating out of any space they can find, even hotels," said Behrouz Javaheri, chairman of Saba Properties JLT, which is launching a new office tower in Jumeirah Lakes Towers (JLT) - its fourth project in the Dubai master development.
"This is having a negative impact on the growth of the economy. If you have a hard time finding space, it will delay the progress of your business."
A report on Dubai's real estate sector by regional investment bank EFG-Hermes said finding office space in the emirate remains 'arduous'.
It stated that companies are settling for less desirable locations, renting temporary space in villas, setting up branches or smaller offices or buying rather than leasing office space.
According to the bank's estimates, office and commercial rents in Old Dubai (Garhoud, Bur Dubai and parts of Shaikh Zayed Road) have risen 36 per cent on an average during the year to date (YTD).
In new Dubai (Shaikh Zayed Road, DIFC, Business Bay, JLT, Internet and Media City), rents have risen by almost 45 per cent YTD. More luxurious grade A properties in both areas has jumped by around 35 per cent on average, the report said.
"Dubai is fast becoming one of the most expensive business cities globally, with an average rent of $89 per square foot. This compares to $97 in Hong Kong, $112 in Paris and $120 in Moscow," it stated.
Meanwhile, selling prices at off-plan developments in the DIFC, Burj Dubai and offices in JLT have risen approximately 17 per cent over the past eight months, due partly to expectations of strong yields based on current off-plan prices and expected future rents, EFG-Hermes said.
It stated: "While prices for freehold commercial space have risen, selling prices remain at the bottom end among business cities, coming in at an average of about $400 per square foot, resulting in rental yields of around 20 per cent, compared to a global average of six-seven per cent."
EFG-Hermes says rents will continue to rise in the short-term, due mainly to construction delays holding up most of the 7.3 million square feet expected to hit the market this year.
Both EFG-Hermes and property services company Asteco painted a more encouraging long-term picture. Asteco expects supply to surge in 2008 and 2009 and anticipates supply of more than 50 million square feet of office space by the end of the decade.
The report added: "Most of the commercial space additions are expected to hit the market in 2008 and 2009 and we expect to see a marked decline in rents. As a result, we expect to see Dubai commercial property yields sliding back gradually toward the international average."
Spiralling out of control
Office and commercial rents in Old Dubai (Garhoud, Bur Dubai and parts of Shaikh Zayed Road) have risen 36 per cent on an average during the year to date (YTD).
In new Dubai (Shaikh Zayed Road, DIFC, Business Bay, JLT, Internet and Media City), rents have risen by almost 45 per cent YTD.