Dubai: The offices at JLT (Jumeirah Lake Towers) are proving a top draw for price-conscious businesses seeking a permanent address, while Business Bay continues to build up a profile as the go-to prime commercial destination. The situation in Dubai’s office market space is also being helped by the limited new capacities being created, and even then only from master-developers in established locations.
All of which is coming in handy to nurse a property category that saw a 50 per cent decline in sales activity since the peak in 2013, states the latest Reidin-GCP report. Local developers have responded by slicing up the floor plates to offer smaller office space, and businesses seem to be finding it to their liking.
“In 2010, if 23 per cent of office sales were below 1,000 square feet, in 2016 this has nearly doubled,” said Sameer Lakhani, Managing Director of Global Capital Partners. “This clearly shows that there has been a greater preference for smaller plate sizes, which is in consonance with SME (small-to-medium enterprise) formation.
“The argument for larger plates has been in the ecosystem for a while now and this has been something that JLT also catered to with One JLT as well as their upcoming Burj 2020 tower. Business Bay clearly has more flexibility as it has more to build out.
“But in both cases there has been a preference for “bespoke” office buildings, and this is now being addressed in upcoming areas such as Majan, Meydan, Arjan and DWC (Dubai World Central.”
Office sales values dropped 13 per cent between June 2014 and Feb 2016 in Dubai, while that for residential properties was an average 17 per cent.
The last year and a half has seen Dubai — and Abu Dhabi — office lease rates and demand come under pressure, and extremely so during the second-half of 2016 for sectors reliant on oil and gas and allied services. Also affected were older areas in the city, as well as office properties/buildings that are showing their age.
But for office landlords/investors in Dubai, the last four years continue to offer a net plus. Across Dubai, commercial rents are still up 24 per cent between 2012-16, while for Deira — the city’s traditional commercial hub — it was a plus 19 per cent. For the JLT cluster, the gains in these four years translates into 49 per cent.
“JLT seems to be the clear winner — there are a number of reasons for this which include its free zone jurisdiction, the changing business environment geographically as well as better infrastructure,” said Lakhani. “It is likely that older areas will gradually see an erosion of rents as newer office districts come to fruition.”
But the DIFC cluster still remains the priciest office location, commanding an average of Dh196 per square foot, while Tecom’s would be Dh160.
“It will always be the case that free zone rents will be higher than non free zone jurisdictions,” said Lakhani. “This is because there is clearly a premium that is paid for certain category of licences. Outside of the DIFC, this is most seen with the burgeoning eCommerce sector.”
Apart from their being fewer new office launches, of the projects underway, the completion rate in each of the last two years was below 50 per cent, and “similar to the trend witnessed in the residential space,” states the Reidin-GCP report. “But in 2014, the realised supply exceeded what was estimated by analysts, indicating yet again the flaw in estimates that did not account for the backlog of projects coming to completion. This is a trend that is expected to continue.”
This year, expectations are for new office handovers to add 750,000 square feet and another 450,000 in the next. “These supply figures will likely be lower given the historical trend; however, we expect realisation rates to ratchet higher in 2019 and 2020 as an increasing number of projects come to completion,” the report adds.
Factbox: Market correction gives time for office market to settle down
* Much of the oversupply that was there in Dubai’s office market has been taken up. And the situation is also changing with respect to a flood of multiple strata titles in office properties. “There has been demand for single strata buildings, this will likely be supplied and will pave the way for commercial Reits (real estate investment trusts) to set up in the next few years,” said Sameer Lakhani of Global Capital Partners.
* Apart from Business Bay and the Tecom-promoted zones, an office location for the future is Dubai South, which will have a dedicated office cluster. There will be office blocks in parts of Dubailand, and these too will develop over time.