Dubai's booming market demands more office space

The success of Dubai's economy is putting a strain on the supply of office space, pushing up prices even as the construction sector brings more business developments onto the market.

Over the past two years, rental costs for office space in Dubai have more than doubled, with top-end business accommodation now going for $109 per square feet, up from less than $50 in May 2005. Occupancy rates are currently around 98%, with available spaces being snapped up as soon as they come on the market.

According to Nicholas Maclean, the regional managing director for commercial property broker CB Richard Ellis Group, there is a desperate shortage of prime office space in Dubai.

"There is no available space for several large-scale international office requirements we have from companies wishing to enter the Dubai market," said Maclean in a recent interview with the press.

Such is the demand that some firms have signed leases for office spaces in buildings that won't be completed for another two years, he said, and are having to operate out of neighbouring emirates until space becomes available.

One of Dubai's newer business hubs, the Dubai International Financial Centre (DIFC), recently announced it has rented out the last of its office space, with 360 firms having signed on to operate out of the complex. The DIFC is a mixed-use residential and commercial complex that is expected to be completed at the end of 2008.

According to recent studies, up to 4.74 million square metres of office space will be added to the existing stock by the end of 2010. While this may seem like overkill it should be remembered that Dubai is attracting some significant names in the business world, quite apart from the high profile shift by oil industry services firm Halliburton, which announced earlier this year it was going to move its headquarters to the emirate.

One factor contributing to the shortage of office space is the high demand for construction services throughout the economy. Projects for new office accommodation have to compete with the retail and commercial, tourism, residential and infrastructure sectors for everything from building supplies to labour. This competition has pushed up construction costs dramatically also fuelling rent increases.

In particular, the stretching of the construction industry's resources has meant that infrastructure work needed for professional office developments has lagged behind in some cases, slowing the provision of new office space.

Spiralling rents and the growing trend of companies to establish offices in Dubai to take advantage of the emirate's ongoing economic boom have spawned an increasing interest in outright ownership of professional business spaces.

The trend towards ownership rather than renting has been fostered by the liberalisation of Dubai's property laws, especially in the rapidly developing free trade zones, allowing for freehold ownership.

Shahram Abdullah Zadeh, CEO of Al Fajer Properties, says that with the booming commercial property market in Dubai, expenditure on rent is cutting into the profit margins of companies.

"Therefore, there is an enormous appetite among the business community in Dubai to invest in an office space of their own, particularly with the continuously rising rents, as it allows them acquisition of an asset class which can maximise returns," he said in an interview with the local press on April 3.

To help bridge the gap between supply and demand, Al Fajer has just announced it will add an additional 223,000 square metres to the 288,000 square metres of property it is developing at the Jumeirah Business Centre, with 75% of the total being devoted to office space, and offering long-term mortgage facilities to buyers.

On April 4, leading developer DAMAC Properties announced it would construct a third office tower at Business Bay, Dubai, yet another of the emirate's professional hubs, after having all but filled the first two developments.

While there have been suggestions that Dubai's property market could undergo a period of correction, or at least an easing of demand, there appears little sign of this in regard to office space. With long waiting lists for prime professional suites, the domestic economy expanding at a healthy rate and overseas investors lining up to be a part of the Dubai miracle, office space will remain at a premium in the short term.

(C) Oxford Business Group - www.oxfordbusinessgroup.com

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