Dubai office rents continue ascent

UNABATED DEMAND: Rents will stabilise and reflect true market values as supply increases with completion of new premises, Asteco Property Management said in a report. (Getty Images)

Demand for office space in Dubai continued unabated last year with huge increases in capital values in locations where new buildings are near to completion, a report revealed on Monday.

According to research by Asteco Property Management the city now commands one of the highest global rental yields for commercial premises, ranging from 17-18%.

Rent for office space increased by about 5% on average over the last quarter, with Sheikh Zayed Road and Oud Metha seeing surges of 6 and 12% respectively, the report said.

Office rentals increased 44% from 2006, with occupancy rates continuing to hover between 97-99%.

“The price increases reflect the fact that Dubai’s commercial sector has almost no liquid secondary market at present”, Asteco director of research valuation and consultancy John Allen said in a statement, adding;

"The limited delivery of new office accommodation over the past few years has resulted in a persistent market undersupply, resulting in strong increases in office rental rates and sales prices”.

Commercial units will witness another surge as these buildings near completion next year, said Allen.

"We believe that there will be another spike in office rental and sales prices this year too. This is because people are willing to pay higher prices for a tangible asset, as opposed to a concept design” he said.

Construction delays are likely to create shortfall of approximately 18 million square feet of office space supply next year, the report continued, with 29% of supply expected to come from the Business Bay development.

As the final touches are added to new premises, the market will change in favour of those wishing to lease space, Allen said.

“We would imagine that landlords will become more competitive as the supply increases” he said. “We expect to see more high quality finishes being offered and offices tailored to suit tenants’ requirements.

More importantly for businesses, rents will stabilise and reflect true market values”.

New ‘green rules’ will also impact the commercial property market in 2008, Asteco said.

"Contractors are now being requested to adhere to the new standards to ensure a healthy and environment-friendly lifestyle in the UAE," said Allen.

"Although in the long-term this will help promote a better quality of life, in the short-term it will involve an increase in construction prices."

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