Office rents could surge 60% in '08

UNDER SUPPLY: The amount of Dubai real estate available for office and commercial activities will need to increase by 325% to meet demand this year. (Getty Images)

A massive undersupply in Dubai office space could see rental prices surge as much as 60% this year as demand for commercial property increases across the emirate, according to property portal Gowealthy.

Gowealthy estimated the amount of real estate available for office and commercial activities would need to increase by 325% to meet demand this year, UAE daily Emirates Business 24/7 reported on Monday.

Peter Penhall, CEO of Gowealthy, said the increase in commercial leasing costs was based on simple supply and demand.

“Currently the city has 1.72 million square feet of commercial space, but another 7.29 million square feet is needed to keep up with demand. Costs will escalate due to the shortage of office space,” Penhall said.

Leasing charges are the highest in the Sheikh Zayed Road area at $304 per square metre, followed by Dubai Media City at $188 per square metre, he said.

Another factor pushing up lease prices is the booming revenues and profits of large companies in the region, meaning firms can afford to pay inflated rental prices.

“Most primary buyers have the capacity and cash flows to cope with rising costs but this may put pressure on small and medium-size businesses,” said Penhall.

Asteco Property Management said last month Dubai now commanded one of the highest global rental yields for commercial premises, ranging from 17-18%.

Research by Asteco found office space rents increased by about 5% on average over the last quarter, with Sheikh Zayed Road and Oud Metha seeing surges of 6% and 12% respectively.

John Allen, director of Asteco, said Dubai office rentals increased 44% from 2006, with occupancy rates continuing to hover between 97-99%.

Commercial units would also witness another price surge as these buildings near completion in 2008, he said.

Construction delays were likely to create shortfall of approximately 18 million square feet of office space supply in 2009, with 29% of supply expected to come from the Business Bay development, he added.

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