Demand seen growing for Dubai office space

A ten-fold increase in active and potential demand for office space has been seen in Dubai over the past six months, reflecting improved sentiment in the market, Jones Lang Lasalle has revealed.

In its October analysis, the real estate specialists said tenant and occupier sentiment had now reached a “tipping point” with many recognising that favourable market conditions give them the opportunity to snap up a bargain.

It estimated that demand in Dubai currently stood at more than 1.5 million sq ft, a huge increase over April’s figure and three times that in October 2008.

“Though improved sentiment has yet to result in a significant increase in signed leasing activity, Jones Lang Lasalle expects this to occur within the next six to 12 months,” the company added.

Most of the new demand was for units of less than 20,000 sq ft, the report noted, although active inquiries had also been made for much larger offices.

JLL said that the recovery in demand for commercial property would be “uneven rather than uniform” with clear winners and losers in a market focused on location and quality.

“Despite increasing vacancy rates, a shortage of such stock is likely to remain,” the JLL report added.

“There is clear evidence that the weight of transactions has increased over Q3 and we forsee a continuation of this trend moving forward,” JLL said.

The report said that the improved sentiment seen in recent months had been driven by better business confidence in the region and the dramatic drops in average rental values in the Middle East and particularly in Dubai.

A JLL analysis of office rents in the region showed that the cost of renting commercial space in Dubai during the third quarter of 2009 had fallen by more than 50 percent, compared to the peak prices last year. Only Moscow had seen greater drops, the company said.

The company said owners may be tempted to offer rent-free periods to tenants to encourage them to take the space. It added: “We expect strengthening tenant and occupier demand to convert into increased investor demand later in 2010.”

Last week, investment bank Nomura said the UAE needed to create at least 150,000 white-collar jobs to absorb the amount of commercial real estate expected to hit the market in the next two years.

Dubai and Abu Dhabi need to create at least 100,000 and 50,000 white-collar jobs, respectively, to satisfy future supply of commercial real estate in the two emirates, the investment bank said in a note to investors.