Dubai freezone office rates fall by up to 63%

Property report says weak demand, rising supply are hitting lease rates hard.

Lease rates for offices in some of Dubai's freezone areas have fallen by as much as 63 percent year-on-year, a new report from CB Richard Ellis Middle East said on Tuesday.

Freezones which offer benefits including 100 percent repatriation of capital and profits, multi-year leases, and assistance in labour recruitment have seen demand for office space slump during the global crisis, the report added.

Following the success of freezones such as TECOM and Jebel Ali resulted in the emergence of new freezones at Dubai International Financial Centre (DIFC), Jumeirah Lake Towers, Dubai Healthcare City and Dubai Silicon Oasis but these are now struggling as demand continues to drop and new units come on to the market, CB Richard Ellis said.

The research company said in the last nine months it had seen "a notable drop in lease rates" for Dubai's freezones.

"Decline has been felt the most in the emerging new freezone areas of Jumeriah Lakes Towers and Dubai Silicon Oasis, which have suffered heavy drop in price since the beginning of this year," the report added.

The drop in sales rates has seen individual owners extending holding periods and frequently opting to lease their properties rather than looking to sell, it said.

On average, rents in JLT have fallen from AED240-280 per sq ft in the third quarter of 2008 to a current rate of AED70-120 per sq ft.

The report said that a huge increase in available office space - from about 2.5m sq ft in Q3 2008 to 5.2m sq ft - had resulted in weak demand and a drop in lease rates of 63 percent.

Other developments to have also witnessed a sharp drop in lease rates, CB Richard Ellis said, with office space from private developers in Dubai Silicon Oasis typically being offered at AED50-80 per sq ft while in TECOM the rents are in the range of AED85-130 per sq ft.

The highest office lease rates among the freezones are in the DIFC where rates are in the range of AED280-325 per sq ft.

"During the remainder of the year and into 2010 we expect the leasing market in these areas to remain sluggish, largely due to additional pipeline stock expected to enter from freezone developments as well as non-freezone areas such as Business Bay development," the report said.

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Posted by: Ahmad Ismail

Rules are just not clear on who can and who can?t get a license. I clearly sent an e-mail to DMCC saying that I do not think the company I work for can get an office space in DMCC due to the fact that it already has a Dubai trade license. Yet, the reply was that I could and was asked to refer to their very complicated application !! Too bad that all the office space available there will take a very long time to get rented out. I assume it is only a matter of time before DMCC start accepting DED (Dubai Economic department) license. Same is already happening at the Tcom/media city in selected towers.

Posted by: James

DMCC is receiving hundreds of inquiries a week and licensing around 60 companies a month. All of these companies have to have offices in JLT and several are looking to accomodate 100s of employees. The procedures and costs are in line with other free zones and are continuously being revised and improved. JLT by early 2010 will have plenty of shops and supermarkets that are in the process of setting up now. JLT like any other free zone does not allow companies who are not licensed to locate in it. This is to do with being able to regulate the free zone for the good of the whole area. Many towers are filling up now and this will increase in weeks to come. JLT is a fantastic location and will grow into an ideal community. DMCCA is a forward thinking body with a hands on approach. Good luck to you all.

Posted by: Ranjani

We own an office unit in TECOM Executive Heights and despite registering it for rent/sale with several real estate agencies, we have had no enquiries. SCC and James Bernard were the only ones who had something promising to say about the Free Zone Areas. Request them to please put me in touch with some prospective tenants/ buyers.

Posted by: Greer

Omar - very well said! An excellent post. Dubai growth has to a large extent been on the backs of artificially inflated values in many sectors, but have faith, I am certain things will improve. In order to maintain sustainable growth into the future, there has to be a realisation that ripping off businesses, tourists, and anyone else who can be trapped and manipulated is not going to guarantee your life for next year or the one after that. Dubai has many good honest businesses with a solid base upon which to grow, but real estate was an expanding bubble that eventually had to pop!

Posted by: Andy

I had some apartment units in Saba Tower II in JLT and the fees that they were charging for the community were beyond crazy. This is part of the reason people just started selling. The other reason was the cost of licensing fees and permit fees (If you ever got them or were approved) were also beyond crazy. The high rents, high fees and hassles turned everyone off and sent prices tumbling in JLT. This was bound to happen due to greed in the local fees that the municipality was charging owners and renters who either lived there or wished to do business there. In Singapore,Hong-Kong and Taiwan one does not need to pay these absurd fees. Give them time and they may learn.

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