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.