Dubai office vacancies to top 50% over next 12 months

Monday, 11 April 2011 12:25 PM

Vacancy rates in Dubai commercial property are continuing to rise, and should go past the 50 percent mark within the next year, according to Jones Lang LaSalle (JLL) (Getty Images)

Vacancy rates in Dubai commercial property are continuing to rise, and should go past the 50 percent mark within the next year, according to Jones Lang LaSalle (JLL).

The real estate consultancy’s first-quarter report put the current office vacancy rate at 44 percent, although this differs considerably by area.

Central business district vacancy rates are sitting at around 27 percent, with rents there remaining unchanged. Elsewhere, commercial rents dropped by around 1 percent.

Capital values of office stock have slipped 16 percent year-on-year, and one percent quarter-on-quarter.

Although JLL noted that regional unrest could boost interest in Dubai’s office sector –although there was no evidence of this in the first quarter - a further 14m square foot of space is scheduled to be added to the market this year.

Last year, the firm warned that higher vacancy rates could lead to some office units being mothballed or demolished.

On the residential side, the agency said that average apartment and villa rents in Dubai had dropped by two percent quarter-on-quarter. However, villa rents in high-end locations such as the Palm Jumeirah have stayed stable.

JLL said that prices would continue to decline over the course of 2011, although improved lending would help buoy the market to an extent. Another 20,000 units are expected to come online in Dubai this year, adding to the 7,900 units that were added in the first quarter.

Average rental values in the retail sector dropped by nine percent quarter-on-quarter, with rents in the older or more poorly performing centres falling the most. JLL said that the rates in the larger malls were typically as much as 40 percent higher than elsewhere.

On the hospitality front, the consultancy said that Dubai hotels witnessed an average of 82 percent occupancy during the first quarter - slightly down from the 86 percent high in 2008 – helped by increasing tourism numbers.

On Sunday, Cluttons’ first-quarter report stated that residential property prices in Dubai were continuing to slide, highlighting a growing gap between the values of villas and apartments.

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Posted by: Mike Monday, 18 April 2011 9:54 AM[UAE] - UAE

Agree with Simon that we have wayyy further to drop.

Real estate analysts never seem to get the story straight, and focus on the wrong dynamic of "supply" and "demand" as if there were rational actors in the market. Irrational landlords accept zero dirham vs. any dirham, and don't rent properties out because they don't want to be embarrassed to their friends that they got such a low rate locked in for two years. They can accept zero dirham because banks allowed them to put down zero dirham. The irrational behavior seems, to the landlord, therefore rational.

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Posted by: Kaptain Saif Monday, 11 April 2011 2:01 PM[UAE] - Saudi Arabia

The best part was, "..Last year, the firm warned that higher vacancy rates could lead to some office units being mothballed or demolished.."

Posted by: Simon Sunday, 17 April 2011 9:05 PM[UAE] - Dubai

Kaptain...i was wrong...buildings are to be demolished...as per The National:

Dubai Municipality has identified over 400 buildings in the emirate for possible demolition, The National has reported. The buildings have been labelled as dangerous, poorly maintained or abandoned, Omar Mohammed Abdulrahman, head of inspections at the municipality's buildings department, said. "This figure [400] is too high and that is why we must take immediate action," Abdulrahman said. Once notified, owners of the buildings involved will be given six months to demolish, restore or complete construction of their properties.

Posted by: telcoguy Monday, 11 April 2011 3:42 PM[UAE] - UAE

I have been expecting this to happen for over one year now. I wonder when this happens what will be the compensation criteria and how buildings will be chosen.

Posted by: Simon Monday, 11 April 2011 3:36 PM[UAE] - Dubai

Thats not quite accurate KS.

Someone in their organisation 'suggested', as a solution to high vacancy rates, that some office developements should be mothballed/demolished. But what do we see today? Many. many developments being mothballed/cancelled. Demolishment was an extreme and a strange comment by them last year...but...their lesser extreme comment has come to fruition.

Dubai property market has wayyyy further to drop from where it is today. Things only look 'cheap' compared to their highs. My observation is that prices and rents have a lot further to fall. People/Investors should wait another 2yrs to really see where prices are headed. They are NOT headed upwards...lets put it that way!

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