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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.
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Comments 1-10 of 10
Posted by SR on 1 November 2009 at 21:42 UAE time
Yes, but you forgot that oil is priced in USD!!!
Posted by Petroman on 1 November 2009 at 15:27 UAE time
If glaobal economies pick up the price of oil will go up the regional economy will also heat up. If the price of oil goes super high due to global economies growing super fast then this region will again super heat. No need to be a Doctor to figure this out !
On the flip side, if oil global economies don't pick up oil will stay low so will the economies here and gold will go up. Simple !
Posted by Dod, Dubai on 1 November 2009 at 13:12 UAE time
Jeremy,
The guys below are commenting a prediction that it will take until 2020 for the over supply of offices to be finished (hence rents can recover). That doesn't mean businesses in general cannot be profitable - actually cheaper rents will bring down costs and help (non-real estate) business profits
Posted by Jeremy on 1 November 2009 at 11:28 UAE time
One way to double check what most people who do not believe the tide will turn before 2020 is to find out whether they have used the same no growth percentages into their business or professional growth plans e.g. not expecting any pay raises, promotions, or revenue/profit growth. Plus with belief in such a bleak outlook for a decade, I wonder why some people are still in Dubai & not move back to better economies of the world ?
Posted by His Excellency Dr Paul, Dubai, UAE on 1 November 2009 at 11:21 UAE time
How much of the demand is smaller businesses like mine looking to move?
We can get a 50% rent reduction by moving from DIC to a private TECOM building. It's a no brainer, but it does not indicate the improvement JLL are suggesting, it indicates simply that falling prices will give companies a big incentive to start looking around to get savings.
Posted by Jim Morisson on 1 November 2009 at 10:37 UAE time
Let us assume that the global economy is actually recovering now that the US has posted positive growth in third quarter. Let us also assume that the recovery will lead to improved sentiment in the region and business activity will follow the global trend. Let us also assume that the increase activity will result in a higher demand for office space in Dubai due to start up venture and exisiting companies expanding (three pretty big assumptions).
Even after all this, the new demand generated at best may replace the forgone demand from the real estate sector that comprised a significant portion of Dubai's GDP in the past few years and has now become (and will remain for the next decade or so) almost non existant. Meaning all the developments in Business Bay, DIFC, JLT, and TECOM have to draw from almost the same demand pool in 2008. Most likely, these new properties will reach about 70% occupancy within the first two years of their operation and stabilize around there (As companies trade up from Grade B, or C to Grade "A" if you can call them that). However the overall demand will not be anywhere near the supply pipeline. Meaning, the rents will go down, and will stay there until vacancy rates drop below 20%. So yeah, 2020ish sounds about right to me.
Posted by Diane on 1 November 2009 at 10:04 UAE time
Well if Dubai is just a tiny dot on the global scene then why are all of us including some of our very respected colleagues from the major economies wasting our time here and not go and be part of the bigger dots on the globe where everything is world class ?? obviously something is working in Dubai. May be it's the tax free dollars in coming in my pocket ?
If Dubai has made the tax free model work for decades and managed to attract and retain superstars like us that just proves the economy here works very different to the big global centres. So let's stop comparing it to whereever we have come here from and look at what works here.
Bu the way no economist predicted a 100% increase in the price of oil during this year. Last time I checked oil is trading at aroung $80 !
Posted by Hew, Dubai, UAE on 1 November 2009 at 08:59 UAE time
I am in agreeance with all those stating that the article is totally unrealistic. Having lived in Dubai for several years it's incredible to still see both the false spin and those who believe it. Dubai is still a tiny dot on the global map but many believe its significance far exceeds this. I have a good friend who works for a very large and well known family company in Dubai. He's specialised in office rentals for many years, both here and in London. Two weeks ago he completed an extensive report for his 'senior management' regarding the office market. This was purely internal but essential for the company as their main business is commercial/office/retail property. His conclusion, regarding balance in the office leasing market, was that there would be no equilibrium til 2020
Posted by Anonymous, Dubai on 1 November 2009 at 06:43 UAE time
Sorry Raj but you may not have any luck for some time. JLT has parking & construction problems. Many offices in Sharjah are better options than JLT.
Posted by Paolo C, Verona, Italy on 1 November 2009 at 02:06 UAE time
I agree with the comments. This article is pure fantasy. I cannot imagine such a creative idea in a state of soberness.