By Soren Billing
Office rental costs begin to follow residential trend in Q4 of 2008 - industry expert.
Rents in Dubai’s commercial real estate sector are showing the first signs of levelling off, according to research from CB Richard Ellis (CBRE), the world’s largest commercial real estate services company.
“We are seeing now for the first time a drop of commercial rental prices. Property purchase prices have been coming down for some time now, but rents had until now been holding strong,” managing director Nick Maclean said.
Prime rents in each of the three main commercial real estate sectors – industrial, office and retail, remained static in the fourth quarter of 2008, after a period of very strong growth since 2007.
Dubai retailers are blaming high rents in the city’s malls for prices that are now up to 50 percent higher than in Europe and North America.
In an article published on Friday, shop owners told Arabian Business that soaring rents were squeezing profits while tourist spend in many stores has been almost halved.
Rental growth in 2008 as a whole reached 50 percent for industrial buildings rents, 29 percent for offices and 18 percent for retail.
Despite the loss of momentum in the rental markets, there was no change in investment yields in the fourth quarter, CBRE said.
Dubai continues to offer some of the highest prime yields in the Europe, Middle East and Africa (EMEA) region (11 percent in the industrial sector, 7.75 percent in office and 8 percent in retail) and there was no movement in those levels in the final quarter of the year.
Over the year as a whole, only the industrial sector showed any change in yield, recording a 50 basis points increase on the year.
By contrast, yields in the office, retail and industrial sectors across the so called EU 15 countries have now risen 100 basis points or more since the middle of 2007.
The scale of the re-pricing in most of EMEA is likely to present attractive buying opportunities for equity-rich investors targeting the commercial real estate market, CBRE said.