By Andy Sambidge
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.
Keep falling..All the best
This is the biggest lie on earth. DMC for example increased the rents. Shame on CBRE. No wonder why everybody is complaining about the work quality in Dubai.
If this is true, it is simply great! But very hard to believe. Now I am paying AED 260 /sq ft in TECOM.
We know why groups such as CBRE continue to spout forth this useless banter but why must you publish it? The same group said on this site only 4 months ago "In the office market, prime rental rates have come down by around 20 percent but limited supply will limit future price drops" Now they forecsast continued weakness. As for DIFC, 4 of my clients are moving into the zone over the next few weeks and are paying between AED370-395 sq ft. These are the facts, not this trite, misleading hogwash. It really is caveat emptor - not over the choice of zone but obviously on one's choice of advisor
I must agree with the previous reader comments that the article does not reflect totally accurate figures. I have been told by various clients that DIFC and TECOM are still achieving much high prices than is indicated here. JLT is quite different in that the property that makes up the largest part of this free zone is owned by the secondary market and not the free zone authority DMCCA. It is therefore in the free market and subject to supply and demand and subsequent price deviations. On average I would suggest that JLT is 70-100, TECOM is 180-380 and DIFC is 400+ AED/Sq ft. The JLT commercial space is leasing out well with a huge number of companies moving into the free zone. There are more Towers close to completion and this will provide additional units that should be filled up quickly.
I am an owner of several floors of commercial & residential properties in JLT. I am one of the early investors. and initially bought one for my own use. When I bought all these properties, there was absolutely no mentioned of any Freezone status for JLT. Besides for my own use, I also bought for rental income. When Freezone status was officially announced, most owners were estatic and we thought that we've landed on a goldmine but now we realised that it's actually a burden. Before the crisis, I got offers of AED 1500 psf onwards and sold some. Nowadays I get sale offers of AED 700 to AED 900 psf. Rental offers are between AED 70 to AED 80 psf. Up to date, 5 parties have agreed to rent it at AED 80 psf and all 5 times the parties went to DMCC, got thoroughly harrassed with the terms, conditions, documentations and costs and they all backed out. I've been told by many agents that their clients requires offices but not in JLT, because of the extensive & costly procedures. A big group of owners went to DMCC and literrally begged them to be more flexible in their rules & regulations and to allow more varied non freezone company to rent. They did cut some of the paperwork and allowed usage to more non freezone but at heavy cost and additional licences. Worst still to come when you want to renovate the premises.Even for simple painting and carpetting, we need to get time consuming & exhaustive approvals from MANY departments and we can only use approved contractors even for the simplest no brainer jobs (which means higher costs). There are many owners like myself who wants to use these offices for ourselves but the hassles and the additional licences & costs, it's just not worth it. I have since rented an office in the non freezone area and hv kept my offices in JLT as a storage area. I dread the thought of what will happen when all the commercial twrs in JLT are ready for occupation. I pray that one day DMCC will come to it's senses and realise that they are destroying the value of one of the most strategically located (and by right..sought after) project.
I fully agree with the first comments, I have reduced my asking price for office rent in JLT to AED 100 sqft. plus I am paying the charges, still I am not able to find a tennant! People are not impressed by the hassle of JLT Free Zone. I myself also have an office in a no-free zone area, as I am not able to use my own offices in JLT!! I hope someone in the Dubai government takes the time to review the status of JLT as well as to cut back the hurdles in setting-up a company there.
for sure i have to leave DMC for the rediculous amounts we are paying for a 10sqm office. can i know what is the name of the JLT tower where you have offices for rent?
I must agree with Lynda, 100%. This is exactly what happened to us. We bought a unit for our self and a unit to rent. We could not use the office for our purpose, because DMCCA would not give permission. We tried to rent it, and still no offer, since everybody says it is just impossible to deal with DMCCA (extremely costly and restrictive) . I must agree with Lynda. DMCCA has turned JLT into a ghost town, which investors are paying dearly. Meanwhile, lets not forget the greedy developers, who are milking the owners dry, by charging an average of 20 AED /sqf on an empty office building with no amenities! JLT free Zone has turned into a very expensive and cruel joke.
This will simplify the process for renting an office or a retail....JLT area is happening and pitty to see it's offices and retail empty. To give you an example for lack of appropriate retail: for simple groceries, tenants in JLT have to cross to Marina to get it done!!!! the drive takes close to 20 mins with all the circles... Please..someone has to look and inspect the work in DMCC and simplify the approval process, otherwise, you are loosing lots of investment.