By Andy Sambidge
Hong Kong tops office costs list as Dubai Free Zone rents drop most in the world - DTZ survey
Office occupancy costs in the Middle East continued on a downward trend in 2010, with average prices falling by four percent, according to a survey published on Tuesday.
DTZ's Global Office Occupancy Costs Survey 2011 said demand in the region remained below historic levels and the market was still seeing an oversupply of prime stock.
DTZ's survey assessed 121 business districts in 47 countries across the globe.
It said that unlike other markets in the world, rents across most of the Middle East were "yet to recover from the effects of the economic recession".
The survey said Dubai Free Zone and the rest of Dubai had witnessed the largest declines in occupancy costs per workstation over the year, falling by 40 percent and 27 percent respectively.
This positions Dubai among the top fastest declining markets worldwide in 2010, it said, with Dubai Free Zone falling 30 places to 37th on the global list.
DTZ added that for the first time since it began its survey, Dubai had been outpaced by Abu Dhabi and Doha.
In the global rankings, Abu Dhabi Free Zone, Abu Dhabi and Doha continued to have the highest occupancy costs per workstation in the Middle East.
Abu Dhabi Free Zone was placed in 10th position globally, with Abu Dhabi moving down six places to 18th position in 2010. Doha moved up from 17th position in 2009 to 15th position in 2010.
After two years of decline, occupiers in Riyadh, Saudi Arabia saw a sharp uplift in costs as rents bounced back by 29 percent, DTZ added.
After Riyadh, the greatest increase in costs occurred in Cairo, Egypt and Al Khobar, Saudi Arabia, at 22 percent in both markets, driven by increased demand and less new stock coming to market.
"As competition amongst landlords intensifies, we expect to see an increase in tenant incentives, such as base fit-outs and extended rent-free periods," the DTZ report said.
"However, the concept of using lease incentives to secure tenants is a relatively new concept in the Middle East and therefore not as flexible as in other regions."
Nick Witty, DTZ's COO for the Middle East added: "Oversupply in most of the GCC markets, particularly Dubai, Bahrain and Abu Dhabi, will continue to lower occupancy costs which will provide occupiers with cost savings. We also expect to see demand slow as a result of the instability in the region as occupiers postpone decisions in the short term."
On average, global occupancy costs per workstation showed no change in 2010, DTZ said, adding that it expects them to rise in 2011, although the pace of growth will remain varied.
Hong Kong overtook London's West End to emerge as the most expensive office location per workstation in 2010, outpacing Tokyo, Paris and New York.
Occupancy costs (in local currency) in Hong Kong's prime district of Central and Admiralty surged by 31 percent year-on-year on the back of strong rental growth.
Of the markets covered, the strongest increases in costs to 2015 are projected in Bengaluru, Hong Kong, Singapore, Beijing and Chennai.