Dubai's office prices seen falling further 10-12%

Global Investment House report says vacancy rates remain high at 40% with new supply still to come
Dubai's office prices seen falling further 10-12%
By Andy Sambidge
Sat 02 Jul 2011 09:57 AM

Dubai's office sales market are set to see further price declines of between 10-12 percent, Kuwait-based Global Investment House said in a report.

Global said the average drop in Dubai office selling prices was 58 percent between the peak in the fourth quarter of 2008 and the end of Q1 this year.

It said average selling prices had dropped from AED2,250 per sq ft to AED933 per sq ft during the same period.

"We expect pressures on selling prices to persist over the short to medium term as vacancy rates remain high at 40 percent and new supply of 19 million sq ft, equivalent to 33 percent of existing supply, enters the market by 2013," Global analysts said in the report.

"We believe asset prices need to adjust further downwards to generate investor interest in the oversupplied market," they added.

Global said it expect a further 10-12 percent decline in Dubai office prices from current levels to settle at a blended average selling price of AED830 per sq ft.

In Abu Dhabi, Global said vacancy rates hover at below 10 percent of the total existing 24 million sq ft.

It added that the vacancy rate was expected to "increase significantly" as a new 13 million sq ft, a 54 percent addition to existent supply, enters the market between 2011 and 2013.

Office rents have dropped 69 percent and 45 percent in Dubai and Abu Dhabi, respectively from the peak in 4Q 2008 through to 1Q 2011, the report said.

Average office rents in Dubai stand at AED64 per sq ft per year, with DIFC charging higher rates of AED120-175 per sq ft per year.

"Going forward, we expect prime office rents in areas like DIFC and Downtown Burj Dubai to diverge downwards closing the gap with other ex-CBD areas, which should be nearing a long term bottom," Global said.

"A reversal of the declining trend remains out of sight for the next five years, in our view, given the present high vacancy rates, supply increase and economic conditions."

It added: "We expect the decline in Abu Dhabi rents to speed up in the coming two years as the new grade A supply enters the market accelerating the vacancy rates of grades B and C and eventually pressuring grade A rents downwards."

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