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Sat 27 Aug 2011 09:59 AM

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GCC office rents set to fall further in Q3 on Arab Spring

Jones Lang Lasalle says in new report that international firms are showing greater caution in region

GCC office rents set to fall further in Q3 on Arab Spring
Dubai office space, buildings

International companies are showing greater caution in the Middle East following the Arab Spring and investment in the region's real estate markets will continue to slump in the near-term, Jones Lang Lasalle has said in a new report.

Analysts said the outlook for a number of real estate markets in the MENA region "remained clouded" by the continuing political, economic and social impacts associated with the uprisings.

Predicting when commercial property rents in the Gulf region might rebound, the report said Jeddah and Riyadh were likely to upturn first, followed by Doha, Dubai and lastly Abu Dhabi.

"Tourism and investment have been hit hard and are expected to continue to slump in the near term given the new political uncertainties facing the region, while normal business activities have also been impaired by the crisis," Jones Lang Lasalle said in a study of corporate occupier conditions for Q3 2011.

"International occupiers are showing greater caution in the region, with expansion plans placed on hold until greater clarity emerges about the long term implications for Egypt and North Africa in particular," the report added.

It said office markets across the region continue to offer opportunities for occupiers, with Dubai remaining massively oversupplied and with overall vacancy running at 44 percent while Abu Dhabi continues to see vacancy rates trend upwards.

"Although prime rents in Dubai remained stable over the quarter, further falls are expected before year end, and the large volumes of completions expected in Abu Dhabi are also expected to put downward pressure on rents," the JLL study said.

"In those MENA markets with an abundance of supply, occupier-favourable conditions are likely to remain for the foreseeable future," it added.

Jones Lang Lasalle said Saudi Arabia was also seeing choice increase for occupiers with a number of large scale developments expected to complete over the next 2-3 years.

The Riyadh market has a potential pipeline of 1.4 million sq m, due to completed by end-2014, JLL said.

"Although it is likely that not all of this will be delivered on time as developers postpone or delay projects, it will undoubtedly increase choice. Banks reduced appetite to fund development will also have a drag effect on the pipeline over the medium term," the report added.

On the demand side, public sector entities remain the biggest source of demand in Saudi Arabia, followed by healthcare as the country’s huge stimulus measures take effect.

JLL said the Doha office market remained oversupplied, with demand likely to fall short of the huge amount of supply entering the market.

"The situation in neighbouring Bahrain has calmed from the turmoil a few months ago and while there remains speculation over some financial institutions relocating their operations to Qatar this has not yet materialised," the study added.

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