Landlords of commercial property in less desirable areas of Dubai could soon be forced to offer rent-free contracts to woo tenants in and alleviate the burden of service fees.
Vacant commercial space on the outskirts of the emirate is expected to remain empty as 40 million sq ft of office space enters the market by 2011, leaving landlords saddled with service charges, said industry analyst Nicholas Maclean.
“I think some landlords are close to agreeing terms whereby they give a rent-free period for three and five years so the liability for service charges is taken away from them. I think we will be there by the end of this year,” Nicholas Maclean, managing director of the international property consultant CB Richard Ellis, told Arabian Business.
Vacancy rates are particularly high – around 80 percent- in the peripheral areas of the emirate such as Jumeirah Lakes Towers, Dubai Silicon Oasis and Tecom, Maclean said.
“It’s in the extremes of the marketplace so those schemes which are beyond junction four on the Sheikh Zayed Road or those buildings which are beyond the city environments, not Silicon Oasis but some of the clusters of accommodation surrounding it.
“I don’t otherwise see where demand is going to come from there such as is the quantity of space within the centre of the marketplace,” he said.
Rents across Dubai have plummeted since the onset of the global financial crisis and a flood of new supply has left many buildings empty. Last month, property consulting firm Jones Lang LaSalle said vacancy rates for commercial property was at 38 percent city-wide.
“Some landlords I’m sure will offer [rents] just to cover the service charges but that’s not necessarily something we are seeing as yet,” Craig Plumb, head of research for the MENA region at Jones Lang LaSalle said.
“It’s difficult to see what landlords can do. Most of the demand is for the more desirable areas,” he added. “Even dropping the rents to very low levels doesn’t guarantee you are going to attract any tenants because tenants are willing to pay more for better quality space.”
Ian Gladwin, CEO Middle East for property consultant Cluttons, said landlords with vacant property needed to take a long term view.
“If I was a landlord and owned office space [in Jumeirah Lake Towers], I would make it easy for someone to move in, so I would carry out a reasonable fit-out, and then try and get it leased, even if it’s only a case of paying a nominal rent for the first two years,” he said.
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