By Claire Ferris-Lay
Abu Dhabi, Dubai fall off top ten most expensive list as oversupply gluts real estate markets
Prime office rents in the Middle East have fallen off a list of the world’s top ten most expensive locations, according to real estate consultancy Knight Frank.
Commercial rents in Abu Dhabi and Dubai, which were ranked the world’s sixth and seventh priciest in 2010, have failed to make the top ten this year amid oversupply and falling rates.
Markets in the Middle East were among the biggest fallers in this year’s office rent rankings and are set to drop further in 2011, warned Knight Frank in its global real estate overview.
“The high levels of development activity in recent years have left many of these locations with an oversupply of office space, forcing landlords to reduce rents further to attract tenants,” analysts said.
“Prime office rents fell by 10-20 percent during 2010 in Dubai and Abu Dhabi, and are likely to fall further in 2011.”
A five-year property boom in Dubai collapsed at the end of 2008 amid the global financial crisis, halving real estate prices. In neighbouring Abu Dhabi, property prices fell around 45 percent.
In Dubai’s tax-free business hub, DIFC, rents have fallen 50 percent from their 2008-peak while approximately 200,000 sq m of office space is expected to be delivered by third party developers over the next 18 to 24 months, said Knight Frank.
Around 24 percent of office space in Bahrain currently remains vacant as a result of political turmoil and could remain empty for some years.
“At current take-up rates, it would take several years to fill the empty space even if no other buildings were completed, but, nonetheless development activity has continued with around 100,000 sq m of offices due to be delivered within the Diplomatic area alone over the next 18 months,” analysts said.
London’s West End takes the top spot for the most expensive office rents in the world, up from second in 2010. Prime office rent in the UK capital city will set businesses back £85 per sq ft ($144). Tokyo, Japan has dropped one spot this year with rents around £83.67 per sq m, followed by Hong Kong at £71.77 and £60.05 in Moscow, said Knight Frank.
There simply has to be a moratorium on building new offices in Dubai, it's madness to just continue building when there is already a 40 per cent vacancy. There is simply no way that new business immigration at present levels has any hope of filling those properties. A balance credible office market should have a vacancy rate of between 5 and 8 per cent.
One of the global property advisories was reported in AB laste year as saying that a large percentage of office buildings could be left empty for many years and eventually have to be demolished and that was without this year's crop. As demand continues to dilute and rents fall, the capital value of some of these buildings must now be less than they cost to build.
Continuing to build is a just a state of raw denial in the face of irrefutable facts that by the end of this year 50% of the office stock will be unwanted and probably not maintained. It has to stop!
@RS, that would be good for current landlords... but then what about people who bought property on the buildings you would like to cancel?
And then what about construction companies who need to finish the buildings to complete the payment? They have no incentive to stop work beyond certain point.
And obviously end users of office space (current and potential) would benefit of lower prices.
Your solution only bodes well for one group of stakeholders.
If buildings are stopped or even demolished, will be any compensation? Paid by whom? Will we have a 2-tier market again with expat buyers taking the brunt of the hit?
What do you think will be the impact on Dubai's reputation if property rights are eroded even more? Wiping your property is a big one. I do not see that coming easily.
So yes, an interesting situation with no easy way out, left to its own market could easily take 10-15 years to sort out. Curious to see what happens.