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Mon 11 Jan 2010 04:00 AM

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Set yourself free

In a special report, CEO Middle East looks at the advantages of setting up in a free zone in Dubai.

Set yourself free
Decline has been felt the most in the emerging new free zone areas of Dubai such as Silicon Oasis, which has suffered heavy drop in price since the beginning of this year.

In a special report, CEO Middle East looks at the advantages of setting up in a free zone in Dubai.

Lease rates for offices in some of Dubai's free zone areas have fallen by as much as 63 percent year-on-year, according to a new report from CB Richard Ellis Middle East.

Free zones which offer benefits including 100 percent repatriation of capital and profits, multi-year leases, and assistance in labour recruitment have seen demand for office space slump during the global crisis, the report added.

Following the success of free zones such as TECOM and Jebel Ali resulted in the emergence of new free zones at Dubai International Financial Centre (DIFC), Jumeirah Lake Towers, Dubai Healthcare City and Dubai Silicon Oasis but these are now struggling as demand continues to drop and new units come on to the market, CB Richard Ellis said.

The research company said in the last nine months it had seen "a notable drop in lease rates" for Dubai's free zones. "Decline has been felt the most in the emerging new free zone areas of Jumeirah Lakes Towers and Dubai Silicon Oasis, which have suffered heavy drop in price since the beginning of this year," the report added.

The drop in sales rates has seen individual owners extending holding periods and frequently opting to lease their properties rather than looking to sell, it said.

On average, rents in JLT have fallen from AED240-280 per sq ft in the third quarter of 2008 to a current rate of AED70-120 per sq ft.

The report said that a huge increase in available office space - from about 2.5 million sq ft in Q3 2008 to 5.2 million sq ft - had resulted in weak demand and a drop in lease rates of 63 percent.

Other developments too have also witnessed a sharp drop in lease rates, CB Richard Ellis said, with office space from private developers in Dubai Silicon Oasis typically being offered at AED50-80 per sq ft while in TECOM the rents are in the range of AED85-130 per sq ft. The highest office lease rates among the free zones are in the DIFC where rates are in the range of AED280-325 per sq ft.

"During the remainder of the year and into 2010 we expect the leasing market in these areas to remain sluggish, largely due to additional pipeline stock expected to enter from free zone developments as well as non-free zone areas such as Business Bay development," the report said.

Indeed, Dubai and Abu Dhabi are best positioned within the MENA region to attract long term capital into their real estate markets, according to another report.

Cairo and Casablanca, Morocco, were also tipped to perform the best out of eleven cities surveyed in the Middle East and North Africa (MENA) that were considered to offer the right combination of investment competitiveness, according to property adviser Jones Lang LaSalle's (JLL) latest research.

Dubai's property market, the report said, is over the worst of its troubles with evidence of stabilisation of prices, increased transactional volumes and demand.

However, it warned that over-supply was still hampering Dubai and was likely to worsen - putting pressure on rents and prices in the short term.

Earlier in the month investment bank UBS said house prices in Dubai would fall another 33 percent from current levels, on top of a 47 percent annual drop.

According to recent figures from Deutsche Bank Dubai will face an oversupply of 32,000 new homes next year. Vacancies in the office sector in the emirate are around 25 percent and average occupancy rates in hotels are 65 percent, the report added.

In the past year Dubai has gone from being the best performer out of 46 markets monitored in the Knight Frank global house price index to the worst.

The slump ended a construction boom that had created thousands of homes just as demand began to evaporate.

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