UAE service charges to 'become more transparent'

Jones Lang LaSalle says it expects to see adoption of better measures to recoup operating costs
UAE service charges to 'become more transparent'
(AFP/Getty Images)
By Andy Sambidge
Sat 09 Mar 2013 11:14 AM

Many commercial property owners in the UAE are struggling to recoup operating costs through the service charges being levied to tenants, a new report has said.

Jones Lang LaSalle, the real estate investment and advisory firm, said that operating costs and service charges were "becoming increasingly critical issues for both occupiers and owners".

The company said it expected to see the adoption of more transparent measures of operating costs and service charge arrangements in the future which will in turn reduce the number of disputes.

Commenting on the report, Graham Howat, head of property and asset management at Jones Lang LaSalle MENA said: "Unlike more mature markets, there is little correlation between the actual costs of operating buildings and the amount the owner can recover in service charges in the Dubai market.

"As a result, many owners are experiencing a shortfall between the level of costs incurred and their ability to recover these costs from occupiers."

He added: "Greater transparency will also result in closer partnership between building owners and occupiers as it will help reduce disputes and enhance the long term value of the asset.

"Widespread adoption of global best practices may take time as it's a relatively new real estate market, but the UAE is definitely moving in the right direction."

The report said in Dubai, service charges were driven by market forces rather than true operating costs. Often these are below actual operating costs, leaving owners facing an operational deficit.

In a few instances higher than actual, leaving tenants paying for a level of service that they do not receive, it added.

Jones Lang LaSalle said the average service charge within Grade A office buildings in Dubai is around AED33 per sq ft per annum which compares relatively favourably with New York (AED50), London (AED59), Hong Kong (AED68) and Tokyo (AED90).

Given that office rents in Dubai are much lower than in other major global cities, the ratio of service charges to net rent (25 percent in Dubai) is above that in New York (24 percent), London (11 percent), Hong Kong (13 percent) and Tokyo (18 percent), the report said.

It added: "Further improvements in the transparency of how operating costs are calculated and recouped from tenants in the form of service charges are likely as office markets in the UAE mature over the next few years. This trend is to be welcomed by both occupiers and building owners."

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