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This gives tenants even better and bigger choices, and generally stabilizes rental rates. Although prime office towers on single ownership have witnessed an uptake in rental values, secondary locations are not far behind, reporting a heightened interest from occupiers.
Riyaz Merchant of Realty Force Real Estate Brokers gives his two cent’s worth on the current status of the Dubai office market.
Status of Dubai office market and recorded spikes in values
There is constant demand for office space in Dubai as many multinational companies, small and medium enterprises (SMEs) and representative offices of regional companies are looking to move base here due to the lifestyle facilities and tax benefits. Some offices are looking to relocate as pricing is competitive and, of course, they want to be shielded from rent hikes, need larger spaces, and/or want a move away from the crowded zones of Deira and Bur Dubai.
If we consider the land/construction cost as per the current market, the selling price of office space in Business Bay, for example, is not that high. This demand is expected to continue for some time as currently there is no other area earmarked for freehold commercial offices. The rents in new office locations are yet to spike depending on the facilities and quality being offered. Gradually, rents tend to increase where facilities become available, and retail supplements this. The opening of restaurants, groceries, stationery outlets and showrooms within a commercial tower justifies any rental hikes.
Currently, a shell and core unit would attract about Dh80 to 90 per sq.ft. in rentals, and about Dh100 to 120 per sq.ft. for a fully fitted office. Sale prices in Business Bay start at Dh1,050 per sq.ft. for offices in Clover Bay, going up to Dh1,650 for premium office space in Vision Tower and One Omniyat.
Fast-growing areas in terms of supply
Jumeirah Lakes Towers (JLT) and Business Bay are the fastest growing areas, and strategically speaking, divide the requirements of end-users. JLT operates as a free zone, while Business Bay operates on DED licenses. They are also in more convenient and better locations with easy accessibility, giving businesses the choice to leave older buildings for corporate avenues.
The announcement of the hosting of the Expo 2020 has given impetus for the growth and confidence in investors to make investments in commercial space (offices). For instance, Business Bay’s prices and location make it more lucrative. It having easy access to Al Khail Road, Shaikh Zayed Road and Downtown Dubai makes it a more prominent and accessible business address.
Types of office space preferred by investors
Most investors are end-users and prefer office space close to the city as buying is still affordable compared to the prices when the market was at its peak, and also the fact that rents keep increasing time to time.
Owners are basing their choice on the size of the office, quality of the building, number of car parks included in the price and/or within the tower, facilities in the tower, and location of the tower to main access roads, transport stops and the Metro. They want a say in the day-to-day management of the building, which is only possible if they are the owners, not tenants.
Office space between 1,000 sq.ft. and 2,500 sq.ft. seems to be the most preferred option for investors/end-users/SMEs that have between 10 and 15 employees.
New office supply expected to enter market
Business Bay seems the most popular area for companies to set base or open a branch office as it is very conveniently located and serves the central business district. Price and location are the most decisive factors for new buyers.
New supply that will enter the market include, among others, Business Bay’s Bay Square linking South Ridge, Old Town and the Executive Towers with 5.1 million sq.ft. of built-up area; Opal Tower with four basement levels, ground and 20 upper commercial floors; and Burlington Tower with 476 luxurious offices, a huge lobby, a shopping arcade, a panoramic gym, a Dining Plaza and coffee shops.
Demand for office supply in Dubai
•Occupier demand remains focused on high quality office space in prime locations. Due to limited availability within these offerings, some corporates are considering built-to-suit options.
•Single ownership buildings continue to account for the majority of demand, while strata projects remain less popular.
•Corporates are becoming increasingly aware of the importance of sustainability and there has been an increasing demand for LEED certified buildings.
Source: Jones Lang LaSalle Dubai Real Estate Market Overview Q1 2014
Source: Ellen Joyce Soriano, Special to Freehold
The writer is a freelancer