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Real estate plays such a big role in Dubai's landscape that it is hard to avoid the subject in conversations. The rise of residential rents since end 2012 has many wondering what the future holds, resulting in increased monitoring of rental rates in all realty sectors.
Managers of corporate real estate are finding themselves in the same position. Questions raised by their business leaders on whether this is the right time to move are often based merely on a comparison of rentals.
There is a tendency to assume that buildings with lower rents are the more cost-effective solution. Unknowingly, however, companies often end up making compromises and accept less than perfect conditions due to the perceived financial saving, driven by a simplistic rental rate comparison.
Rents are just one component of total costs and more consideration needs to be given to factors such as service charges, utilities, fit-out costs, building design, the basis of measurement and suitability of the location.
Service charges, utilities and other operating costs
In Dubai, there is no standard break-down of what the ''chargeable rent'' should include. One landlord may include all services and maintenance charges (and even utility costs) as part of the rent (i.e., gross rent). Others may quote a separate (net) base rent, plus separate service, community and parking charges.
A lower base rent may ultimately result in a far more expensive solution, whereas it seemed so much more attractive when just comparing the ''rent''. It is important for occupiers to question how ''rent'' is defined and go beyond the offer letter provided by the landlord. When negotiating terms, ensure caps on future costs are inserted where appropriate and remain well informed on standard practice in comparable buildings.
Occupiers should also remember they may have recourse to Rera regarding the legality of certain charges imposed by their landlord.
Fit-out costs and handover condition
Our gut instinct tells us that a handover condition with some fit-out in place makes for a good deal as it reduces some elements that the tenant would otherwise have to pay for. In many instances this is misleading. It is essential for the tenant to carefully investigate the value and quality of the provisions and how much work will still be required to achieve an operable working environment.
Sometimes it is cheaper and easier for designers and contractors to strip everything out and start from scratch. A space with fit-out in place could actually end up costing you more to amend rather than starting from shell-and-core. It is well worth estimating these costs early on, as capital expenditure for fit-out could equate to more than 40 per cent of the total occupancy cost over a five year lease, depending on the quality of fit-out and rental level.
Basis of measurement and actual readings
The UAE Government has committed towards a standardized measuring practice, which certainly does not exist at the present time. This is an important consideration for tenants as the decision to measure based on BOMA of RICS — or purely based on NLA (net leasable area) or even ''carpet area'' — can sway the total chargeable area, and as such cost, of up to 25 per cent upwards or downwards.
Looking into this and understanding what code of measurement is being applied is therefore extremely important in comparing between alternative accommodation options.
Suitability of building design
Consideration of a building's design/layout in relation to your corporate design standards can have a significant impact on efficiency. Even if your company does not have formal corporate design standards, ensure you have a clear view on its ideal design, layout and dimensions for each workstation, shared areas and circulation spaces. A building which perfectly fits your organisation's design grid, may not only result in a well-functioning space, but saves you from wasted investments in dead space. Large floor plates may provide a false sense of efficiency.
The right location
Finally, as location often times determines the value of real estate; don't be driven blindly to the locations with the lower rents purely due to its perceived financial benefits. Take your staff travel time and effort into consideration, as well as your ability to retain talent.
In summary, rentals may form less than 50 per cent of the total occupancy costs for a typical office-occupier and therefore just one of the costs to consider when making corporate real estate decisions. Occupiers need to compare all associated cost and design elements when deciding to move or stay. Compare options on a total cost per square foot or workstation basis — it could be worth paying a higher rent.
Click on Dubai's Central Business District to read on the most sought-after destination for prime office and commercial space
Source: Dana Williamson, Special to gulfnews.com
The writer is Head of Agency at JLL Mena