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With several new industrial clusters coming up, fresh stock in the market and the slide in petrol prices, the commercial real estate market in Dubai is expected to witness changes. David Godchaux, CEO of Core Savills, shares his opinion on the trends in the office market and industrial rents.
New office destinations
The shift from the traditional central business district (CBD) to the newer areas needs to be understood in some detail. While the demand for the traditional CBD has not reduced, low vacancy rates have meant that new companies and those wanting to expand have no choice but to move to the newer areas.
In Dubai World Central, the interest has come mainly from small and medium-sized blue chip companies looking to establish their presence in the Middle East.
In the case of Business Bay, rental growth has been substantial in the last three years, rising at 7% in 2012, 18% in 2013 and 24% in 2014. As such, rents have gone up from around Dh70 per square foot in 2012 to around Dh110 per square foot in 2015. However, it is widely believed that these rents are extremely high given the fact that the area still seems incomplete, with major roadworks still ongoing. Landlords are now willing to negotiate to close deals since they do not believe that the current rentals are sustainable. Business Bay office rents are now quite close to Shaikh Zayed Road office rents.
The Dubai International Financial Centre (DIFC) remains the most expensive location with Downtown Dubai close behind.
The Dubai office market currently has a gross leasable area of around 7.7 million square metres with around 1.8 million square metres expected to be delivered in three years. While some of the new supply is likely to be delayed, an oversupply is expected. However, with strong demand, a market crash is not expected; the market is expected to remain stable with very slight corrections.
Business Bay is likely to see a decline since the incoming supply is substantial with The Bay Gate, The Binary, Bay Square, Westbury Square, Prime Tower, Iris and Bay View Tower expected to flood the market.
Dubai Investments Park (DIP) has become quite popular with manufacturing companies. It provides manufacturing facilities with infrastructure and amenities tailored to suit their business requirements.
The rents range from Dh40-Dh55 per square foot excluding DIP’s 15% duty and vary depending on what the facility comprises such as office, loading and unloading bays.
Dubai Industrial City is divided into different zones. It focuses on light to medium manufacturing and offers industrial land for build to suit and pre-built warehouses. The rents for ready built warehouses range from Dh29-Dh33 per square foot.
Al Quoz attracts a lot of attention because of its logistically favourable position and proximity to the whole of Dubai. However, when looking at it from an economical perspective, it commands higher rents ranging from Dh45-Dh80 per square foot excluding Dubai Real Estate Corporation’s (DREC) 20% duties. Due to higher rents, firms are relocating to more reasonably priced areas.
The last two years have been extremely positive for the Dubai office market with rents rising by 11% in 2013 and 13% in 2014. Oil prices have consistently remained above USD100 in the last four years. This has had a positive impact on the market. But the decline in oil prices and the appreciation of dollars will have a negative impact.
In spite of this, the revival of stalled projects has meant that companies in the real estate and construction industries have started expanding and requiring additional office space. Pharmaceutical and technology companies are also expanding operations.
While we are nowhere near the unsustainable high rents and prices experienced in 2008, where average rents in DIFC reached close to Dh900 per square foot, the market today is clearly more utilitarian. DIFC offices currently rent at an average of Dh230 per square foot, Downtown at Dh175 per square foot and Shaikh Zayed Road at Dh125 per square foot.
What’s up in office, industrial sectors
• Offices at the Dubai International Financial Centre (DIFC) currently rent at an average of Dh230 per square foot. In Downtown Dubai, the average rents for different office space are at Dh175 per square foot, while offices on Shaikh Zayed Road can currently be leased at Dh125 per square foot
• New companies and those with expansion plans are now looking at newer industrial areas to set up business. These areas include Dubai Investments Park and Dubai Industrial City. However, the old area of Al Quoz remains a popular destination because of its accessibility
Source: S. Dhar, Special to Freehold