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Coming to the basic rule of the economics of demand and supply and knowing that the real estate supply cannot be created overnight, I am forced to wonder – with no new major supply for commercial properties being planned now – when we will reach the tipping point where the current supply of commercial real estate in Dubai would fall short to cover the demand so that the commercial sector will start getting its overdue cognizance in Dubai's real estate scenario.
Something tells me that it is time to start looking seriously into positioning yourself to take advantage of when that happens, and that given the rate of absorption of the current available offices and zero new planning on commercial real estate, it might not be too long till it does.
Why is no one planning a new commercial tower in central Dubai?
There was and is a big oversupply of commercial properties in Dubai in the last cycle. Commercial properties suffered the biggest in Dubai during the crisis and the vacancy rates in the past few years in the commercial sector were very high. This makes the investor currently conclude that commercial real estate is a bad bet since the perception is that no one wants it.
In simple words, there is no pressing demand for new supply which means it will not be easy for any developer to sell a commercial tower off-plan and thus it simply does not make any commercial sense to plan a commercial tower right now. It will change but not until there is already a shortage, and when there is a shortage, the supply will take at least two to three years before it will be available. This is the period, I feel, that the prices of A-grade commercial units could shoot upwards.
The Dubai commercial realty market is going through a double jeopardy right now since the land which was allocated for commercial purposes in the past is now being converted into a mixed-use (hotel apartment) land and is quickly depleting. Over and above that, the new master plans have very less or almost no mention of office space in them. My question is, ''Where will all those new people who will live in Dubai in the next five years and go to the biggest mall in the world (two of them announced already) work if we will not plan any new office buildings?''
The current scenario?
Currently, office space is being absorbed at a fast rate. Empty ready buildings a year back are now buzzing with activity. You are almost guaranteed to encounter a waiting period for elevator in any commercial tower in Dubai which has started to take my attention. Although there is some more supply which will come due to the late deliveries of revived, half-finished projects (which will get delivered in the next one or two years), the rate of absorption might very well take over the supply available, and which will be coming in the near future especially in the central locations of Dubai like Business Bay.
Other than the natural increase in demand as the population of Dubai grows, certain factors are acting as catalysts, pushing the demand further. With unrest in the Middle East, there is an increased demand from corporates and medium size businesses that are shifting their staff from less stable countries to the UAE. Earlier, employment seekers were moving to Dubai and now, the entire business setups are moving with the business owners who are relocating.
When demand overshoots the supply
It's anybody's guess, but it would be quite safe to derive that if there is an increasing demand and no new supply, at some point demand will overshoot supply. The wait at the elevator before my meeting at Business Bay tells me – soon.
Click on Commercial Realty which is set to diversify the industry
Source: Ashirwad Somani, Special to Freehold
The writer is Managing Director - Candour Real Estate