High office rents reflect huge demand
High office rents in Dubai are a reflection of the dynamics of demand and supply and a natural fall out of the growth and potential, say real estate agents and businesses.
Close on the heels of the CB Richard Ellis Group’s (CBRE) semi-annual Global Market Rents survey, which put office space in Dubai among the most expensive in the world, Emirates Business talked to people in the property business and several professionals in the emirate, most of whom reasoned that high office rents were an inevitable attendant to the city’s rise.
This was the first time Dubai entered the CB
RE rankings, figuring at number 10, with an occupancy cost of $128.49 per square foot per annum, ahead of Hong Kong ($126.79), New York ($103.43) and Paris ($103.20).
The rise in prices in Dubai has been largely on the back of the increasing number of businesses coming to the city.
“Lots of companies – big and small – are looking for office spaces in Dubai. Whether it is Sheikh Zayed Road, Jumeriah Lake Towers or other parts of the city, demand for office space keeps on increasing. We have clients from South Africa, the US, Germany and many other countries looking to open offices here,” an official at the recently opened office-leasing unit at ETA Star said.
Abi Mustafa, CEO of ARG Real Estate, a part of Ashai Group, said while discussing the CBRE report: “Dubai’s dynamic growth is behind this rise. Some time back people did not believe in Dubai and there were talks about a bubble in the property market but all of that is untrue. In the past two years, I’ve seen many people coming to Dubai to do business. You’ll be surprised to know that many of them had just come here on a transit visa and fell in love with the place, eventually winding up their operations in America and Europe for Dubai.”
With such a surge in demand, the availability of office space in Dubai is being stretched and it will take time before the units under construction become available. “The price increases reflect the fact that Dubai’s commercial sector has almost no liquid secondary market at present. The limited delivery of new office accommodation over the past few years has resulted in a persistent market undersupply, resulting in strong increases in office rental rates and sales prices,” said John Allen, Director – Research Valuation and Consultancy at Asteco, in an official statement.
In a report by the CBRE, Dr Raymond Torto, Global Chief Economist, said: “These cost increases are dominated by emerging markets, caused by both supply and demand imbalance and the depreciation of the dollar relative to local currencies. In some of these emerging markets, Class A office space is seriously lacking.”
According to Mustafa: “ETA Star recently sold its commercial tower and the price per sq foot was on the high side but people just bought it. The supply and demand factors still continue to plague people looking to open businesses here as it is very difficult to find ready-to-move-in commercial spaces in the city. People are talking about a lot of commercial units in Jumeriah Lake Towers but only 23 per cent of JLT is commercial and that does not help much.”
The rise in prices has not gone down well with many businesses operating in Dubai.
“The rents are going through the roof and that is not the only factor that we have to take into consideration. Retaining staff and many other operational costs are affecting us. The DIFC has become very expensive but then getting a licence here is easier than getting a federal one so we have to go for more expensive office space,” said a tenant at DIFC who did not want his name to be revealed.
However, some international firms operating out of DIFC disagree and believe that rents in the zone are good value for money. In just four years since it opened in September 2004, the DIFC has attracted high calibre firms from around the globe as well as the region. The number of financial firms opening up in DIFC has been on the rise and companies are increasing their head counts as well.
Take the case of London-based commercial lawyers Herbert Smith – from just 10 people, they grew to more than 50 in the very first year of operations.
DIFC is an international financial hub regulated according to global standards with its laws in English.
Getting the big international banks involved at an early stage made success just a matter of time, opined some DIFC tenants.
Kate Farrell, Associate Director of Hudson, a leading global provider of recruitment and talent management services and the latest to begin operations out of the DIFC, agreed. “The cost factor may be more for people coming from Asia and Australasia, but for us coming from the UK, office spaces are not that expensive,” she said.
London’s West End is once again the world’s most expensive office market in the CBRE list.
The report by CB Richard Ellis Group tracks world markets with the highest as well as fastest-growing occupancy costs for the 12 months ended March 31, 2008.