Dubai’s commercial market now more competitive

PETALING JAYA: Falling rents and increased vacancy have made the Dubai commercial market more competitive on a global scale, according to Jones Lang LaSalle MENA’s (Middle East and North Africa) 2Q2009 Dubai Office Market Snapshot.

Office rents across Dubai are declining at a lower rate than before, averaging 25% in 2Q2009 compared with 1Q2009, where a 45% decline was registered. With the exception of the Dubai International Financial Centre (DIFC), Grade A space across Dubai is now averaging AED225 (RM213.29) per sq ft annum, a rate similar to rental levels in other major global commercial centres.

Matthew Hammond, head of agency at Jones Lang LaSalle MENA said: “The market has swung in favour of tenants over the past six months and there are some very attractive deals available in a range of newly completed buildings across Dubai. This has created a situation where tenants can take advantage of tomorrow’s prices today and negotiate rents below current asking levels.”

However, Jones Lang LaSalle cautions that a further decline in average rents is likely as the level of new supply increases, forecasting an additional office space of 25 million sq ft set to enter the market by end of 2011. This will increase the vacancy rate and adds additional stress on average rental, said Jones Lang LaSalle.

Hammond explained that the market is at present characterised by three owner groups: investors/developers, strata title owners and distressed tenants. “We continue to see investors/developers keeping rents at a sustainable level to allow for development instead of chasing the market down.
There are, however, fewer tenants willing to commit at these rental levels,” added Hammond.

Of the three, the most difficult to track are the strata owners due to their distressed state and they do not wish to hold office space for a long period of time. “This group is cutting rents to try to under bid any competitors and it is predominantly this group that is driving rents down as they look for occupancy at any level,” says Hammond.

Jones Lang LaSalle reported that the average prime office rentals in Dubai are now below similar premises in the international office centres of London, Paris, Hong Kong, Mumbai and Moscow.

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