Oversupply with commercial properties in Dubai

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Rents expected to drop further

According to the Jones Lang LaSalle’s ‘Dubai Real Estate Market Overview’ report last month, Dubai’s current stock of office space stands at 43.6 million square feet. The current vacancy level is estimated to be 33 per cent of that or about 14.4 million square feet. In addition, the 2010-2012 pipeline of new supply has been revised 33 per cent  due to delays and project cancellations to 40 million square feet from 60 million square feet. Roughly  54.4 million square feet  will most certainly remain vacant, that calculates  to a vacancy rate of 65 per cent.

Average Grade A rentals such as in  Downtown Burj Khalifa or Dubai International Financial Centre, are currently at Dh250 per square foot and are estimated to decrease even further before stabilizing by 2011 at the earliest.

Approximately  54.4 million square feet priced at a Dubai average of Dh150 would yield roughly Dh8.2 billion of annual revenue for landlords. So what do you do when you can’t rent all this space?

Another report from property consultancy firm CB Richard Ellis, Dubai Market View, also predicts that commercial and residential property rents in Dubai will continue to decline this year due to oversupply and rising vacancy rates.  Lease rates for commercial space in newer areas of Dubai, which have already dropped 50%, are expected to head lower ‘as competition for tenants continues to lead landlords towards greater incentive packages’, the report said. Residential units are also likely to see ‘a further small contraction during the course of the next year as a substantial volume of new residential accommodation reaches the final stages of construction’, it said.

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