Over the last few years, residential real estate hit the bottom worldwide. Many expected the same thing to happen with commercial real estate. However, these predictions proved wrong. While residential housing dropped, commercial property prices skydived.
Present State
Currently, the commercial real estate sector is in a worrisome position with the exception of established commercial centres and city districts. Whole brand new commercial buildings remain unoccupied from Hong Kong to Istanbul and elsewhere around the globe. Landlords of superb quality commercial towers struggle to fill up offices and retail space by offering six months or even a year rent-free periods. Exceptions are of course present and a striking example is The Dubai Mall.
Improvement on the Way
The main issue of the today’s commercial real estate market is that there is plenty of fresh supply. In addition, there are projects that are scheduled for completion in the near future. Statistics about commercial construction reveal that the situation is heading towards an improvement. But in more general terms, there is plenty of new commercial space on the market.
Strong efforts to encourage entrepreneurship are expected to improve the current situation. With the influx of new residents to Dubai, a need for more services will emerge and more small and medium-size business will fill up the empty offices. However, this process will take years, but not months.
Recession Effect
In 2012, big businesses are still challenged by the global economic uncertainty. In 2013, new woes are expected to slow the global economy’s recovery. Business communities are worried and investors remain very cautious, although there are signs for more optimistic sentiment. The looming recession in Europe and the United States will have an impact on international markets and consumers’ spending habits worldwide.
In addition, ever evolving technologies enable individuals to conduct business activities from various flexible locations. This reduces the demand for actual small and medium-size offices and retail spaces.
Approach
Tenants are advised to negotiate as best as they can, keeping in mind that they have the upper hand in finalising a contract. Landlords, on the other hand, need to be patient and wait rents to stabilize.
Now is not the right time to invest in commercial property, unless it is for personal use or a feasible necessity.
The current situation is expected to change in the next few years. Until then, developers would be better avoiding taking much action, because it is highly unlikely that there will be high demand for commercial space in the near future.
