Dubai’s office market could be headed for a high season with several projects entering their final phases, but for many prospective tenants that’s still not good enough. The choices are particularly limited for those companies looking to lease large floor space in office towers located in the freehold clusters.
A point duly noted by Colliers’ recent outlook on the Dubai property market: ‘Supply shortfall of the past few years has driven speculative development, with the practice of investors selling off office floors on a piecemeal basis marginalizing the availability of stock suitable for US and European institutional investors’, the real consultancy notes.
Colliers’ projections place total office supply in Dubai by 2010 to be 5.6 million square metres (60.2 million square feet). Rising costs of building materials, lack of suitable contractors and lack of skilled labor are all contributing factors to the construction delays currently being experienced by developers.
The local commercial space users require single owners with multiple floors, as the current office supply is geared heavily towards smaller tenants.
The first wave of office towers in the Business Bay enclave should be ready to start their handovers by next year, while the process has already made some headway in Jumeirah Lake Towers (though units there are availÂ¬able only to free zone listed enterprises). A similar situation exists in DIFC, which presently commands the steepest office rentals in Dubai and where many signature projects are heading towards their completion dates.
Currently the large tenants are still monitoring the market’s state and prepearing to move in only when the buildings near completion. Indeed, Morgan Stanley in its recent overview of the MENA real estate sector projects Dubai’s office space to grow at a robust CAGR (compound annual growth rate) of 46 per cent between 2007 and 2010. This would lead to a per capita gross leasable area of 3.7 by the end of the decade, it estimates.
A great opportunity for large property funds, local or otherwise, is to acquire large chunks of the impending office supply and then leasing it out to large corporate clients.
Property funds are the feature of the commercial property landscape in mature markets, it could be that they were awaiting clarity and a good degree of transparency before doing the same in Dubai, which is now starting to arrive with Escrow, RERA and Title/ Mortgage registration.