Commercial rents across Dubai have stabilised with none of the major Central Business District’s registering a decline in the third quarter, compared to the previous quarter, according to Cluttons.
This is despite vacancy rates being on the rise, the real estate agency said. Average rents on Sheikh Zayed Road remained steady at Dh90 per square feet per annum in the third quarter against the second quarter.
A noticeable change was nevertheless seen among landlords who in an effort to retain their tenants were now offering larger rent-free periods and even paying up agency fees.
“Lease terms offered by landlords are generally becoming more ﬂexible and attractive to tenants with the offer of larger rent free periods twinned with longer leases in order to decrease void levels. The number of landlords willing to pay agency fees is also increasing as it is recognised that this liability can no longer be placed upon the tenant given the dynamics of the market,” Cluttons said.
“It also is helping eradicate any conﬂicts of interest that exist when a transaction takes place and stops agents from billing both the landlord and the tenant. As more and more landlords adopt the above strategies it will help drive Dubai’s property market to a higher level of maturity,” it stated.
Rents in Tecom (A&B) and Business Bay remained at Dh100 and Dh65, respectively, while Jumeirah Lake Towers and Dubai Silicon Oasis stood at Dh40 and Dh30, respectively.
Jones Lang LaSalle (JLL), in a report released last month, had said rentals for prime buildings have been relatively stable over the last four quarters. Although prime rents within the CBD (excluding the DIFC) have remained stable at around AED 1,615 per square metre per annum, many of the older buildings along Sheikh Zayed Road within the CBD area have seen rentals decline as they compete with new supply.
Cluttons had reported earlier of a trend of larger occupiers choosing to relocate from Bur Dubai and Deira to newer CBDs, and it continued to hold the same view. Rents, however, in Bur Dubai and Deira remained at Dh70 per square feet.
Vacancy level rises
Cluttons believes vacancy levels will move closer to 50 per cent mark as an additional 12 million square feet of ofﬁce space is expected to be delivered to the market by year-end.
The bulk of space will be delivered mostly in JLT, Tecom C, Business Bay and Silicon Oasis. Although these areas provide a choice for smaller businesses, they are generally not favoured by larger companies, who prefer to secure long-term leases in single ownership buildings where an effective management structure is in place.
According to JLL, approximately 224,000 square metre of additional office stock was completed in Dubai, bringing the total completed office stock to around 5.7 million sq m in the third quarter. The most significant completions were in Jumeirah Business Centre 1 in JLT, The Metropolis and Aspect Towers in Business Bay and Boulevard Plaza in Burj Khalifa Downtown. It expects an additional 0.2 million square metre is likely to be completed by year-end, taking the total stock to around 5.9 million square metre.
Despite increased supply, JLL said vacancy rates have remained relatively unchanged during the third quarter. Vacancies in single ownership buildings remain at 27 per cent, while the average citywide vacancy stands at 44 per cent.
“Strata buildings do not provide this security with private landlords happy to lease space to companies regardless of covenant strength or reputation in order to generate a return on their investment,” Cluttons said.
DIFC costliest among CBDs
Rents in Dubai International Financial Centre (DIFC) remained stable at Dh250 per square foot –the highest among all Dubai CBDs.
According to Cluttons, vacancy rates have increased within the DIFC as a number of commercial buildings within the free zone have been brought to the market. “This is creating increased availability in some of the commercial towers surrounding the DIFC as a number of large businesses are relocating their satellite ofﬁces back into the DIFC now that there is an oversupply within the free zone,” it added.