Landlords offer 'plug and play' offices

Landlords looking to lease their offices as soon as possible are cashing in on the 'plug and play' concept in Dubai these days. Tenants get fitted-out offices and can start operations from day one without having to incur any expenditure.

This is the latest trend that is being witnessed in the office leasing market besides the rent-free period that landlords are doling out to tenants in Dubai.

"In the past, 85-90 per cent of offices that were leased out in Dubai were not fitted-out. Now, landlords are giving fitted-out offices in many locations," Porush Jhunjhunwala, Manager, Commercial Leasing at Better Homes, told Emirates Business.

New tenants have an excellent opportunity to select quality premises and owners of buildings that are entering the market have to offer fitted-out offices as an inducement, as the demand for shell-and-core properties dwindles in the city.

According to Jesse Downs, Head of Research and Advisory Services at Landmark Advisory, "This is happening already in vacated offices – previous tenants vacate the office without returning it to the shell-and-core state and the landlords offer the fitted-out office as an incentive to prospective tenants."

"We're also seeing developers of new office space considering this as an option for upcoming supply. This is slightly more complicated because the developer incurs additional construction cost. Any developer considering this should first understand the end-user demand and specifically what type of fit-out is preferred by potential tenants before undertaking the expense of fitting out office space," she added.

Jhunjhunwala said: "Let's take the case of Jumeirah Lake Towers [JLT]. The average office size for lease in JLT is about Dh2,000 per square foot and the average rent in the area is Dh100 per sq ft. The basic fit-out cost, ie just the flooring and ceiling for such an office, is somewhere between Dh40 and Dh50 per sq ft. So, the rental in this case will be Dh200,000 per annum and the cost of the fit-out will be Dh80,000 to Dh100,000.

"The landlord is willing to spend this amount if the tenant enters into a three-year contract amortising over a period of three years. Sometimes even the partition and the furniture are provided for use. Earlier, this cost was met by the tenants."

Besides, the trend of offering rent-free period is rampant, and in some cases this may be 12 months rent-free period if a contract of five years is signed.

"Instead of giving complete reductions, landlords prefer to give rent-free periods. This is helpful to the landlord in case he does not want to reduce the value of his property as the face value of the contract does not show a decrease," he said.

Good examples in this category are many buildings in JLT. "Fortune Towers, Indigo Icon and HDS, Barsha, Tecom Sector C, Silicon Oasis and DIP are good examples. Spaces in these buildings have been sold to individual owners but people are willing to offer such deals there," he said.

Many buildings in Business Bay such as Executive Towers, One Business Bay and Bays Water are other places where maximum rent-free periods are easy to get.

"We have seen many tenants break their lease over the past seven months because their business was down and could not sustain paying huge rents. We have also seen some tenants not renewing their leases because they are getting office spaces in prime location with attractive rentals with flooring and ceiling done, good parking facilities, access, flexibility in payment terms and additional rent-free period," said Jhunjhunwala.

In one of the iconic towers in Tecom, landlords are offering a one-year free stay if a contract of five years is signed. Moreover, some buildings in Tecom have been converted to DED licences buildings, such as Media 1, BCT B, Concord and Aranco Tower.

There are a few vacancies in some of the Tecom buildings so tenants are benefitting from inducements. "Landlords in Tecom are not allowed to rent below Dh200 per sq ft, but they are giving additional rent-free periods," said Jhunjhunwala. "Many tenants are getting the rent-free period. Aramex, Intralink, Bateel, Rani International, Kunooz Travels, Hanan Shipping, Arab Orient Insurance and International Art are a few examples."

Moreover, tenants are asking for better exit clauses in the contract. "Before the downturn hit, landlords asked tenants to get a new tenant if they wanted to vacate. In many cases tenants took a hit of six months or more in rent if they vacated the premises earlier than mentioned in the contract. That has changed too. Landlords are flexible on this as well," said Jhunjhunwala.

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