Deira, Bur Dubai firms move to new Dubai

Rents in older business districts fall 7%; DSO, JLT, Barsha witness big declines in Q1, according to Cluttons

Deira and Bur Dubai - the established CBDs of Dubai - are finally witnessing increase in vacancy rates and relocation of companies, looking for larger space, to new Dubai, according to Cluttons.

“Vacancy levels appear to be increasing within some of the older, more established districts of the city such as Deira and Bur Dubai. There seems to be an evident trend of larger occupiers choosing to relocate from within these areas to the CBD (Sheikh Zayed Road/Downtown/DIFC) which has a better quality of stock and has become more affordable,” the global real estate consultancy said in a report on the Dubai realty market.

A number of real estate consultancies have indicated earlier that businesses and banks, which have established their base in the old business districts, have been reluctant to move to newer area where the rents have been declining over a time. Even some real estate funds have shown inclination to invest or buy properties in the older districts since the occupancy levels there have remained high.

An estimated 10 million square feet of space in expected to enter the market, the report said, adding vacancy levels in the market currently stood at circa 40 per cent across Dubai.

Landmark Advisory told Emirates 24/7 last year that office space in Dubai will double to 80 million square feet by beginning of 2015 from 41 million square feet in early 2010.

Jones Lang LaSalle estimates an additional 1.15 million square metres of office space to be delivered in 2011 while putting vacancy rates across Dubai at 40 per cent and 20 per cent in CBDs.

According to Dubai International Financial Centre (DIFC), about two million square feet of commercial office space will be handed over by third-party developers in the next 18 to 24 months.

Although Cluttons says the office market during the first quarter saw a “healthy” increase in occupier demand, it expects rents to fall during the year with more supply entering the market. The consultancy estimates an additional 10 million square feet of new office stock to enter market by year-end.

Steep quarter-on-quarter rental declines were registered in Dubai Silicon Oasis, which fell 30 per cent in the first quarter compared to the fourth quarter of 2010; Barsha, Tecom C and Jumeirah Lakes Towers declined 25 per cent, while Business Bay dropped 14 per cent. Rents in Deira and Bur Dubai registered a small decline of seven per cent.

On the contrary, rents remained stable in DIFC, Sheikh Zayed Road, Tecom A&B and Emaar Square in the first quarter, with rental values ranging between Dh100 and Dh250 per square feet per annum.

“Prices have held steady in more prestigious office locations, such as the DIFC and Sheikh Zayed Road in response to demand. This is an encouraging sign that the market is in recovery mode,” Cluttons said.

Despite the high commercial vacancy levels, Cluttons believes “mixed ownership” of many office buildings and the relative lack of larger space available to lease from a single landlord is holding back the market.

“This has led to some firms such as Standard Chartered building their own office space, tailor made to their own specific requirements,” the report said.

A trend now reported is that of landlords more than willing to pay agency fee besides offering larger rent free periods.

“Not only is this the common practice across most foreign markets, it also is helping to eradicate any conflicts of interest that exist when a transaction takes place as well as stopping agents 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,” Cluttons said.