Dubai office rentals offer 18% returns
The demand for office space in Dubai continued to soar last year, with huge increases in capital values recorded in locations where new buildings are nearing completion.
The increase in sales prices, which was revealed in Asteco’s quarterly market research, has led to the city commanding one of the highest global rental yields for commercial premises – ranging from 17 per cent to 18 per cent.
According to Asteco’s 2007 fourth-quarter report, rent for office space increased by about five per cent on average over the last quarter, with areas such as Sheikh Zayed
Road and Oud Metha seeing the highest increases of six per cent and 12 per cent respectively.
And, when compared to the previous year’s rates in the fourth quarter, Dubai’s office rentals saw a significant increase of 44 per cent, with occupancy rates continuing to hover between 97 per cent and 99 per cent.
“The price increases reflect the fact that Dubai’s commercial sector has almost no liquid secondary market at present,” said John Allen, Director, Research Valuation and Consultancy, Asteco, in a statement.
“The limited delivery of new office accommodation over the past few years has resulted in a persistent market undersupply, resulting in strong increases in office rental rates and sales prices.”
Asteco anticipates prices of commercial units will witness another surge as these buildings near completion next year.
“We believe there will be another spike in office rental and sales prices this year too. This is because people are willing to pay higher prices for a tangible asset, as opposed to a concept design,” said Allen.
Asteco’s report also states that there will be a shortfall of approximately 18 million square feet of office space next year due to construction delays; 29 per cent of this office space supply is expected to come from the Business Bay development.
Allen believes that as the final touches are added to new commercial premises, the market will change in favour of those wishing to lease ready office space.
“We would imagine that landlords will become more competitive as the supply increases,” he said.
“We expect to see more high quality finishes being offered and offices tailored to suit tenants’ requirements. More importantly for businesses, rents will stabilise and reflect true market values,” Allen said.
An additional factor likely to impact the commercial property market in 2008 will be the application of the new “green rules” that will come into effect from early 2008.
Following an earlier directive by His Highness Sheikh Mohammad bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, developers are now being asked to comply with new standards, which have been drawn up by the Dubai Executive Council’s Committee for Green Buildings.
“Contractors are now being requested to adhere to the new standards to ensure a healthy and environment-friendly lifestyle in the UAE,” said Allen.
“Although in the long term this will help promote a better quality of life, in the short term it will involve an increase in construction prices.”
Asteco believes that confidence among investors and end-users to lease commercial premises will strengthen next year.
“Although we anticipate the number of new projects being announced will decrease due to higher costs being passed on to developers, we will see more companies being set up in Dubai because of continued economic growth, new government initiatives and direct foreign investment.”
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