The bargaining power has shifted from the seller to the buyer in Dubai with the market witnessing downward pressure on prices and lease rates, says a new report.
"This shift becomes very beneficial to purchasers of commercial property when negotiating the price, payment terms and sales agreement, and is equally beneficial to tenants who can negotiate lease rates down, reduce fees, request better renewal terms and lower rent increases in their agreements. For the first time in many years, real estate in Dubai has become a 'buyer's market'," Better Homes said in its fourth quarter report on commercial real estate.
Speculators have vanished from the market and this has put emphasis on finding the right property, with the right amenities, in the right location, for the right price, the report said.
Likewise, popular commercial areas in Dubai are also starting to feel downward pressure with asking annual lease rates in Dubai Media City, for example, dropping as low as Dh240 per square foot, levels last seen in September 2006.
As nearly all speculators have left the real estate market, the investment focus will shift from "flipping" properties, to making more informed, long-term investments in yield products.
"This shift will expose poorly designed commercial space for what it is, and will benefit product that was developed with end users in mind," the report said.
As Dubai's market continues its maturation process, some very appealing yield based investments in commercial space may present themselves while prices and lease rates continue to fall.
Demand in industrial space has remained relatively high for quality products that are finished or about to be completed. Labour camps have only been slightly affected by the current economic conditions, but generally a supply shortage still exists, especially for quality products.
With the Dubai Police Human Rights General Department planning to intensify inspections of labour accommodations this year, quality accommodation will be in higher demand.
According to Better Homes, Jafza warehouse space is renting at between Dh45 and Dh65 per square foot and Dubai Investment Park between Dh35 and Dh50 per square foot. Besides, average rent per room in Dubai for new or nearly new labour camp accommodations is between Dh5,000 and Dh5,500 with there being outliers for very poor quality and very high quality.
New labour accommodation is about to hit the market in the first quarter as many developers are soon taking delivery of high quality accommodation. Pressure is also causing many businesses currently located in Al Quoz to lower occupancy costs and relocate to new high quality warehouse facilities in Dubai Investment Park and Dubai Industrial City with plenty of parking, power and accessibility at significantly lower costs.
The supply of retail space in Dubai is expected to increase by about 50 per cent to more than three million square metres of gross leasable area (GLA) within the next two years, but this may not be sustainable, especially in today's economic climate, according to the report.
The potential oversupply of shopping mall retail space, coupled with the current economic climate, will place significant downward pressure on the leasing rates at malls. It is also probable that some of the older malls that do not achieve the footfall of the newer ones will have to refocus their target market.
Convenience retail will be prevalent in new developments to cater to the needs of the end users who will ultimately be purchasing in these developments.
Following are a few points of interest with regard to retail in Dubai.
The retail sector in Dubai has seen exponential growth of total gross leasable area over the past few years. Dubai has focused on "destination shopping malls" to create demand generators for tourists and has successfully done so.
However, with the ailing financial system and poor global economy, these destination shopping malls will be hard pressed to continue to see the revenues achieved in the past few years, Better Homes said.