Strata ownership in Dubai's commercial property sector will surge by 405 per cent by 2012 and by 74 per cent in the emirate's residential sector in the same period as single ownership as a share of total ownership will witness a significant decline in the next three years, data released by CB Richard Ellis (CBRE) showed.

In its real estate market update for May, the real estate consultancy said existing office space in Dubai currently stands at 4.70 million square metres, with 14 per cent strata-owned and 86 per cent under single ownership.

Notwithstanding additional construction and infrastructure delays, CBRE data reckons 3.37 million square metres of additional office space will enter the Dubai market by the end of 2012.

Of this, 2.67 million sq mt of the new office space will be in the strata segment, compared with the current 0.658 million sq mts, and just 0.70 million sq mt in single ownership, compared with the current 4.042 million sq mt. Major tranche of the space is expected to emerge from the Business Bay and Jumeirah Lakes Towers developments.

Since 2007 until the first quarter of 2010, around 1.92 million sq mt of new office space entered the Dubai office market.

The highest increase was witnessed in the first quarter of 2008 when an additional 0.54 million sq mt of space came on stream.

Prominent office towers opening during that time were Emaar Square, the office tower in Dubai Festival City, the Emirates airline headquarters building, Business Central Towers, and Concorde Tower in Tecom.

Of the total existing office stock (4.7 million sq mts), around 42 per cent was among the eight different free zones such as Tecom, Jebel Ali Free Zone, Airport Free Zone and Dubai International Financial Centre. CBRE said buildings managed by free zone authorities have enjoyed high occupancies ratios since their inception. Colliers International recently said it expects 2.5 million square feet of office space to enter the market between now and end of 2011, taking the total office space to 6.4 million sq mt. Dubai, Colliers said, had an office supply of three million sq mt at the end of 2008, with occupancy rates in Grade A office buildings hovering close to 98 per cent.

CBRE, however, said lease rates dropped from their highs of Dh5,380-Dh5,920/ sq mt/annum in the third quarter 2008 to Dh1,938-Dh2,400/ sq mt/annum as of first quarter 2010, in the core central business district.

DIFC Authority, the CBRE report said, quotes rents in the range of Dh3,336 to Dh4,036 sq mt/annum.

The first half of 2008 saw highest appreciation of sale rates for office space across all tiers of the market. Prime location is referred to as office space from the Dubai International Financial Centre, Business Bay and Burj Dubai, while secondary locations refer to Dubai Marina, Jumeirah Lakes Towers, Tecom, and Downtown Jebel Ali. Tertiary locations are Jumeirah Village, Dubai Silicon Oasis, Dubai Sports City and Dubai Investment Park.

 

Stock units on stream

According to CBRE data, there are currently 350,700 residential dwellings in Dubai, of which 27 per cent is strata owned and 83 per cent with single ownership.

By 2012, 82,452 units will be added to the exiting supply, taking the total number of units to 433,152. Of the additional units, strata units will be 70,032 while single owner will be 12,420.

Colliers, on the other hand, has estimated the entry of 41,000 additional residential units between now and year-end. The highest increase in residential units was between 2007 and 2008, with 21,000 units being released in International City and 26,000 units in Discovery Gardens. Dubai Marina, Jumeirah Lakes Towers, Palm Jumeirah and Tecom also contributed to the new supply.

All locations are experiencing a drop in lease and occupancy rates, with the worst affected being properties completed in the last 12 months, the report said.

However, there was not much differentiation in the drop in lease rates in freehold and non-freehold locations. The average lease drop (year-on-year) was 41 per cent for units in freehold locations, while the decline was 40 per cent in non-freehold locations.

The first half of 2008 saw highest appreciation of sale rates for high as well as mid-end apartment categories.

The difference in prices for high and mid-end in 2005 was 95 per cent, reaching a high of more than 200 per cent in 2008. Currently, it has bottomed up to the 2006 levels. High-end is referred to properties from the Dubai Marina, Dubai International Financial Centre, Business Bay, Burj Dubai, while the mid-end comprises of Jumeirah Village, Dubai Silicon Oasis, Dubai Sports City and International City.

On the market outlook, CBRE said: "Increased supply from the residential sector will see further drop in lease rates. However, the effect would be higher on villas than apartments.

"The transaction market would see some activity at the backdrop of positive news from the government as well as drop in mortgage rates by banks."

 

Capital's vacancy woes

Abu Dhabi's Grade A office space will see an additional supply of nearly 390,000 sq mt by 2011, as vacancies may reach double digits during the same period, CBRE said.

Vacancy rates have crept up from less that one per cent in 2008 to up to two per cent in 2009. The rate is expected to be between eight and 10 per cent in 2011.

Although headline office rents peaked in the third quarter 2008, rents in the first quarter 2010 were 52 per cent lower against peak rents achieved in the third quarter 2008.

According to CBRE, new residential products to enter the market by 2010 are estimated in excess of 10,000 units. Majority of the upcoming new developments will cater to the upper middle to high-end segments.

After five consecutive years of upward trend on rental rates, Abu Dhabi witnessed an overall drop in residential rents during 2009. But residential units situated within the central business district (CBD) still reflect relatively strong rates compared to housing units situated off-island locations.

Current market conditions, however, have forced landlords to relax the usual payment terms and are now open to negotiations with tenants. Residential units situated within the CBD still reflect relatively strong rates as compared to housing units situated off-island locations, the report said

Developments near completion registered the strongest rates. On the average, sale rates for residential apartments on Reem Island and Al Raha Beach range between Dh1,050 and Dh1,400/sq ft during the first quarter 2010.

Affordable housing, CBRE believes, is now one of the major issues plaguing the residents of Abu Dhabi and something that needs to be addressed at government level. Developers are now concerned about price sensitivity of end-users/investors and are open to redesigning (such as size, finishes) large scheme plans to incorporate housing units for low to middle income market.

"Prime office rents to experience steady rental growth as occupiers are now more conscious with the value for money. Increase in overall supply levels will ease up rents and increase bargaining capacity of tenants and occupiers. Those products with higher specifications will enjoy comparative advantage against its competitors," the report said.

Residents will see more trade-off between location and rental rates, but drawbacks for these locations do exist in the form of limited access to public transportation systems and proximity.