Brokers predict glut of Dubai office space

Landlords in Dubai may miss out on an estimated Dh7 billion (US$1.9bn) in rental revenue within two years because half of all office buildings are expected to be empty.

Analysts predict that supply in the commercial sector will almost double by 2011, as companies are trimming costs and cutting jobs, leading to further falls in commercial rents.

"Office speculators will be hit and lose money. This is good for occupiers," said Matthew Hammond, the head of agency at Jones Lang LaSalle MENA (JLL).
Landmark Advisory, the consulting branch of the property broker Landmark Properties, estimates that about 2.97 million square metres of new space will hit the market by 2011, versus 3.25 million sq metres today.

Mr Hammond said the figure was in line with JLL estimates. "While the new stock is likely to double the size of the office market, it is substantially smaller than what was planned initially."

Office space in the emirate is now selling for 10 per cent less than three months ago, representing a decline of 48 per cent from the peak of the market last year. Prices today are at a level last seen in mid-2006.

Office construction accelerated towards the end of Dubai's six-year building boom as developers, fearful of an approaching oversupply of residential property, switched to offices from housing. But the wave of newly completed space has arrived just as many companies are downsizing. At the same time, some companies are subletting surplus space, which is putting further downwards pressure on rents.

"There was an enormous spike in the market that was unsustainable. The market now is competitive with other Middle East and African office centres," Mr Hammond said.

Despite the expected rise in empty office space, prime locations across the emirate will continue to enjoy almost full occupancy, according to broker CBRE, which projects the Dubai office rental market's value to rise, despite the increasing vacancy rates, to Dh7.2bn from its current value of Dh5.4bn.

"Although there may be a level of 50 per cent vacancy, there could also be almost full occupancy for good quality offices," said Nicholas Maclean, the managing director of CBRE. "There is quite a lot of stock coming into the market that will prove difficult to let as a result of being tainted somewhere: strata title, inadequate car parking or utilities, or lifts within the buildings."

"Some offices which are poorly located or qualitatively less appealing are going to have a massive swing in value," added Mr Maclean. "The demand is coming closer and closer into the centre. The prime location is World Trade Centre to junction two."

Developments that will see large additions of new space include Silicon Oasis, Dubai International Financial Centre (DIFC), where 557,418 sq metres is under construction, and Jumeirah Lake Towers, where another 557,418 sq metres will be completed next year, according to Mr Hammond. The vast Business Bay development will also contribute to the glut of new space.

Rents for Business Bay towers, which are nearing completion, are quoted in the range of Dh1,615 to Dh1,884 per sq metre a year. This is a substantial discount to the DIFC, where current leases are priced at between Dh4,036 and Dh4,300 per sq metre.

While the projected oversupply will hurt developer's profits, it may also provide a boost to inward investment as foreign companies seek cheaper locations to service the region. Brokers therefore anticipate more demand as prices fall.

"I think that ultimately it will create a greater opportunity for businesses to come to the region as depressed prices make it more affordable to set up their business there," said David Macadam, the director of commercial properties at Better Homes, a brokerage.

Landmark also expects office demand to gradually increase next year after a year of cost-cutting and consolidation.

"We expect to see a marginal increase in office requirements for existing companies, as well as the entrance of a small number of regional or international companies," the Landmark report said.

As competition for tenants increases, landlords are increasingly offering incentives such as fittings, grace periods and easier payment options.

Brokers also predict an oversupply of office space in Abu Dhabi, but at a much lower level. Abu Dhabi will see the addition of about 2.04 million sq metres by 2012.

"There will be a surplus in Abu Dhabi as well. But the market has reacted quickly to the global economy," said Mr Hammond. "There will be a much more measured delivery of the development pipeline into the market."

Source - © The National 2009

SCA enforces new licence rule

Dubai - The Securities and Commodities Authority (SCA) has started enforcing a rule requiring stockbrokers and broking houses in the UAE to go through a re-accreditation programme for renewing licences.

The programme includes three phases for stockbrokers and four phases for exchange directors, operations managers and internal monitoring officers. All are required to score above 70 per cent in a test in order to get their licences.

However, SCA has decided to give a two-year grace period for those currently practicing these professions to complete the re-accreditation programme by clearing the test. Those joining the sector for the first time have to pass the programme before they can obtain their licence.

The SCA said the tests will start on October 26 in co-operation with the British Securities and Investment Institute (SII).

Ibrahim Al Zaabi, Deputy CEO for Licensing and Enforcement, told a gathering of brokers at Raha Beach Hotel last week that the new programme would benefit the brokerage profession in the country and improve its efficiency and performance.

The SCA official said employees of brokerage companies can register for the exam by filling in the form sent by the authority to the companies starting mid-September and then deposit the fees in SCA's account in Abu Dhabi Islamic Bank for each of the subjects they are to be tested in. Details of the procedures can be obtained from SCA's website.

Once registration and payments are complete, the authority, in co-ordination with the SII, will send the course matter to those enrolled. The SCA will set test dates ensuring least inconvenience for the examinees.

Source - © Emirates Business 24/7 2009

Dubai Property Prices Plunge Up to 70%

DUBAI - Freehold property prices in Dubai have plunged by as much as 70 per cent since March of last year but are poised to bottom out in another six months, real estate brokers said on Sunday.

Dubai's once-booming property sector will see its ongoing sharp correction continue until the start of this year's fourth quarter. Prices will remain flat through 2010 but show signs of recovery by 2011, these brokers said.

"We have already seen prices plummet across Dubai's property sector by 50 to 70 per cent to the level of 2005. We expect the plunge to continue for the next six to eight months to bring prices down to their original level five years ago," said Mohammed Khan, Managing Director of New World Capital, a Dubai-based real estate brokerage.

Dubai's property prices, propelled by a swelling expatriate population, speculative investments and rising construction costs, surged by 25 per cent in the first half of 2008 over the first half of 2007.

The drastic downturn in the last quarter of 2008 and first quarter of this year is evident in varying degrees across most developments in the emirate.

The average price for a villa at the Garden Homes project crashed from a high of Dh15 million one year ago to Dh6 million -- down 60 per cent. The average price of a home in Signature Villas on Palm Jumeirah dropped to Dh12 million from a range of Dh22-25 million, 12 months ago. Apartments in Jumeirah Lake Towers that were selling last year at Dh1,500 per square foot are available now for Dh700 per square foot, Khan said.

The price decline has been less severe for low-cost developments. A one-bedroom apartment at International City dropped from Dh700,000-750,000 range to Dh400,000 while the price of a studio unit there fell from Dh500,000 to Dh275,000.

Khan and other property brokers spoke on the sidelines of a seminar on "Selling in a difficult market" conducted by Judy LaDeur, a US-based property consultant. They painted a market scenario that was starker than the latest study by investment bank EFG-Hermes, which said on Saturday that the Dubai market had entered a period of correction after a sustained period of buoyant activity. The bank forecast overall price declines of 50-60 per cent from peak prices in 2008.

A drop in residential as well as commercial rents is also evident, brokers said. The slide has been more pronounced in areas of New Dubai, where rents have fallen by up to 40 per cent. A. Najeeb, Sales Manager of M.S. International Property, said apartment rents in the more established area of Al Ghusais were also declining fast. A flat that rented for Dh120,000 last year is available now for Dh70,000 at a discount of more than 40 per cent.

More drastic has been the decline in commercial property rents -- almost 60 per cent across Dubai. "We are expecting further rent drop by May-June, when a lot of expatriate families will be going back," Najeeb said.

Hafiz Sohail Ijaza, Property Consultant at Wood Bridge Real Estate, expects the property market will remain balanced in terms of supply and demand through 2009. "We don't see a recovery for the off-plan property sector till 2010."

Bank finance is critical to market recovery, as several projects are on hold or delayed for lack of liquidity. Brokers said their main concern was about a buyers' strike, which would drive down transaction volumes.

Developers have taken steps to try to revitalise the sector. Emaar, for instance, offers a 25 per cent price discount on its Standpoint projects.

© Khaleej Times 2009.