| Kippreport.com

Commercial real estate slump is good

September 19, 2010 3:24 by Samuel Potter

A new report from Jones Lang Lasalle has given hope to both Dubai’s real estate market – in particular commercial real estate – and to the wider economy.

Following a prolonged period of declining prices and falling occupancy, JLL says it expects the central business district to begin a tentative recovery. It puts the falling occupancy not down to a lack of demand, but rather down to an increase in supply.

“In response to [a] rapid rise in demand, Dubai undertook a supply-led business model based upon a ‘build it and they will come’ philosophy. The significant amount of new stock has therefore tended to mask the substantial increase in occupier demand in recent years. As with other emerging markets, the pace of supply has exceeded the growth in demand,” says the report.

But, citing its observations of other economies (both developed and developing), Jones Lang Lasalle says commercial real estate vacancies are likely to fall in the central business district, allowing prices to recover and return to sustainable levels by 2013 or 2014, it says.

“The clear learning from overseas cities such as Shanghai, Singapore and Moscow is that office markets all go through periods of excess supply similar to those characterising Dubai at the present time,” commented Graham Coutts, Head of Management Services, Jones Lang LaSalle MENA. “The experience of these cities is that vacancies do not remain at excessive levels for sustained periods and vacancies for CBD space typically fall to more sustainable and balanced levels within 2 to 4 years. We expect Dubai to follow this same pattern with vacancies for CBD space peaking in 2011/ 2012 and then declining again over the following 2 to 3 years.”

It’s not such good news for areas beyond the central business district, however. JLL says that vacancy levels everywhere outside the CBD else could increase to more than 50 percent. “Without radical moves to restrict future supply and remove some existing stock, it is likely that vacancies will remain at high levels in these locations, with many buildings having little or no prospect of attracting tenants in the foreseeable future,” says the report.

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Tags: central business district office space, commercial real estate, commercial real estate dubai, commercial real estate space, commercial real estate supply, commercial real estate uae, commercial space, dubai commercial real estate supply, office real estate, office space