Office space grows, office space fills
Oversupplied though the office market may be, a combination of attractive office space deals, good regional location, and a smaller supply pipeline should be keeping those in the industry upbeat.
October 7, 2010 4:05 by Eva Fernandes
In a less than an earth-shattering revelation, real estate adviser CB Richards Ellis has found that the UAE is the most favoured location for head offices in the Middle East.
It comes as no surprise to Kipp that the business centre of the Middle East (after all, like it or not, that’s what Dubai is) should come out first in a competition for best business location. While these findings are sure to be used by PR companies in the real estate sector to secure contracts for office space, the question for us is, do they really need it? Kipp took a closer look at Dubai’s office market.
Oversupply in the real estate sector in the UAE is one of the reasons for the somber mood at the ongoing Cityscape Global. And just like with residential markets, there is a significant oversupply of space in the office market. To begin with, according to a Jones Lang LaSalle report, by the close of the third quarter of 2010, the total stock of completed office space in Dubai was recorded to be 51 million sq feet. It’s a figure that is expected to rise by 7 million sq ft at the close of the year alone. And, though proposed developments have been significantly reduced, a further 24 million sq ft is scheduled to be completed at the end of 2012.
Yet JLL says it is expecting plenty of opportunities for the oversupply to be absorbed in the coming two years. For one thing, there has been a serious slow down as many of the “mega-projects” have been put on hold (read: scrapped). Until the resolution of the debt issues of Dubai World Group, projects like Downtown Jebel Ali, Nakheel Tall Tower and Waterfront are paused. Property giant Nakheel recently confirmed the freeze remains on most planned commercial properties as it concentrates on finishing six ongoing priority projects.
As building developers adjust the timing of their scheduled projects, it is predicted the market will be able to absorb some of the current excess supply as completion levels gradually lessen over the coming years.
What this means for tenants:
Oddly enough, in another of its reports this week, Jones Lang LaSalle has named Dubai as the fastest growing occupied office market in the world on a per capita basis. To be exact, they record that “Dubai has been the fastest growing city globally in percentage terms (calculated as the change in occupied office stock between January 2008 and July 2010, divided by the total occupied stock in January 2008).” In other words, for all the oversupply, space is being filled faster than anywhere else in the world.
What do these developments mean for tenants? Well, it’s only positive. They get cheaper rents in an increasingly vibrant professional environment. Sure enough, the JLL reports also noted that the market has moved favorably towards the tenants as available office space increases and rents decrease. And they also point out that tenants are often taking full advantage of the abundance of options available to them and upgrading to better options. Meanwhile, it sounds as if those regional HQs will keep arriving.