Rental income set to fall in Dubai

 

Dubai is experiencing a shortage of affordable rental property which has driven rents up in both residential and commercial property. Dubai has over 27 million square feet of office space under construction. The Central Business District alone has office space totals to about 15.86 million square feet. Mr. Ian Albert, Regional Director, Colliers International remarked on the situation revealing that  Dubai office space is equivalent to that available in Geneva, Rio De Janeiro, Beijing and Singapore.

 

Currently it is a landlord’s market in Dubai with the rents being determined by the landlord. Negotiations for tenants is  tough as office space is at a premium due to the limited supply.

 

Within the next 3 years the increase in real estate supply is expected to tilt the balance of power from the landlords to the tenants. Accordingly a decrease in rentals is anticipated.

 

Currently the rents in the prime commercial zones registered an increase of between 28 to 30 percent in the last nine months.  This was especially true for Grade A buildings on prime locations such as Shiekh Zayed Road and Dubai International Financial Centre.

 

Even for Grade B or C buildings and for those that are not located in the prime property zone, this has been a time of economic boom. Rentals have shot up without any additions to the existing facilities in a lot of properties. Again due to the shortage in supply, tenants have been at the receiving end and have had to stay put.

 

A huge number of multinationals have held back their expansion plans due to the high rental costs. They prefer to wait and move only when the market turns in their favour.

 

Unduly high rentals have also hit at a huge number of independent operations and small companies. The boom has been one sided in favour of the landlords till now.

 

Year 2010 will see a role reversal with the tenants dictating the rents and the landlords bending backwards to fill in their properties. An increasing supply of commercial properties for sale is also another reason why rents would fall. Companies are planning to purchase office space and build up their asset base rather than spend on rent.

 

Not only will the rents fall, but also the payment terms, rent free periods and lease conditions will be highly negotiable as opposed to the current situation.