Massive office construction activity will swing Dubai market in tenants' favour

In the company's Global Office Real Estate Review 2007, Dubai is ranked third in terms of global office real estate construction activity, behind Moscow and Shanghai. The emirate has in excess of 27 million square feet of confirmed activity currently under construction - nearly double the existing CBD inventory of 15.86 million square feet.

"To put that in perspective, that's approximately the same amount of office space as Geneva, Rio de Janeiro, Beijing and Singapore. As a result, this influx of space is expected to reverse the current supply-demand dynamics that characterise the market," said Ian Albert, Regional Director of Colliers International.

"Despite strong latent demand for office space, the sheer volume under construction combined with the period of delivery will have a marked impact on the competition between landlords, with a concurrent softening of rental levels and a greater number of tenant incentives on offer."

Colliers anticipates the volume and timing of forthcoming supply will shift the market's favour from landlord to tenant.

"Much of the supply will enter the market within a one to three year window, inevitably leading to a landlord - as opposed to tenant - competitive market. Attractive rental price and payment terms, increased rent free periods and equitable lease conditions, together with improved finishing levels, are expected," continued Albert.

Increased competition will also force landlords to reassess their investment objectives in the future. Colliers advises that a thorough identification of risks and opportunities should be a major factor in any investment decision-making process, and warns investors against basing their actions on information derived from inadequate sources.

"We offer tailored solutions to clients in order for them to meet their investment objectives. Last year alone we consulted on clients' assets worth over AED 35 billion. Our multi-discipline professional capabilities, local market understanding and global experience underpin our ability to understand and identify the clients' risks and opportunities," explained Albert.

"But our value added service is our ability to assist clients in adapting to changing market conditions. As the Dubai and regional markets are constantly evolving, independent expertise is becoming crucial."

However, with the current high demand and low availability of stock, Colliers believe that rental levels being achieved in some of the established locations are being inflated as tenants bid for space.

"Prime locations such as Sheikh Zayed Road and DIFC still retain a premium. But there is a lack of price distinction between areas that would have previously taken into account location desirability in their rental rates, as tenants vie for available space."

At present, Dubai's prime commercial property rents are still on the rise, with rents in Dubai's Central Business District offices registering steady increases over the past nine months. According to the Global Review, leases on high-end (Class A) and premium (Top Class A) space are achieving rents between US$62 and US$83 per square foot per annum respectively - up from US$48 and US$60 for the same in June 2006.

Despite these considerable rental increases, Dubai is still significantly less expensive than London, Hong Kong, Tokyo, Moscow, Paris, Dublin, New York and both Mumbai and Delhi, and ranks 13th in Colliers' Global Survey of the top 25 Office Occupancy Cost destinations.

"Even with many of the world's financial centres registering sizeable rent increases in the last nine months, Dubai has managed to maintain its reputation as one of the most competitive global cities to rent office space," added Albert.