Dubai’s office market continues to suffer from an acute shortage of space, with 98 per cent occupancy in the new financial zone, the Dubai International Financial Centre, which has been hugely successful in attracting global financial firms to the emirate.
The latest recruit this week is Thames River Capital, a boutique fund-of-funds investment manager based in Berkeley Square. The latter told AME Info that rents in this prime London location had fallen by around 30 per cent and that the rent it had just agreed in Dubai was not far off the rent it had just paid for additional space in Mayfair.
It requires only a little imagination then to see that if the UK enters a recession, and the financial services sector already seems to be in one, then rents in Mayfair will fall further. Meanwhile, new companies are arriving in Dubai every day, particularly in the financial services industry as the attractions of Gulf oil revenues are magnetic.
The DIFC is the most expensive district in Dubai followed closely by the nearby offices of the Sheikh Zayed Road, actually the closest Thames River Capital could get to the DIFC which is effectively full.
A new report from local investment bank Shuaa Capital suggests that new commercial space coming on stream this year will be picked up rapidly.
‘Starting in 2009 we expect to start witnessing a more rapid switch for many companies from the older CBD to the new one along the Sheikh Zayed Road and further down to the Tecom area,’ says the report. ‘These large office supplies are expected to apply downward pressure on rents, especially around the Bur Dubai and Deira area.’
However, that would still leave very high rental levels in the DIFC in 2009 at a time when in the global financial markets rents may be tumbling due to the impact of a bear market. The poor start to 2008 in global equity markets is already leading analysts to project a bear market, with the US likely to officially declare a full bear market as soon as this week.
In a bear market financial companies fire staff with enormous speed and so the demand for office space shrinks, particularly for new space. This exerts a powerful downward pressure on rents which have become inflated during the bull market.
Colliers International last week produced a report showing office space in the DIFC lagging only marginally behind London Prime in cost. So all it really takes is further weakness in London rents and modest growth in Dubai and the emirate will have the most expensive office space in the world.