A new report from Better Homes points to a huge appreciation in values for several Dubai International Financial Centre buildings in the past three months, and notes that since the start of 2007 land prices in Business Bay have increased by almost 40 per cent.
Office rents in Dubai are now ranked just outside the global top 10 at Dhs329 per square foot. Commercial office rental rates in Dubai have remained high and continue to rise at remarkable rates even when compared to more mature international markets.
Better Homes cites low vacancy rates - holding at around one per cent since the beginning of the year - as evidence of the supply-side deficit. On the other hand, the report strikes a note of caution:
'In 2008, Dubai's office space is expected to double with the delivery of the first significant chunk of the 51 million square feet of office space expected to come online between now and 2010. By then, all of the office space should finally be delivered and the stock of commercial space in the emirate will have tripled.'
However, in the medium term, demand for space is expected to continue to exceed supply as the commercial office market in Dubai continues its expansion. Delays continue, as the report notes:
'Problems with water and electricity supply have delayed the handover of a number of developments in master-planned communities like JLT (Jumeirah Lakes Towers) and Discovery Gardens. The raft of delays is likely to extend the length of the supply shortage and therefore, prolong the high levels of pricing growth we have witnessed in the last three years.'
Significant handovers have included the Twin Towers office buildings on Sheikh Zayed Road, which have approximately one million square feet of Grade A office space. Early tenants include Fitness First and Starbucks. The report says that with lengthy waiting lists for free-zone offices, the Twin Towers is in a good position to capitalise on the high demand.
For its June pre-launch, Schon Business Park in Dubai Investments Park was Dhs725 per square foot for bulk purchasers. The official launch price was Dhs1,010 per square foot and 70 per cent of the project sold out within two weeks. 'Over 80 per cent of the purchasers were investors with end users continuing to secure space which is closer to delivery,' said the report.
Bust to follow
Hence in the short term the Dubai commercial property boom looks set to continue. However, this does increasingly look like a classic property boom and the inevitable bust that will follow may prove painful.
The advantage for Dubai is that by then the city will have a splendid new business office infrastructure built to world standards, and if it then becomes cheaper for occupants, that will clearly help Dubai cement its position as a regional financial and business centre.