Elaine Jones, CEO, Asteco Property Management
Enquiries for leasing office space in Dubai were up 20% in the first two months of 2011, according to the latest figures released from UAE-based property management company Asteco, ahead of its Q1 2011 report.
The increase is being driven by a number of factors, such as the flight to quality within Dubai and the Northern Emirates and an inflow of capital from international and regional investors and corporations amid the regional uncertainty.
According to Elaine Jones, CEO, Asteco Property Management, the UAE’s political stability, well-established financial credentials and strategic location has always attracted inward investment and currently could well be viewed by many as a safer haven.
“Many organisations wishing to mitigate risk are likely to seek more stable business locations such as Abu Dhabi and Dubai. One benefit of this is that it at least maintains a regional foothold and or alternative business location if only temporarily,” said Jones.
International bank Credit Agricole estimates that the Egyptian economy is losing as much as $310 million per day, as political uncertainty continues. It has already been widely reported that businesses are now facing the consequences of a corrupt regime that has allegedly ‘stolen’ over $40 billion from the public purse.
The Egyptian bourse which has now been closed since January 27th was due to reopen on Monday 7th March but it has been postponed indefinitely - a major bear run is widely expected by traders, especially as the bourse lost 16% in the last two trading sessions before its closure.
The Ministry of Finance auctioned bonds worth $4.9 billion out of a total of $7.4 billion as yields on 266-day notes climbed 31 basis points to 12.47% on Monday 7th March. As a point of comparison, the yield on German two-year notes stood at 1.78% and 3.32% for 10-year bunds.
According to Bloomberg and other agencies, leading international brand names including Coca-Cola, Cisco Systems, GlaxoSmithKline and Volkswagen are among those to close their offices in Cairo, at least until domestic security and trading conditions improve. The pharmaceutical company GlaxoSmithKline alone employed some 900 people in Egypt.
Danish shipping giant A.P. Moller-Maersk, maybe considering relocating its Middle East headquarters. The world’s biggest container shipping company, which employed more than 7,000 people in Egypt, has closed its offices in the country. In maintaining an on-the-ground presence, it is likely Dubai will be high on its list of potential new regional headquarters.
The growth in enquiries for office space at Asteco also supports other indicators of a strong local business climate, with Dubai Economic Development announcing recently that they had issued 13,817 trade licences in 2010, a 17% year-on-year increase
It is important to emphasise that, although prices for office space may have slipped by 10%-15% since Q1 2010, the decline is now at a much slower rate. “The market is displaying remarkable resilience, especially with so much new supply still coming online. It is absorbing much of the new supply without having any significant detrimental impact on leasing rates,” Jones added.
Approximately 15 million square feet of office space was added to the market in 2010, taking total office space in Dubai to 48 million square feet. Occupancy levels vary depending on the development, but on average the vacancy levels were estimated at 38% last year and could rise to 50% if the projected 12 million square feet of commercial space is handed over in 2011.
There have also been considerable internal movements with areas such as Sheikh Zayed Road, DIFC, Barsha and JLT witnessing higher levels of enquiries due to company’s focusing more on location, value for money and quality.
“Much of the recent rise in local enquiries is focused on the flight to quality, a trend Asteco identified in early 2010. Companies can now relocate and upgrade within Dubai to quality office space for little or no supplement, with most of the leasing enquiries for 1500 to 3000 square feet of space in single owner developments, ” Said Vineet Kumar, Head of Business Development at Asteco Property Management.
A corresponding boost in residential tenancies is also another positive knock-on effect of the shifting corporate landscape throughout the Middle East as companies look to relocate. Naturally office workers need housing and Dubai’s value-for-money and plentiful residential units makes it an even more attractive proposition.