Time for a makeover for Dubai’s old office rentals

Published February 18th, 2016 - 09:00 GMT
Upscale office rentals are forcing older properties to upgrade to remain competitive. (File photo)
Upscale office rentals are forcing older properties to upgrade to remain competitive. (File photo)

For landlords of older office properties in Deira, there’s work to be done on makeovers.

For the first time in years, a significant gap is starting to build up between rentals — at the top end of the scale — commanded by offices in Bur Dubai and those in Deira.

Upscale office properties in Bur Dubai are commanding an average of Dh140 a square foot against the Dh120 for similar ones in Deira.

“There was always this balance between office rentals on either side of the Creek — that it’s not there now means Deira’s office buildings will need a refresh soon, more so, because there is limited space available for new constructions on both sides,” said Faisal Durrani, head of Research at realty services firm Cluttons.

“And rents are flattening out at the upper end because they are already at the maximum — or very near what — they can attain on lease renewals. Landlords [in Deira] will need to commit to updating their properties and amenities offered to close the gap with Bur Dubai again.”

Not that landlords in Bur Dubai should be sitting pretty. With so much of strata-owned office space getting added in the Business Bay cluster, there is every incentive for businesses based in Bur Dubai to relocate to a more central address.

Small differential

As of now, the differential between what an entry-level location in Bur Dubai fetches [around Dh60 a square foot] and one in Business Bay [at about Dh70] is not too wide to dissuade someone from moving.

“Business Bay continues to be dogged with oversupply, and that could be what can prompt some occupiers based in ‘Old Dubai’ to shift,” said Durrani. “There [are] a lot of units [with an area of] of 1,000-1,200 square foot in Business Bay that small and mid-sized businesses might find attractive at current entry-level rents.”

Even Grade B specification offices in Jumeirah Lake Towers (JLT) are feeling the pressure of more supply being circulated.

“Our data suggests that entry-level office spaces there were down 13 per cent on asking rents,” said Durrani. “That’s been because of the heavy undercutting of rents by property owners trying to get tenants to commit to a deal.

“The oversupply and cheaper rents are also being recorded in the tertiary schemes at Al Barsha — these have offered up cheaper alternatives for businesses.”

Cluttons’ data estimates that at JLT, both the lower and upper limit rents declined over the last 12 months, by 13 and 10 per cent respectively to Dh70 and Dh180 per square foot.

Tecom shines

And the office location showing the strongest demand and upbeat rents last year was the Tecom zone, featuring the Internet and Media cities as well as Knowledge Village. Offices there recorded a 10 per cent average rise in lower limit rents to Dh165 a square foot, while on the upper limit it rose 13 per cent to Dh225.

Leasing demand for the Dubai Trade Centre District offices — with one of the highest quoted entry-level rates at Dh190 — is running strong and Dubai Design District continues to gain strength.

“Both launched in the past 18 months offer opportunities for both DED- [Department of Economic Development] licensed and free zone occupiers within the same development,” according to the Cluttons report.

“Dubai Design District’s lower- and upper-limit free zone rents have registered a 67 per cent and 28 per cent rise respectively since launch, pushing them to between Dh150-Dh165 per square foot. This sharp rise was underpinned by the gradual fading of favourable terms offered to initial occupiers.”

At the Trade Centre District, “There is little disparity in the lower and upper rental levels. Strong take-up of Phase 1 bodes well for Phases 2 and 3, which are due to come on stream in the next two years.”

By Manoj Nair

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