Latest figures from CBRE’s Office Market View (Q4 2009) show that prime office rents in Dubai-DIFC are €819 / sq m / annum, the second highest market rate in EMEA. Unsurprisingly the number one position goes to London’s West End at €972 / sq m / annum. The other cities that make up the top 5 are Paris (3rd) at €720, Moscow (4th) at €594, with Geneva and Zurich jointly (5th) at €573.
Relative to the rest of its EMEA neighbours, the 12 month loss for Dubai-DIFC has been somewhat less drastic. Moscow has lost 43.3% of its value, followed closely by Dublin on 39.6% and St Petersburg on 38.5%. Dubai-DIFC lost 27.3% of its value, while London West End fared even better, losing just 17.9% of its value.
Matthew Green, Head of Research UAE, CB Richard Ellis Middle East, said:
“Rents within the DIFC Freezone have seen a level of protection during the downturn, however we are now starting to see some movement in negotiation levels within both DIFCA and privately managed buildings. The local market environment will continue to face new challenges during 2010 and this is sure to create additional cost implications for occupiers, especially those in prime locations such as the DIFC. It will thus be the responsibility of the DIFCA and the estate management to effectively mitigate and govern the situation by acknowledging and responding to market pressures, in order to maintain focus, retain current tenants and to continue to attract new global brands in the future”.
On a separate issue, Q4 2009 witnessed an increase in occupier interest and activity as office market conditions in Dubai moved further in the tenants’ favour. Landlords are now increasingly willing to offer incentives in the form of longer rent-free periods alongside lower face rents. The impact of new supply in the CBD is forcing landlords in non-prime locations to reduce their rents more aggressively to try and stay competitive against better located and higher quality buildings. The typical lease length in Dubai is now around 3 years with a rent free period of 2 months. The UK has the highest average term in EMEA at 10 years, whilst the EMEA average is between 3 – 5 years.
As for the Abu Dhabi market, it is estimated that approximately 390,000 sq m of new internationally recognisable “Grade A” office accommodation will see handover by 2011. Although this huge amount of space will be delivered in a relatively short time period, it is expected that take-up levels will be strong as tenants migrate from low quality existing accommodation in converted residential towers and villas to high quality purpose built office buildings.
However, with rents beginning to find a floor in a number of markets, this situation is highly dynamic and tenants’ advantage may be short-lived. While rents across EMEA continue to fall, the rate of decline is slowing. The CB Richard Ellis EU-27 office rent index moved down just 1 per cent in Q4 2009, taking the annual change to -9.2 per cent. At individual market level, the rental pattern remains uneven. London led the EMEA region’s rental recovery at the end of 2009 as rents in the City of London rose by 3.5% in the fourth quarter (Q4). This partly reflects a shortage of space options over 10,000 sq m, which contrasts with a greater choice of units below 2,500 sq m: effectively a two-tier market. A significant number of other markets, including Paris, Berlin and Stockholm, are now seeing the rate of rental decline slowing significantly.
Matt Pullen, Head of EMEA Global Corporate Services, CBRE, said:
“Cost-cutting, rationalisation and re-gearing remain the key drivers of tenant activity in a large number of office markets. Despite rental growth in London and stabilising rents across many other markets in EMEA, opportunities to negotiate more favourable terms still exist, although these may be short-lived so need to be acted upon quickly. Most markets across EMEA should see demand stabilise or improve in 2010.”
Aggregate vacancy levels continue to rise, but in many markets the rate of increase has slowed. This has been spurred by previous low levels of demand which restricted the scale of office development, and in some cases has prompted office conversions to hotel or residential use. Vacancy rates in major cities typically ended 2009 one or two percentage points above their end-2008 levels. However, some markets, including London and Milan, are now seeing vacancy rates start to fall, and the availability of large, high-specification buildings in core central areas remains very limited in many major cities.
Demand is still fragile but showing some signs of strengthening: the second half of 2009 produced higher levels of leasing activity than the first, and Q4 was the most active quarter of the year in terms of office take-up.
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