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Office tenants can have some leeway in Business Bay.

Summary: Regular new supply and a two-tier submarket is giving tenants a slight upper hand

Image Credit: Arshad Ali/Gulf News Archives Manoj Nair, Associate Editor

Dubai: For those looking for a bargain on their office rentals, they will do good heading for Business Bay.

Apart from newer supply coming through, and which should help keep demands subdued, Business Bay is also seeing a "tow-tier" sub-market and that works in the tenants' favour.

"Key issues for large-scale international tenants remain property management and the ability to expand or contract across multiple floors, requirements that are difficult to satisfy in buildings sold on a strata title basis," states a new report on Dubai's office market trends issued by Core, the UAE associate of Savills. "This issue is particularly problematic in areas such as Business Bay and has resulted in a two tier market, with buildings in multiple ownership commanding lower rents and slower absorption rates than single ownership buildings. "So, while global tenants might find it a problem, those businesses keener on single units and smaller space formats can pick and choose among Business Bay's offerings. And there are more to come there.

The master-development is expected to account for a bulk of the new office supply in Dubai this year, Core reports. It will add to the 318,000 square metres of new stock - principally secondary office space - Business Bay recorded last year.

Overall stock

The report estimates prime office locations in Business Bay at around the Dh100 a square foot. But businesses can negotiate terms more amenable to them in the less prime addresses there.

As of end 2015, Dubai's overall office stock had swelled to 8.4 million square metres, of which 2.4 million square metres represented super-prime locations such as DIFC, Downtown Dubai, the internet and Media cities, and the stretch on Shaikh Zayed Road from the Trade Centre to the first Interchange. But 51 per cent of the total supply is located in secondary locations such as Deira, Bur Dubai, Dubai Healthcare City, Tecom C and JLT, apart from Business Bay.

According to Core UAE's CEO, David Godchaux, "2015 was an interesting transition year where, on the back of overall softening demand for office space in the UAE, prime properties significantly outperformed the average market in terms of rental rates and occupancy levels.

"We expect this trend to continue with relatively strong underlying demand for quality office space that is currently not being fully met. This has resulted in a widening gap on rate and occupancies between prime and Grade B offices."

But investor appetite for office properties was on the wane through last year, with the Core report suggesting transaction dips of 9 and 13 per cent for Business Bay and Tecom, while at JLT it was 17 per cent.

Unlike in the residential space, where there is a channelling of buyer interest for mid-market, in offices, prime areas reign. Locations such as Downtown and DIFC were down a marginal 4 and 3 per cent respectively in sales terms from 2014 levels.

"Outperforming the secondary locations indicates that strong investor demand exists for quality Grade A commercial products that are well managed, with sufficient parking and lifts, large floor plates and high profile tenants," Core reports.

Factbox: Some locations

* The traditional superiority of offices on the original stretch of Shaikh Zayed Road (from the World Trade Centre) is being challenged. In 2015, they had the highest drop - by 4 per cent - among prime locations, according to the Core report. This was "due to the increase in supply," it reports, while "in Downtown, rental rates remained broadly static with Emaar-owned properties in particular continuing to command strong levels of demand and rates."

* The strongest performing prime location was DIFC, where rental rents rose by around 7 per cent. "Emirates Reit, which owns 18 out of the 25 floors in Index Tower is successfully leasing smaller units at premium rates while landlords in strata-owned properties in DIFC are achieving rapid absorption rates and rental rate premiums by offering fit-outs and other incentives. While demand for office space is expected to continue to be strong in DIFC through 2016, some downward pressure is expected in future due to competition from the Trade Center Free Zone," the Core report adds.

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Publication:Gulf News (United Arab Emirates)
Date:Mar 13, 2016
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