Emirates Reit, Dubai’s first real estate investment trust, has spent more than Dh600 million buying another 15 floors of the 80-storey Index Tower in Dubai International Financial Centre.
It signed an agreement to buy 15.64 floors of vacant offices and 706 car parking spaces from Emirates NBD Properties for Dh613.5m – its largest acquisition to date, the company said yesterday.
Emirates Reit, which floated on the Nasdaq Dubai index after a Dh643.65m initial public offering in April, said that the acquisition would increase the total market value of its portfolio to Dh2 billion.
The office floors are located between level 4 and level 25 of the mixed-use building, comprising 372,000 square feet and reflecting a price per sq ft of Dh1,650.
Emirates Reit said that once all the vacant offices were let, it expected the price to reflect a gross yield of 10 per cent, based on current DIFC rents.
Agents said that office rents in the area stand at about Dh150 to Dh180 per sq ft.
The investment follows Emirates Reit’s purchase of the 22,000 sq ft seventh floor of Index Tower plus associated parking spaces, from the Egyptian investment bank EFG Hermes in exchange for a 4 per cent stake in the trust back in January.
As a result of the new investment, Emirates Reit will now own about two-thirds of the total office space in the tower, along with 1,404 of the building’s 2,442 parking spaces. It already owns the shops on the building’s ground and podium levels, as well as the sky lobby.
Emirates Reit said that it would start leasing the empty office space immediately and was on the verge of reconfiguring the retail element, with the aim of increasing occupancy and rents.
“Emirates Reit is now in a very good strategic position, controlling the offices, the retail and the car park of this prime Dubai landmark,” said Sylvain Vieujot, the executive deputy chairman of Emirates Reit Management.
“This is our largest acquisition to date. It demonstrates that there are fantastic opportunities within the Dubai market to invest at attractive prices in prime buildings that offer significant growth,” he added.
Last month the company spent Dh118.2 million on Le Grande, a community mall in the 45-storey Trident Grand Residence in Dubai Marina, where it also intends to drive up rents through refurbishments and active asset management.
Unlike many other parts of the world where office blocks are usually bought and sold as single entities, Dubai’s booming office market in the mid-2000s and low vacancy rates prompted many developers to sell small office units off plan to investors under a system known as strata title in almost the same way that apartments are marketed.
However, office values tumbled and vacancy rates in the emirate rocketed after the Dubai property market crashed in 2008. Larger corporate occupiers eschewed strata office blocks in which they would have had to negotiate with dozens of different landlords, creating a two-tier market in which rents for buildings under single ownership can be far higher than their strata counterparts.
The Foster-designed Index Tower, which comprises 25 floors of offices and 47 storeys of apartments, was developed by Union Properties in 2011. It sold off some of the flats and office units off plan when the project was launched in 2005.
However, after the crisis Union was forced to transfer its remaining ownership in the building to its biggest shareholder, Emirates NBD, in 2012 as the company sought to reschedule Dh2.7bn of debt.
“With Emirates Reit in control of two-thirds of the office space in Index Tower, most corporate occupiers wouldn’t consider it to be a strata building,” said Ian Albert, the regional director for the Middle East at Colliers International.
“Emirates Reit is likely to have negotiated to get the offices at a bit of a discount as a result of not being able to buy the entire building. However, the offices are in a good location and likely to rent well, especially now that they will be managed by a specialist property fund rather than a bank, which has other core businesses.”
lbarnard@thenational.ae
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