A Dubai developer is taking the unusual step of offering businesses a lease-to-buy option on office space, hoping to woo tenants in the city's increasingly competitive market.
"We have not done it before," said Sailesh Israni, the director of Sun and Sand Developers, which built the Dh60 million (US$16.3m) Suntech Tower in Dubai Silicon Oasis. "It is only in difficult times when the mind works a lot harder."
The company is targeting small and medium-sized businesses, Mr Israni said. Tenants can pay about Dh39,000 a year to rent an 800 square foot space, or they can pay a Dh200,000 deposit and Dh55,500 every six months and own the space after five years.
At any time in the five years the tenants can back out of the purchase programme and have their Dh200,000 deposit returned, Mr Israni said.
Lease-to-buy options are common in the residential business but rare in offices.
"I haven't come across anything like that in the past, not in the commercial world," said David Quinn, the head of UAE operations for the property company Cushman & Wakefield.
In essence, the company is financing the purchase of the space for tenants, who might find it difficult to arrange lending through traditional channels. The programme provides Sun and Sand with potential customers at a time when buyers and tenants are scarce in the office market.
More than 40 per cent of office space is vacant in Dubai, according to research by the property consultancy Jones Lang LaSalle.
"In this case, we have to create the engine, we have to create the push on our behalf," Mr Israni said.
Suntech is the second project in Dubai for Sun and Sand, a family-owned business based in Mumbai and Pune in India.
The company has 65 projects in India, primarily residential, Mr Israni said. Its first project in Dubai was the 50,000 sq ft Sunrise Building on Sheikh Zayed Road, which was built in 2005.
In 2009, Sun and Sand decided to move ahead with the construction of Suntech despite the depressed market. Construction costs were down between 15 and 20 per cent, Mr Israni said. Steel, which now costs about Dh2,400 a ton, was selling for about Dh1,800 a ton.
The company built the 10-storey Suntech without financing or presales, Mr Israni said. "Because there is no pressure of financing we can be creative," he said.
The company has no illusions about the state of the market, he said. It expected to take at least nine months to rent or sell the space in the building. So far only one floor had been sold - to contractors who worked on the building's construction.
Rents in the building average about Dh47 a sq ft a year, compared to a citywide average of Dh105 a sq ft, according to Jones Lang LaSalle data.
The company's business model is to build and sell buildings, but that is not practical in the current market. The company still owns Sunrise.
It is particularly difficult to market strata buildings - buildings with more than one owner - in Dubai these days, property experts say.
Larger tenants do not want the complexity of dealing with large homeowners' associations and they are uncertain about the new laws in Dubai governing strata buildings.
But Mr Israni said: "If you follow the Land Department guidelines they are absolutely crystal clear."
All of the titles for the 82 units have been registered with the Dubai Land Department, he said.
Sun and Sand owns 10 land parcels in Dubai but will not start construction on its next project until Suntech sells space, Mr Israni said.
"We are a small group," he said. "We can't generate that much funds."
