Multiple owners a drag on office block values

Dubai office blocks with multiple owners could be worth 40 per cent less than similar buildings with single ownership in the emirate and Abu Dhabi.

Dubai office blocks with multiple owners could be worth 40 per cent less than similar buildings with single ownership in the emirate and Abu Dhabi, brokers say. Most of the new office blocks being built in Dubai have been sold by the floor, and in some cases have dozens of owners. That is making selling them to institutional investors almost impossible, property consultants in the emirate say.

"One hundred per cent of the inquiries we have are looking for single-ownership buildings," said Nicholas Maclean, the managing director of CB Richard Ellis (CBRE). "About 60 per cent of all the stock which is scheduled for delivery in the Dubai market is under strata title, which means that office buildings have been sold to different investors. And next year it is more than 70 per cent." Many large corporate occupiers that require more than one floor are ruling out strata-title buildings because of the need to negotiate with more than one owner.

That is also deterring institutional investors from buying them, adding to the glut of empty buildings. "One of the key fundamentals of any international market is having a building held under a single ownership," said Richard Foulds, the Abu Dhabi director of CBRE. "Occupiers are generally happy to pay the additional cost provided the building is well managed." More than a quarter of Dubai's office space is empty, brokers say, compared with 2 per cent in Abu Dhabi. As much as half of Dubai's offices could be empty by 2011 as new supply doubles the existing stock. "There is certainly more strata sales in Dubai and single-asset developers in Abu Dhabi," said Piers Barttelot, the director of the Abu Dhabi agency of Jones Lang LaSalle.

"Single ownership is a lot easier for businesses. It can potentially contribute to make the Abu Dhabi market more attractive." Nomura Holdings, the Japanese bank, predicted some 20 million square feet of commercial space will be completed in Dubai by 2011, and 10 million sq ft in Abu Dhabi. Office buildings were promoted by Dubai developers near the peak of the residential property boom in 2007 and 2008, when the Dubai office market had 100 per cent occupancy and concerns first began to emerge that house prices were overheating.

That encouraged many investors to look at offices where the promise of double-digit capital growth offered attractive returns. But most of the new office space being delivered in Abu Dhabi has single ownership. "On the main island itself, more than 90 per cent of the office space is held by single landlords," Mr Foulds said. Taking the example of Hong Kong, where there is a mix of strata and single-owner buildings, he said: "In the long term, as the market stabilises and you see rental growth, those strata-held assets would be probably devalued anywhere between 30 to 40 per cent compared to single-held assets."

Despite its surplus of office space, Dubai still has some advantages over Abu Dhabi, Mr Maclean said. "The footprint of these international occupiers is still greater in Dubai and they will have that advantage for four or five years to come," he said.