Rental market levels off in Dubai

Commercial rents in Dubai are levelling, but still remain higher than in Europe, Russia and the Middle East.

Commercial rents in Dubai are showing the first signs of levelling, but still remain higher than in Europe, Russia and the Middle East. Prime rents - commercial rentals that are in line with international standards - were stagnant in the emirate in the fourth quarter of last year, according to the latest rents and yields survey by CB Richard Ellis (CBRE), an international commercial property services company.

The Dubai experience was in keeping with the property sector slowdown in the rest of the region. Office rents in Dubai, at ?1,179 (Dh5,224) per square metre per year, were higher than 35 selected centres in Europe and Russia. Office rentals in the West End of London were the second-highest at ?1,117 per sq metre, followed by Moscow at ?1,097 per sq metre. Average rental prices in Dubai last year rose 50 per cent for industrial buildings, 29 per cent for offices and 18 per cent for retail space.

"There is quite a big difference between Dubai [and the other countries] that comes down to the attractiveness to the international markets," said Nicholas Maclean, the managing director of CBRE Middle East. "Dubai has been the most successful in attracting international occupiers and is still seen as the first point of entry to do business in the Arab world. Abu Dhabi is catching up quickly, but is unable to provide what people want."

Prime rents in Dubai's retail segment, at ?1,072 per sq metre, by contrast, were among the cheapest compared with most European countries and Russia. "One of the interesting things about how retail works here is quite different from almost everywhere else in the world," Mr Maclean said. "The retail market is controlled by trading families, some of which hold a franchise for 10, 20, maybe 50 brands.

"Therefore, in letting a mall we would speak to the family with the franchise rather than to the retailer directly. And their negotiating position [for rent] is much stronger than an average retailer in any European city." Despite the loss of momentum in the commercial rental market, the survey found that investment yields in the fourth quarter remained unchanged. Dubai offers some of the highest prime yields in the region: 11 per cent in the industrial sector; 7.75 per cent in office; and 8 per cent in retail. Only the industrial segment showed any yield change during 2008, recording a 50 basis points increase, according to the report.

"When it comes down to demand and supply, we had a substantial demand over supply, particularly in the best locations along the Sheikh Zayed Road, DIFC, Burj Dubai," Mr Maclean said. "People have seen how buoyant the economy has been over the last few years and are prepared to pay high rents and make a decision quickly to be operational within Dubai." Mr Maclean said that despite the downturn, the fundamentals of the property market were strong and there was still demand. "We have still clients coming and wanting to become operational within the region." [e-mail]