Standard Chartered avoids strata issue and opts to build own HQ in Dubai

Standard Chartered's decided to fund construction of its own headquarters in Dubai rather than deal with the empty strata buildings - with video.

After two years of searching for office space in Dubai, Standard Chartered last week announced plans to fund construction of a new headquarters in downtown Dubai.

Despite 40 per cent of office space in the city being empty and falling rents, the bank did not want space in any of the buildings with complex ownership schemes governed by Dubai's fledgling strata law.

"It is certainly the case that the amount of strata-titled buildings in the market limited the choices available to [Standard Chartered] with respect to existing buildings," said Nick Hughes, the bank's regional head of corporate property services.

Strata buildings have more than one owner, each responsible for paying service charges and maintaining common areas.

Strata is common in residential buildings but unusual in office markets where most buildings have single owners. It is most often found in smaller, boutique commercial buildings.

The impact of the strata structure on office leasing in Dubai, however, is expected to increase dramatically in the next few years, as more buildings with multiple owners come on line.

Forty-one per cent of the new office space scheduled for completion this year is strata titled, according to research by CB Richard Ellis (CBRE), the property consultant. That number jumps to 81 per cent next year and to 95 per cent in 2013, CBRE reports.

"It is having a very big impact," said Nicholas Maclean, managing director of CBRE in the Middle East.

CBRE's international clients typically "disregard strata buildings," Mr Maclean said. "Strata buildings are not even considered in many cases, regardless of the quality of the building."

However, in Dubai many developers recruited multiple owners to help finance large projects and minimise their exposure during the building boom.

The structure adds elements of risk and complexities for occupiers. If owners do not pay services fees, buildings can deteriorate rapidly, leaving tenants in substandard accommodation, analysts say.

The laws in Dubai governing strata laws are still in their early stages. The industry is still awaiting more details on how both tenants and owners will be protected, analysts say.

"There needs to be real focus on insuring that if a building is stratified that the owners are paying their maintenance fees," said Blair Hagkull, head of the Middle East office for the property consultancy Jones Lang LaSalle (JLL). "That has to be on top of everybody's agenda."