Strata space development falls out of favour in Dubai

'Developers aren’t really considering – certainly the majority of them – building strata any more. That idea has flown.'

Commercial property developers in Dubai are no longer interested in building strata space because of its unpopularity among tenants, according to CBRE’s UAE head of research, Matthew Green.

Speaking at the media launch of the property adviser’s Dubai Annual Market Update, Mr Green said there had been an increasing polarisation in the commercial sector between the market for prime, single ownership space (particularly in free zones) and strata-owned units.

“Developers aren’t really considering – certainly the majority of them – building strata any more. That idea has flown,” Mr Green said.

“There’s plenty of supply if you want to buy your office in JLT or Business Bay. But certainly for corporates, it is something which they will generally never consider, and I think, thankfully, it’s a trend we’re not likely to see much more of in the Dubai market.”

CBRE said rents for prime space in central locations remained flat last year, but that rents in secondary areas dropped by 12 per cent. Occupancy rates also vary massively, with many free zone areas such as Tecom and DIFC experiencing very few empty offices, but some strata buildings in Business Bay having vacancy rates as high as 50 per cent.

The amount of office space in Dubai has increased from 3 million square metres to just shy of 9 million sq metres last year.

“We’ve tripled supply since 2007 but the majority of that product which has come through has been strata,” Mr Green said. “It’s only really now that we have started to see that overhang of strata space start to edge out of the market. But over the next three years, probably 40 to 50 per cent of what is delivered will still be strata and that is going to come through in locations such as Business Bay, which is going to be the largest single location for new space.”

About 900,000 sq metres of new space is scheduled for delivery by the end of 2019.

Alongside the struggle faced in leasing strata units, owners could also soon find them increasingly difficult to maintain, warned CBRE Middle East managing director Nicholas Maclean.

He said the first buildings delivered between 2005 and 2007 will soon require much higher levels of capital expenditure.

“So the lifts may need changing, the winding gear or the air conditioning,” Mr Maclean said. “Those master developers who have to collect the contributions to their capex from 150 different owners, I think, are going to face a challenge.

“Who pays for the new plant? And if you have 40 per cent of owners who are willing to pay and 60 per cent who aren’t, do the 40 pay for the other 60 or does [the work] just not get done?”

Meanwhile, a JLL report published on Tuesday ranked Dubai as the 11th most dynamic city in the world last year, despite having fallen out of the top 30 for the previous two years.

JLL’s City Momentum Index measures 134 cities around the world, tracking the speed of their economy and commercial property markets.

The top five cities were Bangalore, Ho Chi Minh City, Silicon Valley, Shanghai and Hyderabad. Two of the world's biggest commercial centres, Singapore and Hong Kong, fell out of the top 30 owing to corrections in commercial office rents.

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