Sub-letting pushes office rents down

Office rents are being pushed lower as companies that have cut staff because of the financial crisis try to save costs by sub-letting their newly empty space. More than 150,000 square feet of subleased office space is available in Dubai, which has already helped contribute to a 25 per cent decline in rents between April and June compared with the first three months of this year.

Joseph Garwood, an associate director at the property adviser DTZ in the UAE, said: "Companies that have downsized have sought to limit liabilities through subleasing of their office space. We have seen that happen particularly with developers, construction companies and those consultancy firms related to the real estate sector." Two years ago, the continuing influx of foreign companies and expatriate employees helped office occupancy in Dubai reach 100 per cent. However, the completion in recent months of hundreds of new office units has coincided with widespread job cuts in many sectors. The Abu Dhabi office market, which also saw almost full occupancy, is also seeing more sub-letting.

Office rents in Dubai's central business district range between Dh225 (US$61) and Dh275 a square foot, down from Dh375 to Dh400 a sq ft last November. Office rents in Abu Dhabi have fallen from about Dh280 a sq ft last November to about Dh230. "In Abu Dhabi, sub-let office space has become noticeable during the third quarter this year," Mr Garwood said. "It has helped soften the rents in the capital and increase the vacancy rate."

The property agency Jones Lang LaSalle (JLL) estimates that between 150,000 and 200,000 sq ft of fitted-out surplus office space is being offered to tenants in Dubai. Matthew Hammond, the head of agency at JLL, said: "Some companies have leased up too much space, thinking that the growth they were having in 2005 to 2008 was going to continue. So rather than paying too much rent and service charges on space they don't use, they want to try to limit the liability."

The property consultancy Colliers International expects about 3.1 million sq metres of additional office space to be delivered in Dubai by 2011, enough to house more than 130,000 staff and doubling the existing supply in the emirate. [e-mail]