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Dubai: As Dubai's attraction among foreign businesses increases, office rents have soared in the last year, raising the question whether existing and new companies will be able to absorb their rising bills.
A report released by property services company Asteco shows that growing demand pushed office rents up by 22 per cent on average - way above last year's seven per cent rent cap - from first quarter 2007 to first quarter 2008. Likewise, commercial sales prices soared 54 per cent.
In a location like Muraqqabat in Deira, office leases climbed by as much as 38 per cent, from only Dh173 to Dh238 per square foot. Other premier corporate spots, such as Shaikh Zayed Road and Dubai International Financial Centre, registered lower increases, but they are commanding the most expensive rates at Dh405 and Dh415 per square foot respectively.
"While premises that are currently leased are being renewed within the approved rental cap, the discrepancy in the increase of the rental rate above the rent cap is largely due to new projects being released at higher rental rates than the existing ones," says Andrew Chambers, Asteco managing director.
Niraj Masand, commercial director for Better Homes agrees, saying, "A 22 per cent increase is fair and has no relevance to the rent cap which applies only to existing tenancies."
A foreign-owned company based in one of the free zones in Dubai told Gulf News its soaring rents are hurting their business and making them consider moving outside the country. The company said its rent went up from Dh90,000 in 2007 to about Dh150,000 in 2008.
"That's way above the rent cap. What's worse was we got the notice two weeks before the expiry of our lease. That left us with no time to look for a cheaper location. We're being squeezed. The only reason we set up an office here is because the rent was cheap, but now that it's expensive, we're planning to move to Bahrain," a company official told Gulf News.
Top concern
A survey by the Dubai Chamber of Commerce and Industry showed that property rents continued to top the list of concerns among businessmen for 2008.
However, Masand says he's not seeing too many offices shifting out of Dubai, while demand for space is "becoming stronger".
Chambers also foresees a lot of the pent-up demand from 2008 continuing into 2009, while no major drop-off in the rental rates is seen next year.
According to Asteco's report, in addition to high demand, the main drivers behind sales price increases for commercial space in Dubai include limited supply and delays in construction.
Location is also a factor. For example, the rent increase in Muraqqabat was attributed to its easy access via the recently-extended Garhoud Bridge and close proximity to major government departments. The upcoming main terminal (Union Square) of the Dubai Metro also makes the area more attractive.
The same goes for Satwa, which is regarded as an extension of Shaikh Zayed Road, reflected in significant sales price increases, the report says.
In Bur Dubai, demand for office space is consistently high, and is reflected in rent increases.
Rents in Jumeirah Lake Towers (JLT) remained steady, apparently due to vague licensing requirements. However, now that clear regulations are in place, Asteco expects rents in JLT to increase as many buildings are almost complete and are slated for handover this year.
On commercial sales prices, Jumeirah Village posted the highest increase (54 per cent) from the last quarter of 2007 to the first quarter of 2008 as new projects have been launched at a higher market rate. However, prices in the area on a square foot basis are still lower than in other developments in Dubai.
Sales prices in Business Bay have likewise increased significantly, as construction moves at a fast pace and the area enjoys a prime location.
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