Dubai is becoming slightly less expensive for global companies, as the rental and office prices have decreased. The cost of office and residential per employee dropped 12 percent to an average of $51,300 (Dh188,424) in 2016, according to a new recently published Savills’ listing of what it costs multinationals in global cities.
There was rental softening in the major Dubai locations where multinationals typically prefer to have their offices and where their employees are likely to take up accommodation.
For Dubai’s landlords with office properties, it means there will be even less flexibility to set their rental terms. Rent-free periods are increasing to 6-9 months from the previous standard of 3-4 months, particularly for five-year lease terms. Since Dubai’s office market continues to be fragmented, such tenant-friendly lease terms are yet to be reflected in the entire market.
Business Bay and Jumeirah Lake Towers are the areas where the landlords are now giving the incentives. The reason is that the multiple landlords holding space in each tower have become quite competitive over clients, as right next door there will be another landlord willing to provide space at a lower rate.
“Landlords in these two locations are increasingly investing in fit-outs, sometimes resorting to amortisation over the lease term, to avoid a large initial capital expenditure for tenants,” said David Godchaux, CEO of Core Savills, the property consultancy. “Tecom (Dubai Internet City, Dubai Media City and Knowledge Village), Dubai Design District (d3) and Gate buildings in DIFC, which are witnessing near full occupancies, continue to offer landlord-friendly lease terms.”
The rents have come down in Jumeirah Lakes Towers (JLT) at the southern end of town. “JLT has struggled because there have been some sizeable new buildings such as Mazaya Business Avenue and a few others with multiple strata ownership structures, which were handed over in the last year or two and have launched considerable new vacant space onto the market,” says Murray Strang, head of Cluttons Dubai. “As a result, neighbouring buildings and landlords have had to drop their rents to be competitive and secure tenants.”
New office properties near Sheikh Zayed Road and in Business Bay offer more efficient spaces and the option to scale up, for similar rents or a marginal premium.
Businesses are also getting in older properties and the city’s traditional commercial districts shifting to take advantage of the soft rental environment. Some are ‘optimising footprint’ by moving out of multiple offices into a single unit.
Experts don’t expect significant rental growth in 2017, as the overall economy remains comparatively flat and there is adequate new supply to accommodate expansion plans of most companies in Dubai.