Incoming MNCs drive increase in rental rates

UAE-based Asteco Property Management said that rental rates in Dubai have tripled at Dh270-280 per sq ft on the average from Dh90-100 per sq ft in 2005.

It added in a Press statement that commercial office rents are expected to remain high throughout 2007 and by next year, mainly due to construction delays.

By 2009, however, rental fees will ease, with the completion of more commercial buildings, according to John Allen, director of research valuation and consultancy at Asteco.

The statement said that residential rental rates in the city have increased by 25 per cent from 2005 to 2006, and by 18 per cent this year from last year.

It added that demand for residential space is seen to fall for this year and by 2008 due to high supply. "This mismatch between supply and demand is expected to soften the Dubai residential market, impacting the high-end apartment units targeting the high-income proportion of the population," it said.

According to Asecto's third quarter rental research, rents on Dubai's Shaikh Zayed Road have jumped to Dh350-375 per sq ft as compared to Dh220-240 per sq ft last in 2006.

Other areas with high rental rates include Bur Dubai and Karama at Dh280 per sq ft and Dh265 per sq ft respectively, or a 24 per cent and 51 per cent increase over the 2006 third quarter rates.

"With the supply falling short of demand, rent increases have been consistently strong in 2007 with Dubai office rentals showing an increase of 55 per cent on an average over the past year," the statement said.

It stressed, however, that the escalating rates also brought an increase in outright purchases of commercial units, making Dubai's office market as having one of the highest returns worldwide at 20 per cent.

Asteco's managing director, Andrew Chambers, said the dominance of residential over commercial developments has contributed to the shortage of office space. He noted that most mixed-use buildings dedicate only 20 per cent to commercial areas.

The statement said that Business Bay is set to become the next commercial hub of Dubai, providing some 28.5 per cent of the expected supply of 50.1 million sq ft of space by 2010.

Jumeirah Lake Towers and Dubai Investments Park will also have significant office space contribution of 17.8 per cent and 16 per cent respectively over the next two years.