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Office, Commercial Leases Seen Rising in a Year

In its latest study on the Middle East and North Africa property conditions, Jones Lang La Salle said that from a sluggish start to the year, there has been a ten-fold increase in the level of active and potential demand in Dubai in the last six months.

“Tenants and occupiers are now beginning to awake from this period of inactivity, with improved sentiment reflecting a consensus that the worst of the downturn has past, and now is the time to be repositioning themselves to benefit from the forthcoming recovery.” It said that business confidence across economies across the region is growing, with strong performance from indicators such as oil prices and equity markets, prompting revisions in forecasts of economic growth.

The International Monetary Fund has recently raised is 2010 economic forecast for the Middle East by half a per cent to 4.2 per cent.

Jones Lang LaSalle said the active and potential demand in Dubai alone now stands at over 1.5 million square feet. This is around three times the level of active demand in the Dubai market one year ago.

“There is clear evidence that the weight of transactions has increased in the third quarter, and we foresee a continuation of this trend.”

It added that Dubai’s position as MENA’s most competitive market is being reinforced by the significant rental drops, as well as continued confidence in the city’s long-term prospects.

In Dubai and elsewhere in the region, recovery in demand will be uneven rather than uniform, with clear winners and losers as the market focuses on location and quality of space.

Jones Lang LaSalle noted that much of the demand is for immediately available space, with new tenants preferring space already fitted-out by former occupants to make their relocation “cost-neutral.” The majority of demand is for units of less than 20,000 square feet, although there are some active enquiries for larger areas.

The most active sectors looking for quality space are those engaged in financial, professional, energy, healthcare and fast moving consumer goods businesses. “Many tenants and occupiers are seeking to take advantage of the availability of fitted out space to reduce their relocation costs. Others are merging operations from multiple locations into a single, better quality facility at a similar or lower rent than they were previously paying,” said Jones Lang LaSalle.

Another sector that will benefit from the property sector’s recovery, and which has been overlooked in the past, is the small and medium-sized businesses. “Although multinational companies may have the largest employment on a per company basis — employing upwards of 300 plus employees, the number of SMEs that employ 20-100 people creates an overall larger employment base.” Jones Lang LaSalle cited Hong Hong, where 40 per cent of employment is made up of multinationals, while 60 per cent is comprised of SMEs, with 98 per cent of total business establishments are part of the SME sector.

“In planning for global economic recovery, governments across MENA are recognising the importance of creating an environment within which these companies can flourish and develop. This will be one of the most important factors to increase employment and therefore, occupancies in office markets across the region.”

As economic recovery takes places, MENA in the next few years, will witness an increase in both the quality and quantity of space being offered to tenants, with the development of multiple sub-markets and new office formats, including mid to low rise business parks, in addition to high rise commercial business district space, said Jones Lang LaSalle.

· rocel@khaleejtimes.com