Sharjah office rents seen facing upward pressure

Rents across Sharjah’s main office markets held steady during the third quarter. — Supplied photo

Dubai: With Sharjah’s general economic restructuring now starting to bear fruit, the demand for top quality office space continues to rise, and is focused on Grade A space following a third quarter when rents across Sharjah’s main office markets held steady, according to leading real estate consultancy Cluttons.

“The ongoing diversification and growth of Sharjah’s economy, as well as a limited supply pipeline of Grade A office space, is set to positively impact on rents in the emirate’s commercial property market,” Cluttons “Sharjah Winter 2014 Commercial Market Outlook” report released on Monday.

The report said this trend is expected to drive Grade A space take-up, against a backdrop of low levels of Grade A stock. “In the short term, while supply levels play catch up to an extent, office rents at the top end of the market are expected to come under increased upwards pressure. This will leave incumbent occupiers with little choice, but to absorb the higher costs, or seek alternative options,” it said.

Across the UAE, commercial real estate sentiment has been on the rise, with the growing demand putting upward pressure on rents across the market. According to a report by the Royal Institution of Chartered Surveyors, the occupier sentiment index (OSI) fell from 42 to 20, but remains comfortably in positive territory in the UAE. “Growth in occupier demand continues to outpace that of supply of space to let, although less so than last quarter and as a result there remains upward pressure on rents, both in the primary and secondary markets,” it added.

Steve Morgan, Chief Executive of Cluttons, Middle East, said the shortage of Grade A space and capital expenditure associated with any potential move, would mean that larger occupiers will be either unwilling, or unable to relocate and are likely to absorb any rent hikes. “We anticipate that smaller occupiers will be more flexible due to their cost conscious behaviour.”

The Cluttons report shows that, during third quarter, rents across Sharjah’s main office markets held steady, with the prime areas of Al Majaz retaining their position as the city’s most expensive area for office space, with rents remaining stable at Dh75 psf. These flat rents are attributed to the sudden drop in rental rates across some Grade A buildings in the area, it said.

“This drop in rental rates has been recorded in schemes where landlords, who were previously reluctant to lower rents, are now being forced to reassess their options due to prolonged void periods. This behaviour has started to undermine rents in the prime areas of Al Majaz, which is being further exacerbated by landlords attempting to undercut one another in an attempt to drive take up,” said Morgan.

“With both economic activity and the population continuing to expand, there has been an upturn in warehouse requirements from companies expanding operations in Sharjah, as well as those new to the emirate,” said the report.

The rezoning of peripheral areas of several of Sharjah’s Industrial Areas to “commercial use” has meant that there has been a steady flow of warehouse occupiers looking for alternative premises, said Cluttons. “The rezoning of these external parts of the Industrial Areas has translated into heightened interest for space in more internal areas, which have subsequently seen rents driven up.”

Faisal Durrani, Cluttons’ international research and business development manager, said although there has been no official enforcement of the change of land use in the wider Industrial Areas yet, there has been a knock on impact on the limited number of vacant land plots in more central areas, with prices continuing to rise.

“Land prices in the Sharjah Industrial Areas currently stand at between Dh200 psf and Dh300 psf, depending on the size of the plot and the proximity to main roads. With the availability of larger plots dwindling, it is inevitable that values will continue to creep upwards, which is likely to catalyse the development of more peripheral and emerging industrial estates,” said Durrani.

The report observed that, away from the Sharjah Industrial Areas, the appetite to relocate to the emerging industrial areas around Sharjah International Airport and the existing Al Saja’a Industrial Area, is growing. The advantage of these areas is the widespread availability of larger land plots and better access to both the northern emirates and regional and international markets, due to the air-freight links available through Sharjah International Airport.

With Sharjah Municipality’s rent rules also extending to cover the commercial sector, industrial occupiers who have been in situ for a period of three years are being subjected to substantial uplifts at renewal, which is driving relocation to these more affordable areas, said the report.

issacjohn@khaleejtimes.com