Friday, October 06, 2006

Dubai office space give best return for investors

Commercial property, including office and retail space, is set to dominate the returns table for investors in 2007 and 2008, analysts have said.
Supply of office and retail spaces, particularly in Dubai and generally in the UAE, will fall short of demand by at least 30 per cent this year, continuing the trend from 2005, and maintaining upward pressure on commercial rents.

This comes as good news for investors in commercial property in the emirate, who can expect returns of more than 16 per cent per annum in 2006 and 2007, which is about twice the return from residential property. Rising commercial rents in 2005 have investors in these spaces making between 12 and 14 per cent returns, compared with residential investment returns ranging between six and eight per cent.

Dubai’s office space rates increased by a minimum of 20 per cent in the fourth quarter of 2005 over the previous quarter, according to the numbers tracked by the research department of Asteco, the property management company. “There is continued expansion of existing companies in Dubai and influx of new businesses seeking to set up an office in Dubai,” said John Allen, Director of Consultation, Research and Valuations at Asteco. “And there are limited new supplies coming on stream, which are insufficient to match demand.” According to a recent research report by global commercial property marketing and research firm Colliers, office rents have more than doubled in Dubai since 2002.

“Office space remains at a premium in the city, with near full occupancy across most primary and secondary properties.The paucity of available space of any classification ensures that rental rates continue to rise,” the report said.

Large numbers of office occupiers have been unable to either upgrade or source space for expansion, the report goes on to say. “Tenant surveys now suggest that over 40 per cent of occupiers are at least passively interested in finding new premises.

“Dubai is a market which has traditionally resisted preletting but over the last 12 months the practice has become more common, with tenants securing space well in advance of development completion dates,” Colliers said.

Given the pent-up demand, developers are now seeking to sell office spaces to end-users rather than investors. “This gives us a certain modicum of control over the profile of those who occupy our buildings,” a developer said, “which also helps us to maintain a certain value.” This would be possible, however, only in the freehold areas and would, therefore, have no effect on the current rent spiral.

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