Dubai’s battered real estate market got more bad news on Wednesday when a leading property company said it saw little hope soon of a rebound after office leasing rates plunged more than half in a year.
The bleak assessment by CB Richard Ellis is the latest indication that the Middle East commercial hub’s once hot property market faces an uncertain future even as new properties such as the more than half-mile-high Burj Khalifa, the world’s tallest tower, continue to open their doors.
Figures released by the Los Angeles-based commercial property giant show that office space filling Dubai’s numerous high rises and purpose-built business parks has been hit especially hard by the emirate’s property slump. The firm said in its quarterly report that the Dubai market remained sluggish in the last three months of 2009 and shows “few signs to suggest any imminent upturn in fortunes.”
Office leasing rates tumbled 57 per cent in the fourth quarter from their level the previous year, according to the property company. It estimates some brand new office buildings stand more than 30 per cent empty.
“There was a correction due because prices had become unsustainable,” Nicholas Maclean, CB Richard Ellis managing director for the Middle East, said in an interview. “The speed has been the thing that caught people out, principally because of the Dubai market’s dependence on international tenants.”
To cope with the glut, landlords have begun offering tenants rent-free periods and more flexible payment terms, among other perks.
The situation is likely to get worse before it improves as more buildings open up, said J.P. Grobbelaar, director of research and advisory for real estate consultancy Colliers International in Dubai. He said the supply of office space is expected to double over the next two to three years.
“These are buildings that are currently under construction. We’re talking about buildings coming out of the ground,” he said. “We just don’t see where the demand for that sort of supply is going to come from, not unless the economy grows hugely.”
As recently as the second half of 2008, prime office space in Dubai was packed nearly to capacity, Mr. Grobbelaar said.
Foreign companies poured into the city to take advantage of its growth as the financial and logistics centre of the booming oil-rich Persian Gulf. Now those companies are cutting back on staff or going out of business because of the economic downturn.
“There’s just not enough people to occupy the space,” he said.
Compounding the problem is that many new buildings in Dubai are owned by multiple investors rather than a single owner, making upkeep of communal facilities like elevators and air conditioning a far greater challenge, Mr. Maclean said.
He said the property company has received “zero demand” from prospective tenants for those type of buildings, which comprise the bulk of the new space expected to come on the market in the coming years. Unless local laws are changed to force owners to pool their resources, those towers will remain mostly empty, he predicted.
CB Richard Ellis’ figures show residential property prices also fell sharply, with rental rates down about 40 per cent over the previous year.
That largely matches findings released by Colliers last month. It said home prices in the city-state edged up 1 per cent over the previous quarter, but remained 42 per cent below their level a year earlier. That puts prices at roughly their same level as they were at the middle of 2007.