Office sector in Dubai declines
11 March 2009
Middle Eastern tax haven Dubai has seen a sharp rise in office vacancy rates as a result of increasing supply and falling demand, according to research published by Jones Lang LaSalle.
The vacancy rate more than doubled from 7 per cent to 16 per cent in the final six months of 2008. It currently stands at the highest rate ever recorded.
Dubai has seen growth slow considerably through 2008 to produce a full-year figure of 6 per cent. Projected growth for 2009 is just 1.5 per cent. The DFM index, the headline stock index in Dubai, has fallen almost 80 per cent since it peaked in January last year.
Demand has weakened considerably and an additional 4.7 million sq ft of office space has been placed on the market, bringing the total available space to 29.5 million sq ft. Supply has been expanding rapidly to meet previously buoyant demand, with a 20 per cent increase in available floorspace in the last six years.
Developers have already responded to the fall in demand by delaying or canceling forthcoming projects. Jones Lang LaSalle projects that as much as 50 per cent of the proposed supply due to come on stream between 2009 and 2011 will not now become available.
A number of projects announced as recently as October of last year, including the Jumeirah Gardens and Nakheel’s Tall Tower, have been delayed or scaled back and some developments already under construction, including Jumeirah Lake Towers, have been placed on hiatus.
Jones Lang LaSalle's research states that: “While the future supply will continue to decline, completions are likely to exceed demand in 2009, resulting in a further increase in vacancies, particularly in poorer quality buildings and those in secondary locations.”
It also predicts that the increase in vacancies will force distressed landlords to introduce leasing incentives like rent-free periods.