Dubai office blocks 'should be demolished'

Some office buildings in Dubai are so ill conceived and poorly located that they will never be occupied, while others may command no more than the cost of maintenance, according to a damning analysis from property consultants...

In extreme cases it would be better to convert some of the empty buildings for other uses or even demolish them, consultants point out due to the poor chances of them ever being let.

The main reason for the situation is that the property boom encouraged foreign buyers with no experience in property management to purchase floors in planned office buildings before any work started, resulting in poorly finished towers in inconvenient locations with multiple owners, according to Nicholas Maclean, Middle East managing director for CB Richard Ellis.

‘Some buildings will be permanently vacant and will never be let because they are wrongly located, they are of poor quality or have the wrong legal structure in place,' said Maclean.

Such buildings have to compete for tenants in a commercial real estate markets where there is an overall vacancy rate of 40%. There is also more supply than demand in this market. It is currently estimated that Dubai has 2.6 million square meters of offices under construction with millions of more square meters due to be released in the coming years.

This will put further pressure on prices that have slumped by 60% on average since the peak of the market in the middle of 2008. Most of the new commercial buildings will be completed in areas that have already seen rapid construction, such as Business Bay and Jumeirah Lakes Towers. Most are held by numerous landlords in an arrangement known as strata title, where a building is legally divided horizontally or vertically into separately owned properties.

Maclean points out that it is those buildings away from the popular locations such as the main business thoroughfairs that will suffer the most. ‘The further you are away from Sheikh Zayed Road, for example, the less desirable the location and therefore the quicker rents fall. Why would you go there when you can get accommodation for a relatively low price closer to town?' Maclean said.

It means that commercial landlords will need to offer incentives to attract occupiers. Indeed a recent report from consultants Jones Lang Lasalle showed that rent free periods of as long as 12 months on seven year leases and fitting out allowances are now common place in the rush to attract tenants.

But it won't work for all locations and all buildings. ‘While increasing incentives may make one specific building more attractive than another, there are still projects for which it is difficult to attract tenants at any price,' Jones Lang said. Some properties should be demolished or converted to other uses to reduce excess supply, it said.

Offices in Dubai International Financial Centre, a tax free area near the main business district, are commanding the best rents in Dubai, along with those in Emaar Square and on Sheikh Zayed Road. Rent per square foot in DIFC is 350 dirhams ($95), while Emaar Square offices near the 200 story Burj Khalifa are priced at about 200 dirhams a square foot. When they do bring in tenants, offices on the periphery of Dubai are achieving rents as low as 40 dirhams.

Source: www.propertywire.com