Commercial property owners in the Business Bay area of Dubai should brace themselves for a fall in the value of their properties after a bull market in recent years, according to Core Savills.
Property prices and rents in the area have rebounded over the past three years, gaining from its proximity to the central business district, links to major highways and its Dubai Metro connection, said the property consultancy’s Dubai Spotlight study.
Rents rose 7 per cent in 2012, 18 per cent in 2013, and 24 per cent last year, rising from Dh70 per square foot to Dh110 per sq ft.
David Godchaux, the chief executive of Core Savills, said Business Bay’s proximity to Downtown Dubai and Dubai International Financial Centre had been a draw for tenants.
“The problem is really pricing,” he said, adding that DIFC was attractive because of its regulations and Downtown Dubai for its mix of residential and commercial properties.
“Business Bay is quite a way outside, and if prices are the same level or higher, it just doesn’t make sense to be there,” said Mr Godchaux.
“The slightly higher quality of offices in Downtown or DIFC, the fact that you are among many other international tenants and several factors like that make it more attractive for tenants to be in Downtown, DIFC or certain free zones.”
There are also issues with the amount and the type of property space on offer in Business Bay.
Recent building completions in the area have pushed the amount of vacant office space over the 50 per cent mark, whereas DIFC has a waiting list of companies looking to move in. This week, DIFC Properties broke ground on a Dh205 million, 200,000 sq ft building, its 11th in the Gate Village. As a result, rents in Business Bay last month fell 5 per cent from the year-earlier period, while rents rose 3 per cent in DIFC, 2 per cent in Downtown Dubai, and 6 per cent in Jumeirah Lakes Towers.
Core Savills said that “a surge in supply” in Business Bay was also likely to exacerbate the property decline. The type of office space is also an influencing factor. Many Business Bay towers are under strata ownership, which means that a company occupying several floors in a building has to deal with several owners.
Single-owner buildings in Business Bay such as the U-Bora Tower and Blue Bay Tower command an average premium of Dh24 per sq ft over strata-owned towers in the area, according to Core Savills. This year, about 1 million sq metres of office space would be added to Dubai’s market, JLL said in a recent research report. This would bring the total office space to 8.6 million sq metres.
Craig Plumb, JLL’s head of research, said the amount of supply coming into the market meant there had “been little uplift in average rents since the market bottomed out in 2011 and 2012”.
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