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Lenders more cautious in funding Dubai office tower projects

Developers of commercial offices in Dubai increasingly need to have pre-lease deals and occu­piers signed up before construction work begins to secure funding, according to Cluttons estate agency.

“I think now if you were to go to a bank and say: ‘Our plan is to buy this land, build a building and then secure tenants’, it’s not a solid enough story,” said Murray Strang, the head of commercial investment and agency at Cluttons.

Funders are also more likely to ask for background checks to be undertaken on tenants to gauge the strength of any covenant agreed.

“You need to justify the end-user and the specification of the building so that it is flexible enough that if that corporate tenant runs into problems, there is an alternative use for the building,” Mr Strang said.

This is having an effect on the type of office towers being developed, with unusual designs less favoured than regular-shaped buildings offering standard floorplates that are preferred by international occupiers. Faisal Durrani, Cluttons’ head of research, said: “Ordinary, boxy towers with efficient, large floorplates are what’s in demand at the moment and I think we are likely to see more of that.”

Mr Strang said that few developers look to build such towers without bank or equity funding, and as liquidity for property projects tightens, banks have “definitely had to take a closer look at what they are investing in”.

“I think it’s safe to say that we have seen funding of development cut back a little and speculative development has to be very well documented and sold to the bank before they are ­happy to lend on these types of developments in Dubai,” he added.

“All of that now needs to be taken into account, whereas in the last five to 10 years in Dubai buildings have very much been thrown up with a wait-and-see approach.” Despite this, Mr Durrani said that it would be rash to think that Dubai has seen the last of its spectacular, eye-catching, commercial towers.

“We’ve just seen Dubai Municipality come out with a population projection for 2030 of five million – that’s doubling the population in the next 14 years. Clearly, Dubai’s development story isn’t over yet.

“We will see larger projects coming through to house the growing population and growing economy. I don’t think we’re done in terms of iconic buildings.”

Cluttons’ new office market report divides the city into four separate zones, arguing that Dubai’s commercial officee sector is too diverse to be considered as a whole. The four zones are: Central Dubai (DIFC, Downtown, Business Bay, Sheikh Zayed Road etc); New Dubai (JLT, Marina, Media City, Al Barsha); Old Dubai (Bur Dubai, Deira); and Dubai Fringe (inland areas such as Dubai South, IMPZ, Silicon Oasis and Dubai Investments Park).

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