Signs Of Life Return To Dubai Real Estate
Wednesday, May 12, 2010

New research by Colliers International has shown that following the Dubai real estate bubble in early 2009, office rental prices and occupancy rates have begun to recover in newly completed developments. Older more established centers, whilst exhibiting resilience, continue to be negatively affected by oversupply and greater competition.

The research was initiated in 2009, focusing on recently delivered office space in Dubai with the intention of monitoring the effect and performance of new builds in light of global conditions. The initial survey conducted in Q1 2009, was reviewed in Q3 2009 and again in Q1 2010.

The survey’s findings show that the average occupancy rate in new commercial districts reached 32% in Q1 2009, 23% in Q3 2009, and 42% in Q1 2010. Dubai's once booming real estate market, which boasted 90% occupancy rates pre-crisis, now averages 71% occupancy; the availability of office space almost doubled during 2008 while uptake declined.

While the latest findings are more positive for new-builds, Colliers noted that developers were having to offer incentives to increase occupancy, including rent-free fit-out periods. Colliers also noted that new developments were targeting customers in existing complexes, offering significantly lower rates then their more established counterparts. The average rental rate in new commercial districts at Q1 2010 stood at USD265 per meter squared per annum, while the more established commercial districts were charging rates around 35% higher. The average rental rate is USD407 per meter squared annually.

Among new builds, office space occupancy was consistently highest in TECOM A, at 40%. Other free zone areas such as JLT, DSO and TECOM C saw year-on-year increases of 10%, 7% and 1% respectively. Dubai’s new central business district, comprising the Sheikh Zayed Road, Dubai International Financial Centre and Downtown Dubai precincts, is currently achieving the highest occupancy levels in the city.

Average occupancy levels in older, more established commercial districts such as Bur Dubai, Deira and SZR dropped from highs of 97% in Q1 2009 to 90% in Q1 2010. Deira and Bur Dubai witnessed the highest occupancy rates of 93% and 91% respectively.

Overall, Colliers International observed an overall 10% year-on-year increase in occupancy levels across new commercial districts, while occupancy levels in the older, more established districts dropped by 7% during the same period.