Office rents in prime commercial areas of Dubai have stabilised, despite vacancy levels at an average of 40 per cent across the city, according to the property consultancy Cluttons.
Total office stock in Dubai is at about 60 million square feet and an additional 10 million sq ft of space is expected to come on to the market by the end of this year.
"The effect of such high supply is that vacancy rates have remained high at approximately 40 per cent across the city," Cluttons said in its first-quarter report on the commercial property market.
"However, instead of ongoing downward pressure on prices experienced throughout 2010 and 2011, Cluttons notes that average quoting rents for prime developments in the city have remained stable over the past three months."
Good-quality buildings for corporates with larger requirements in particular are still in relatively short supply.
"Areas with poorer-quality office space in secondary locations are still experiencing declines," according to the report.
"This is mainly caused by poor demand and private landlords reducing rents in order to attract tenants and reduce voids."
The Dubai International Financial Centre (DIFC) and Emaar Square are among the most expensive locations for office space, while Jumeirah Lake Towers, Barsha and Tecom offer the lowest rates, the report stated. Office rents in DIFC remained flat at Dh250 (US$68.06) per sq ft per year in the first quarter of this year. In Jumeirah Lake Towers, however, office rents declined to Dh35 per square foot in the first quarter compared with Dh40 last year.
"The office sector still remains very competitive due to the large over supply of stock on the market," Cluttons said.
In terms of development, there is an improvement in appetite for prime sites, because of the lack of good-quality stock, it said.
"Businesses and occupiers are still focused on reducing operating costs, of which rent is one," the report said.
"We have continued to see trends of established companies taking advantage of lowering rents and moving to other competing buildings around the emirate.
"In addition, potential occupiers have a greater appreciation of sustainable green initiatives which again has proved successful in reducing operating costs," Cluttons said.