Sorouh Real Estate will allow commercial tenants of its Sky Tower in Abu Dhabi to apply their rental payments towards buying office space, as developers in the capital seek new ways to drum up fresh business. The scheme, which is known as "rent-to-own", is among a growing list of strategies being used by developers and building owners as the commercial market becomes more competitive.
As much as 11 per cent of office space in the capital could be vacant by the end of this year as more buildings are finished, according to the property consultancy CB Richard Ellis (CBRE). "The key driver is being more flexible with occupiers," said Richard Foulds, the director of the Abu Dhabi office of CBRE. "The market has slowed down and more supply is coming online It's a point of differentiation."
Sorouh's plan is offered for the remaining 20,000 square metres in its 74-storey Sky Tower on Reem Island. Tenants who sign a fixed lease of between three and five years will be able to choose whether to convert 75 per cent of their payments into an investment in the property. The remaining space in the building has already been sold to investors and tenants. John Robson, the head of corporate investment at Sorouh, said the idea arose from discussions with potential tenants who were interested in buying but unable to obtain financing because of tight lending for property investments.
"People are telling us that they prefer ownership but at the moment they can't pay for it entirely out of cash," Mr Robson said. "It was out of that that we started this project. This way they can make a decision after several years but gain the benefit of contributing part of the payments to buying the space." The rental rates for Sky Tower start at Dh2,150 (US$585) a sq metre, Mr Robson said. CBRE listed the average office price in Abu Dhabi at about Dh2,874 a sq metre as of last year.
Mr Robson said if a company accepted the deal and took out a lease for 2,000 sq metres in the tower, it would accumulate about Dh16 million of equity in the space at the end of five years. This would represent about 30 per cent of the purchase price, he said, making it easier to obtain a mortgage for the remaining portion. "This way you don't need a down payment." So far the company is in "quite an advanced stage" with several private companies and Government-related entities, Mr Robson said.
Sorouh has been trying to stir up sales for its buildings on Reem Island since earlier this year. It lowered interest rates to 4.99 per cent for new buyers at the Sun and Sky Towers. Abu Dhabi Finance, a mortgage company partly owned by the capital's largest developers, has emerged as a major instrument of the Abu Dhabi Government to stimulate the property sector. Using funds borrowed from the Department of Finance, the company began in March to offer the country's lowest mortgage interest rate, 5.75 per cent for select projects.
Mr Robson said the summer would probably be slow, but the number of inquiries from businesses about relocating to new offices had been picking up. "A lot of them are thinking it's about time to make a larger move," he said. "The market is coming to a level where it might be the right time to upgrade to better space at the right price." firstname.lastname@example.org