x Abu Dhabi, UAEMonday 24 July 2017

Dubai's free zones feel the pinch

The economic free zones that helped Dubai establish itself as a regional business hub are under pressure to reduce registration fees.

DUBAI // The economic free zones that helped Dubai establish itself as a regional business hub are under pressure to reduce registration fees and other restrictions to reverse a drop-off in uptake. Two years ago, new businesses were clamouring to set up in one of Dubai's 16 free zones to take advantage of laws allowing 100 per cent ownership and full repatriation of profits.

Now, many of them are leaving because of the high cost of doing business there, said Shehla Anwar, a business consultant at Global Resources, which helps businesses set up in free zones. Some are going out of business, while others are turning to their home countries or changing their focus so that they can open offices outside free zones. "Most of them are busy cancelling their licences and leaving because rents are not coming down enough and the costs are too high," she said.

A sign of the difficult times in the free zones can be found in the rental prices of office space. While prime office prices in the Dubai International Financial Centre, a regional hub, have remained high at Dh400 (US$108) per square foot, areas like Jumeirah Lake Towers (JLT) - part of the Dubai Multi Commodities Centre (DMCC) Free Zone - and Dubai Silicon Oasis (DSO) have sunk to among the lowest in the city, according to data from CB Richard Ellis, the global property services firm.

In Jumeirah Lake Towers, rental prices are about Dh100 per sq ft, while Dubai Silicon Oasis is even lower at Dh80 per sq ft. Officials from DMCC and DSO declined to comment. Porush Jhunjhunwala, the manager of commercial leasing at the Dubai estate agency Better Homes, said vacancy levels in free zones were rising as companies shifted to other venues. In areas like JLT, less than 30 per cent of available space was leased out because of low demand and infrastructure issues, he said.

"In this market, companies don't want to go through a huge process to get set up. As of now, demand is higher for space outside of a free zone." The free zone authorities have begun to address the problem by relaxing eligibility restrictions. The DMCC, for instance, is opening its doors to a broader mix of companies and reducing registration times. The recent emergence of so-called "virtual zones", which do not require companies to rent office space, is also posing a problem for the established free zones.

Ms Anwar said that about 80 per cent of her clients were now looking to move to virtual zones. "Mostly people just want a trade licence without having to rent an office," she said. "Virtual zones are cost effective. [Staff] can work from home." One such area, Virtuzone in Fujairah Creative City, has received a slew of inquiries from businesses, said Neil Petch, the chairman. A new business setting up in the zone would pay Dh18,000 for a trade licence, as well as Dh1,500 per month in other fees, which is about half the cost of setting up in Dubai Media City Free Zone.

"It is cheaper to start up with us," Mr Petch said. "A new company can use their initial funds on building the business rather than rent and other fees - It's a simple business fundamental that companies need cheaper options when there is a downturn." @Email:bhope@thenational.ae