Lukoil set to relocate to Tecom

Jumeirah Lakes Towers is poised to lose one of its biggest blue-chip occupiers when Lukoil makes a move next year to offices in TECOM.

The Jumeirah Lakes Towers area of Dubai has experienced steep falls in prices for offices and homes.
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Jumeirah Lakes Towers, the property development located in the south of Dubai, is set to lose one of its biggest blue-chip tenants when the Russian petroleum giant Lukoil relocates to a rival site next year.

The Jumeirah Lakes Towers area has experienced some of the stelakeepest falls in prices for offices and homes in Dubai in the property downturn and has struggled to attract tenants.

Mikhail Mikhailov, a spokesman for Lukoil, confirmed the company had signed a preliminary agreement to move to Dubai's Technology and Media (Tecom) Free Zone.

"We expect to stay in Reef Tower in Jumeirah Lakes Towers until the end of the year," said Mr Mikhailov, adding the company had yet to sign a final contract with Tecom. He declined to give a reason for the move.

Mr Mikhailov did not say whether the company planned to retain a presence in Jumeirah Lakes Towers - a requirement if it plans to operate under a licence from the Dubai Multi Commodities Centre (DMCC). Lukoil has three companies licensed by the DMCC.

Lukoil is Russia's second-largest producer of oil and uses Dubai as a base for its Middle East operations, primarily in Iraq. The Iraqi government this year awarded Lukoil and a Norwegian partner, Statoil, a contract to develop a major field in southern Iraq, known as West Qurna Phase 2.

Commercial property consultants said Lukoil's planned move was part of a wider trend in Dubai's markets of tenants taking advantage of their increased power in negotiating leases. A company of the size and reputation of Lukoil could negotiate better terms and longer-term leases because landlords are keen to secure blue-chip tenants.

"It's very much a tenant's market," said David Quinn, the head of UAE operations for Cushman & Wakefield.

"The difficulty, however, is that there are not a lot of high-quality spaces for companies," he said. "Tecom has become very, very popular. It's a good fit because they really needed a single occupier of the Injaza building to get the most out of it. Lukoil will benefit from the location and the amenities."

Jones Lang LaSalle, a property consultancy, said in its first quarter report for Dubai that vacancy rates across the emirate had increased to 44 per cent this year and would rise higher than 50 per cent as new supply came online.

There is about 5.5 million square metres of office space in the Dubai market and another 1.3 million sq metres expected to be added this year, in areas including Jumeirah Lakes Towers and Business Bay.

"Although we expect demand from companies seeking to relocate to Dubai from less stable regional countries to increase, this is unlikely to completely offset the large supply pipeline," the company said. "This is expected to result in a continued increase in vacancies and further downward pressure on average rents during 2011."

Jones Lang LaSalle also predicted "continued relocation to high-quality properties in better localities" this year.

Earlier this year, one of the largest relocations in Abu Dhabi occurred when Technip decided to consolidate its staff from across the city into a single building in the Danet project. The deal was signed at Dh1,250 (US$340.30) per sq metre, significantly below market rates.

However, the contract is for five years - longer than the traditionally short-term contracts in the capital.

"We're going to see a lot of companies moving from dowdy buildings," Rupert Bowen-Jones, the senior surveyor for CB Richard Ellis, said at the time. "Everybody has been waiting for good-quality stock to come on the market."

More than 1.1 million sq metres of office space is scheduled for completion in the next two years in Abu Dhabi, including towers in Sowwah Square and Capital Centre.