x Abu Dhabi, UAESaturday 22 July 2017

Space the final frontier for DIFC

Dubai's financial hub is seeing more tenants arrive but there are concerns about oversupply of office space with 300,000 sq ft of commercial space added last year.

More than 100 companies set up in the Dubai International Financial Centre (DIFC) last year - but filling a glut of new office space will be a crucial challenge for the centre.

A total of 113 companies registered in the financial free zone last year, attracted by a reduction in rents and changes in regulations among other things, an operational review released yesterday shows.

The amount of commercial space leased in the centre, meanwhile, grew by 19 per cent. There were 792 companies actively registered with the DIFC at the end of the year.

"With its continuous efforts to develop further its modern infrastructure, free-zone offering and self-governing laws and courts, DIFC has consolidated its position as the pre-eminent and favoured financial centre in the region," said Ahmed Humaid al Tayer, the governor of the DIFC.

The free zone attracted a range of businesses from the US, Europe, the Middle East and Asia last year. Several buildings under construction at the centre are expected to be completed in the next two years, adding about 186,000 square metres of leasable space at the centre to double the current space.

The current occupancy rate in the heart of the DIFC - a collection of buildings that are owned by the centre - is 95 per cent, but it is only 44 per cent in other areas in the zone owned by third parties.

"There is no doubt that the road ahead remains challenging," said Abdulla al Awar, the chief executive of the DIFC Authority, the body that manages the free zone.

"However, we believe that there are still many untapped opportunities that our new strategy will position us to take advantage of."

The DIFC last year signed up the consultancy McKinsey & Company to conduct a strategic review of its business. That review resulted in a new system of DIFC rents based on how long companies have been based there and how much space they are leasing.

It also coincided with reductions in rents and a new regime designed to attract fund managers to the centre. The DIFC also addressed its strategy for retailers, bringing in a new wave of outlets focused more on everyday needs than high-end trinkets.

With the review complete and the engagement with McKinsey at an end, the centre's leaders are now selling the DIFC as a well-regulated base for companies that want to do business in Africa.

They are also pitching it as a tax-free haven for European, US and Asian companies. The new entrants were split evenly, with 45 per cent from the Middle East and Asia and 52 per cent from North America and Europe. Officials recently went to the US to promote the DIFC, Mr al Awar said.

As it tries to attract newcomers, the DIFC is also offering reduced rents to encourage businesses already based there to expand their footprints. Several institutions, including the ratings agency Standard & Poor's, the accountancy Deloitte and the State Bank of India, enlarged their DIFC offices last year. About 28,000 sq metres of commercial space was added in the DIFC last year.

Majed Azzam, a property analyst at Al-Futtaim HC Securities in Dubai, said the oversupply was likely to depress the cost of DIFC properties further, a dynamic that would hurt developers but make it cheaper for international companies looking to set up there.

"We'll probably see them trending downward more as supply comes in," Mr Azzam said. "It's not positive for developers but it is positive overall for Dubai from a competitive point of view."