Dubai office rents second highest in Emea in Q1 2009

Average office rents in Dubai were at €995 (Dh5,100) per square metre per annum in the first quarter of 2009, making it the second expensive office space in Europe, Middle East and Africa (Emea), according to a report by CB Richard Ellis.

London's West End topped the list of the most expensive office rents at €1,019. The other cities that make up the top five are Moscow (third) at €906, Paris (fourth) at €780 and St Petersburg (fifth) at €657.

In terms of local currency, the average prime office rate in Dubai is Dh450 per square foot per annum, down 18 per cent year-on-year. Relative to the rest of its Emea neighbours, its year-on-year loss has been somewhat subdued, said the report.

St Petersburg lost 36.8 per cent year-on-year, with Moscow (29.4 per cent), London City (28.5 per cent), London West End (27.1 per cent) and Oslo (26.7 per cent) making up the top five rental declines.

Matthew Green, Associate Director of Research, CB Richard Ellis Middle East, said: "Despite the much publicised downturn in the Dubai market, prime office rental rates remain comparatively high and second only to London's West End. However, with a significant portion of supply still to enter the market this year, we are likely to see further rental reductions as landlords compete to secure tenants."

Active demand has weakened considerably since the turn of the year, and relatively high levels of new supply is coming on-stream throughout Dubai. Rental levels have softened across the board but most particularly in strata-title office buildings in areas such as Tecom C and Jumeirah Lake Towers.

Occupiers in older office buildings or residential conversions in Abu Dhabi are increasingly withdrawing from pre-commitments to new Grade A space because of the economic uncertainties. The gap between existing and projected occupational costs is not sufficient to drive relocations until the asking rents for these new-builds are reduced further.

The Class A office market in Bahrain remains oversupplied but properties in locations that meet key requirements such as access, parking and pricing are letting quickly at rates similar to 2008. Demand from the banking sector, a major driver of the commercial office market, is likely to have weakened recently, affecting overall demand for office space.

In terms of Europe, leasing market conditions generally deteriorated over the first quarter, as sharply weaker economic activity and negative sentiment about future prospects led to a reduction in office take-up and general downward pressure on rents. The CB Richard Ellis office rent index for the EU-27 fell by 3.6 per cent in the first quarter, with rents down by about 6.5 per cent from its peak of last year. The quarter's decline reflects rental falls in most markets, although some key cities, such as Frankfurt and Milan, remained stable. Vacancy levels are rising across Europe, driven by a combination of weaker demand, new developments entering the market and occupiers looking to dispose of surplus space.

Richard Holberton, Director, Emea Research at CB Richard Ellis, said: "Landlords are finding it increasingly difficult to lease, given the caution being expressed by most occupiers."

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