Renting office space seen as a better choice

Renting makes more sense for companies than buying in view of the depressed real estate market in Dubai, said analysts.

Sana Kapadia, Vice-President of Equity Research at EFG-Hermes, said: "Going by today's market conditions it makes more sense for potential office occupants in Dubai to stay rented. Taking into account the maintenance and service fees, renting in this environment probably continues to make more sense relative to buying especially given the current real estate environment."

According to Jones Lang La Salle, the general trend in Dubai has seen end-user occupants of office space renting space as opposed to buying office space.

"There are two scenarios with respect to the cost of an office space. A tenant who usually moves into an empty space will have to pay for the fit-outs, cabling, furniture, licences, etc. While an investor usually only buys the office space and that is the only cost involved for him. There are charges for licensing fees," said Robin Pugh, Director of Agency Services at Jones Lang LaSalle.

An example cited is the Dubai Silicon Oasis where office space is being sold for Dh800 a square foot against a rent of Dh80 to Dh100 a sq ft. "This is an immediate comparable for an office occupant to consider whether to buy or rent," he said.

Vineet Kumar, Asteco's Head of Sales – Dubai, said the cost of setting up an office space largely depends on the condition in which the office space is delivered to the tenant, whether it is handed over on a shell-and-core basis or with false ceiling and flooring in place.

"The basic fit-out cost of a shell-and-core office space in Dubai is about Dh120 per sq ft with no ceiling, flooring or cabling works in place, while those office spaces with a flooring and ceiling provided is about Dh100 per sq ft. Tenants pay extra if they would like to make changes to an existing structure. The type of furnishings they require in the office space is the additional cost.

"The service charges are to be borne by tenants which vary from anything between Dh25 per sq ft and Dh70 per sq ft depending on the quality of the building. The parking charges vary between Dh7,500 and Dh10,000 per parking bay annually."

Pugh said: "Apart from the sales price or the rental price that is to be borne by a purchaser or tenant, there are other costs associated towards setting up of an office space in Dubai. Factors outside of the governments 'control' such as office space and location also come into play.

"Usually the cost of an office space with a furniture fit-out can be in the range of Dh500 per sq ft to Dh1,000 per sq ft depending on the quality of the office space that tenants would like to create for themselves."

David Macadam, Director of Sales and Leasing at Better Homes, said different business set-ups have different costs associated. "The cost of setting up an office space in Dubai International Financial Centre is far higher than, for instance, setting up offices in Dubai Investments Park.

"In today's market, the costs for office space are 40 per cent to 50 per cent less than in early 2008. However, the costs for office creation are expensive regardless of the market or geographic conditions. Dubai is a world-class city and the costs are world class," said Macadam.

Kumar said it is hassle free to set up office in Dubai as there are professional services and advice available right from securing a trade licence to carrying out fit-outs.

"There are multiple options available for tenants to choose from in terms of what size of office they need; what is their budget for furnishings, etc, and to what scale they want to furnish their office. Dubai is less expensive to set up office space compared to places such as London, Tokyo and Hong Kong, etc," he said.

Macadam said the real estate market is not measured in productivity terms when the decision comes to rent or buy. "Landlords are pleased to find a tenant to rent or buy in the real estate and both are productive for the market. "In a rental scenario, the landlord receives an annual return on investment (RoI). When a property is purchased the seller benefits from the sale," he said.

Meanwhile, Ashish Thakkar, CEO, Kensington Real Estate, said elements that go into setting up an office space in Dubai are not so high as Dubai is a city that is keen to attract investors.

"Dubai enjoys a very good location between the East and the West making it somewhat a better location to set up a base of operations. Infrastructure is continually being improved and government support is becoming more evident. The city wants to attract investors and as such is continuously working towards making processes easy for investors to start a base in Dubai," said Thakkar.

He laid down some of the immediate costs that a potential occupant would need to take care while setting up an office unit in Dubai. "There is the cost of office space, which will depend on the size of the space required; the location; and whether you're renting or buying. Then there is the office equipment and furniture, which will depend on present and future requirements that come into the fore for the office. Office utilities as well will be an important cost element.

"Although rents and prices have come down, there is a combination of factors to be considered such as nature of business, market size, staff, equipment and furniture options, before the office occupant decides whether to buy or rent," he said.

Asteco's Kumar said in the current market, sale prices of offices are quite competitive. "Finished inventory is available from Dh700 per sq ft onwards. Buildings located in the Business Bay closer to the Sheikh Zayed Road command an average sale price of Dh1,200 to Dh1,800 per sq ft. Offices in Jumeirah Lakes Towers, Tecom and Silicon Oasis are ready and many companies have started operating from there. The gross RoI achievable, keeping in view current rentals, is close to 10 per cent not including the fit-out costs. We are well aware that large corporate offices prefer to lease instead of buying," he said.

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