July 23 (Bloomberg) -- Office rents in Dubai’s central business district surged 25 percent in the second quarter from a year earlier amid strong economic growth and rising business confidence, according to CBRE Group Inc.
Prime CBD rents, which account for 20 percent of the overall market, rose to 1,884 dirhams ($513) per square meter a year, CBRE said in a report today. Rents in secondary locations climbed 24 percent.
“The secondary market is picking up as a result of the lack of available space within the CBD,” Nick Maclean, CBRE’s managing director for the Middle East region, said by phone. “It’s really an overspill.”
Office values and rents tumbled with the rest of Dubai’s property market after 2008 as speculation-driven construction exceeded demand from tenants. A recovery that lifted homes, shops and hotels over the last two years is starting to trickle down to commercial buildings, which lagged behind the market as a whole. Large businesses shunned buildings sold to multiple owners under a system known as strata title in favor of properties owned by single entities. Most are in the CBD.
Within two years, a large amount of construction in the central business district is set to start, including Dubai International Financial Centre and Dubai Trade Centre, Maclean said. In the meantime, companies will be forced to look for space at existing secondary locations.
The vacancy rate for prime CBD offices fell during the past 12 months to less than 16 percent, CBRE said. That compares with 40 percent for all Dubai offices.
The supply of offices in Dubai will grow significantly, with more than 1.8 million square meters to be completed by the end of 2017. Still, most of that space will be held by multiple owners, under strata-ownership titles, shunned by large corporate occupiers and institutional investors.
Almost 500,000 square meters of office space is scheduled for completion this year, with more than 30 percent of that in the Business Bay area, CBRE said.
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