Dubai has cut office rents in its central business district in a move that could encourage existing tenants to expand their presence in the emirate and also put greater pressure on commercial property prices.
The Dubai International Financial Centre (DIFC) revealed a new pricing "matrix" for its buildings that reduces rates from the start of next year by more than half from the peak prices at which leases were signed in 2008.
The rent reduction will have a much less dramatic impact on some companies, especially smaller entities occupying less than 5,000 square feet of space.
"Given the financial crisis and the global migration of staff from one centre to another, we need to make sure that the environment is comfortable for companies to plan their growth," said Abdulla al Awar, the chief executive of the DIFC Authority.
Rents will range from Dh160 (US$43.56) to Dh280 per square foot of office space, depending on the amount of space to be leased and its location among the DIFC's three main buildings.
A company that takes 20,000 sq ft or more in the premier Gate Building will pay Dh190 per sq ft, while less than 2,500 sq ft in the same building will cost Dh280 per sq ft. The prices will ultimately be increased by Dh50 per sq ft to cover maintenance costs and community fees charged by the DIFC.
The move comes as the DIFC enacts a new strategy to promote the centre as the ideal hub for international businesses serving the Middle East, Africa and south Asia.
While occupancy in DIFC's Gate Village, Gate Precinct and Gate Building remains at 95 per cent, Mr al Awar said the focus was to take a longer-term view on the centre as a driver of economic growth.
Analysts said yesterday the impact of the new pricing structure for the DIFC would be broadly positive for the market as it would reduce costs for some companies and set a new benchmark for top-end office space.
More than 2 million sq ft of new space is expected to be available in the 110-acre DIFC zone as a whole in the next 18 to 24 months. Rents in those buildings are likely to be aligned with DIFC's own offices.
"I think generally it's fantastic news for some tenants in the DIFC who are paying high rates," said Robin Pugh, the head of tenant representation at the consultancy Jones Lang LaSalle. "Some tenants were said to have been paying as much as Dh600 a sq ft and others were certainly paying more than the announced rates."
The DIFC also announced reduced parking fees, to Dh1,000 per month for unreserved spaces and Dh2,500 per month for reserved spaces, as well as reduced overall fees for operating in the centre.
Smaller companies will see the least benefits from the new parking prices. Kaashif Basit, a partner at the law firm KBH Kaanuun, said the reduction was less than he had expected. His company occupies less than 5,000 sq ft in the Gate Village, meaning the price would drop from his current lease of Dh300 per sq ft to Dh275 including maintenance and community fees.
Murray Strang, a senior valuations surveyor at the property consultancy Cluttons, said the new rents were designed primarily to encourage existing tenants to expand.
"We've seen rents come down that much anyway across Dubai," he said. "The structure is more geared towards expansion of current tenants and expansion of business than drawing in new tenants."
The wider impact, Mr Strang said, would be on the commercial property market as a whole. Any clear communication on leasing rates will be used as a guide for other high-end property and could push down other rents in the wider DIFC zone.
"A lot of other rates, prices and values are set against the DIFC rates because they are publicly announced and a good standard with the quality of the tenants they've got in there," he said. "We might see more realistic levels of landlords reducing asking prices across the market, especially in free zones."
bhope@thenational.ae
ANALYSTS’ TOP PICKS OF SAUDI BANKS IN 2019
Analyst: Aqib Mehboob of Saudi Fransi Capital
Top pick: National Commercial Bank
Reason: It will be at the forefront of project financing for government-led projects
Analyst: Shabbir Malik of EFG-Hermes
Top pick: Al Rajhi Bank
Reason: Defensive balance sheet, well positioned in retail segment and positively geared for rising rates
Analyst: Chiradeep Ghosh of Sico Bank
Top pick: Arab National Bank
Reason: Attractive valuation and good growth potential in terms of both balance sheet and dividends
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Tax authority targets shisha levy evasion
The Federal Tax Authority will track shisha imports with electronic markers to protect customers and ensure levies have been paid.
Khalid Ali Al Bustani, director of the tax authority, on Sunday said the move is to "prevent tax evasion and support the authority’s tax collection efforts".
The scheme’s first phase, which came into effect on 1st January, 2019, covers all types of imported and domestically produced and distributed cigarettes. As of May 1, importing any type of cigarettes without the digital marks will be prohibited.
He said the latest phase will see imported and locally produced shisha tobacco tracked by the final quarter of this year.
"The FTA also maintains ongoing communication with concerned companies, to help them adapt their systems to meet our requirements and coordinate between all parties involved," he said.
As with cigarettes, shisha was hit with a 100 per cent tax in October 2017, though manufacturers and cafes absorbed some of the costs to prevent prices doubling.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
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