With the fallout of the global economic downturn now hitting leasing markets across the world, landlords are under increasing pressure and tenants are initiating negotiations on rents and lease terms, according to the latest reports by CB Richard Ellis. The latest figures from CBRE's Office MarketView (Q1 2009) show that the average office rent in Dubai is €995 per sq m per annum, the second highest market rate in Europe, Middle East and Africa (EMEA). Unsurprisingly, London's West End tops the list of the most expensive office rents at €1,019. The other cities that make up the top five are Moscow (3rd) at €906, Paris (4th) at €700 and St Petersburg (5th) at €657. In terms of local currency, the average prime office rate in Dubai is AED 450 sq ft/annum, down 18 percent year-on-year. Relative to the rest of its EMEA neighbors, its year-on-year loss has been somewhat subdued. St Petersburg has lost 36.8 percent year-on-year, with Moscow (29.4 percent), London City (28.5 percent), London West End (27.1 percent) and Oslo (26.7 percent) making up the top five rental declines. Matthew Green, associate director of Research, CB Richard Ellis Middle East, said: “Despite the much publicized 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 are 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 or 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 which 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 Europe, leasing market conditions generally deteriorated over the first quarter of 2009, 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 percent in the first quarter, with rents down by around 6.5 percent 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 upwards by a combination of weaker demand, new developments entering the market and occupiers looking to dispose of surplus space. Vacancy rates across the EU-27 group have risen by over a percentage point over the past year. As a result, further rental falls are expected in most major markets. However, new construction starts have virtually ceased in the region, which will constrain stock additions in the medium term. Although of little benefit in the short term, this will help rents to stabilize more quickly once some level of occupier demand returns to the market. Richard Holberton, director, EMEA Research at CB Richard Ellis, said: “Landlords are finding it increasingly difficult to lease vacant space, given the understandable caution being expressed by most occupiers at present. With occupiers driving a hard bargain, and increasing choice available in the market, it is inevitable that we will see further weakening in rents and an increase in leasing incentives in most markets over the coming months.” __
