When David Binnie was looking for an office last year, there was little to choose from.
Today the market has radically changed as small companies such as his, which were forced to rent temporary space, benefit from rents that have fallen by more than half in some locations.
Serviced office companies that rent desk space by the week have gained from the global downturn in most office locations around the world but that trend is not being played out in the Emirates. The sharp declines in traditional office rents makes temporary space look less competitive, even for start-up companies.
"A year ago there was not a lot of ready to move in non-serviced permanent space," says Mr Binnie, the general manager of Hydrogene Energy International who rents a space at a Regus business centre in Abu Dhabi. "There is definitely more about now."
In Dubai, the serviced office sector is emerging as one of the latest casualties in a property downturn that has left a quarter of Dubai office space empty, according to Jones Lang LaSalle.
The broker estimates rents in Dubai fell 25 per cent in the second quarter compared to the previous three months. That followed a drop of 45 per cent in the first quarter.
About 185,800 square metres of new office space came on to the market between April and June in the emirate. As a result, prices in serviced offices have fallen too.
"The rates of serviced offices have dropped dramatically," says Matthew Hammond, the head of agency at Jones Lang LaSalle in Dubai. "But they remain much more expensive than permanent space.
"At the moment, a company like Regus or Servcorp, which are the major players, would rent space at between Dh4,000 (US$1,089) and Dh7,000 per desk per month. A year and a half ago they went up to Dh12,000."
Serviced offices are a kind of "plug and play" alternative to traditional office accommodation. Instead of committing to a long-term lease, a company can choose to pay a monthly rate for fitted-out space and additional services such as a phone, internet, furniture, a receptionist and secretarial services.
Typical tenants are start-up companies and entrepreneurs that need flexibility, or companies that need to establish short-term project arms.
"The market has definitely been affected, " says Leila Boukili, a senior consultant at Instant Offices, which is the leading broker for serviced offices worldwide.
"In previous years a lot of the centres were fully booked. About a year and a half ago, we had problems placing clients but this is no longer the case."
The completion of large amounts of new office space in recent months is opening up accommodation options for many companies that did not exist less than a year ago.
"Now the market has become very competitive," confirms Ahmad Saysali, the head of investment at the consultancy CB Richard Ellis in Dubai.
"Landlords are giving more incentives, whereas before they did not really care. In some cases we have even seen landlords participating in fit-out works."
Demand for serviced office space in Abu Dhabi is faring better than in neighbouring Dubai, according to analysts, because there are fewer new buildings entering the market.
"In Abu Dhabi, the vacancy rate is much lower than in Dubai," says Mr Hammond.
Stephane Carre de Malberg, the local business centre manager for Regus, says: "The crisis has not hurt Abu Dhabi that much. The market remains strong.".
Regus, based in the UK, was the first serviced-office provider in the capital when it arrived in October 2006. It manages two centres in Abu Dhabi encompassing 5,000 sq metres. In Dubai since 2001, Regus has five centres covering 8,500 sq metres.
The capital's demand, Mrs Carre says, is boosted by companies in Dubai which are looking at a move to Abu Dhabi.
Mrs Boukili confirms that view of the market's strength. "Between February and April, most of the deals in the UAE were closed in Abu Dhabi. There was very little activity in Dubai," she says.
The glut of new space in some locations has been compounded by tenants subletting accommodation that they no longer require as a result of the economic slowdown.
"This is a recent phenomenon in Dubai," says Jones Lang's Mr Hammond.
"Some companies have leased too much space, thinking that the growth they were having in 2005 to 2008 was going to continue and it did not. So rather than paying too much rent and service charge on space they don't use, they sublet it."
This type of quality space is more likely to lure new tenants away from serviced offices, mainly because of the substantial cost discount.
Typical office leases are much shorter in the UAE than in many other global office locations such as London, where commercial tenants often sign up to 30-year terms.
Standard leases in the Emirates for standard office space are generally between one and three years, making them a more viable alternative to serviced offices for many small companies.
But despite the troubles facing local serviced office operators, some new players have entered the market in recent months.
Last month the Dubai-based investment company Reef Real Estate Investment launched a branch of R-Serviced Offices, initially using four floors in one of its developed towers within the Dubai Multi Commodities Centre free zone.
R-Serviced Offices management believes that the financial crisis drive growth for this market.
"There is a strong demand for serviced offices amid the economic downturn," says Ian Lloyd, the chief executive of the company.
"The target clients are also expatriates who have been retrenched and want to stay inside the UAE and set up a business. Because we are inside a free zone, they don't need to have a local partner and we offer visas and licences."
Mr Lloyd insists the industry has a future despite the addition of so much new office space to the market in recent months.
"Companies are not tied to long leases and do not incur service charges. You can save on furniture, fittings, staffing and recruitment cost.
"Also, I think office rents will still come down. So why commit into a lease that is going to be long term if you can get it cheaper in 12 months?"
Mr Lloyd's company has also been approached by a number of developers in recent weeks that are also considering converting their vacant developments into serviced office locations.
That can only be good news for business people such as David Binnie, who will be looking forward to a bigger range of accommodation options than they might have thought possible a year ago.
ngillet@thenational.ae
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Company profile
Date started: January, 2014
Founders: Mike Dawson, Varuna Singh, and Benita Rowe
Based: Dubai
Sector: Education technology
Size: Five employees
Investment: $100,000 from the ExpoLive Innovation Grant programme in 2018 and an initial $30,000 pre-seed investment from the Turn8 Accelerator in 2014. Most of the projects are government funded.
Partners/incubators: Turn8 Accelerator; In5 Innovation Centre; Expo Live Innovation Impact Grant Programme; Dubai Future Accelerators; FHI 360; VSO and Consult and Coach for a Cause (C3)
Emiratisation at work
Emiratisation was introduced in the UAE more than 10 years ago
It aims to boost the number of citizens in the workforce particularly in the private sector.
Growing the number of Emiratis in the workplace will help the UAE reduce dependence on overseas workers
The Cabinet in December last year, approved a national fund for Emirati jobseekers and guaranteed citizens working in the private sector a comparable pension
President Sheikh Khalifa has described Emiratisation as “a true measure for success”.
During the UAE’s 48th National Day, Sheikh Khalifa named education, entrepreneurship, Emiratisation and space travel among cornerstones of national development
More than 80 per cent of Emiratis work in the federal or local government as per 2017 statistics
The Emiratisation programme includes the creation of 20,000 new jobs for UAE citizens
UAE citizens will be given priority in managerial positions in the government sphere
The purpose is to raise the contribution of UAE nationals in the job market and create a diverse workforce of citizens
The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
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.”
Company%20profile%20
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First Person
Richard Flanagan
Chatto & Windus
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The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
Pupils in Abu Dhabi are learning the importance of being active, eating well and leading a healthy lifestyle now and throughout adulthood, thanks to a newly launched programme 'Healthy Lifestyle'.
As part of the Healthy Lifestyle programme, specially trained coaches from City Football Schools, along with Healthpoint physicians have visited schools throughout Abu Dhabi to give fun and interactive lessons on working out regularly, making the right food choices, getting enough sleep and staying hydrated, just like their favourite footballers.
Organised by Manchester City FC and Healthpoint, Manchester City FC’s regional healthcare partner and part of Mubadala’s healthcare network, the ‘Healthy Lifestyle’ programme will visit 15 schools, meeting around 1,000 youngsters over the next five months.
Designed to give pupils all the information they need to improve their diet and fitness habits at home, at school and as they grow up, coaches from City Football Schools will work alongside teachers to lead the youngsters through a series of fun, creative and educational classes as well as activities, including playing football and other games.
Dr Mai Ahmed Al Jaber, head of public health at Healthpoint, said: “The programme has different aspects - diet, exercise, sleep and mental well-being. By having a focus on each of those and delivering information in a way that children can absorb easily it can help to address childhood obesity."
The%20Genius%20of%20Their%20Age
%3Cp%3EAuthor%3A%20S%20Frederick%20Starr%3Cbr%3EPublisher%3A%20Oxford%20University%20Press%3Cbr%3EPages%3A%20290%3Cbr%3EAvailable%3A%20January%2024%3C%2Fp%3E%0A
Film: Raid
Dir: Rajkumar Gupta
Starring: Ajay Devgn, Ileana D'cruz and Saurabh Shukla
Verdict: Three stars
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA
Financial considerations before buying a property
Buyers should try to pay as much in cash as possible for a property, limiting the mortgage value to as little as they can afford. This means they not only pay less in interest but their monthly costs are also reduced. Ideally, the monthly mortgage payment should not exceed 20 per cent of the purchaser’s total household income, says Carol Glynn, founder of Conscious Finance Coaching.
“If it’s a rental property, plan for the property to have periods when it does not have a tenant. Ensure you have enough cash set aside to pay the mortgage and other costs during these periods, ideally at least six months,” she says.
Also, shop around for the best mortgage interest rate. Understand the terms and conditions, especially what happens after any introductory periods, Ms Glynn adds.
Using a good mortgage broker is worth the investment to obtain the best rate available for a buyer’s needs and circumstances. A good mortgage broker will help the buyer understand the terms and conditions of the mortgage and make the purchasing process efficient and easier.
Specs
Engine: Dual-motor all-wheel-drive electric
Range: Up to 610km
Power: 905hp
Torque: 985Nm
Price: From Dh439,000
Available: Now
2.0
Director: S Shankar
Producer: Lyca Productions; presented by Dharma Films
Cast: Rajnikanth, Akshay Kumar, Amy Jackson, Sudhanshu Pandey
Rating: 3.5/5 stars
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
