With somewhere approaching 80 per cent of its completed office space lying empty, Dubai's Business Bay area is still struggling to attract the scores of companies it was hoped would be enticed.
Just a couple of kilometres down Sheikh Zayed Road, commercial buildings in Dubai's central business district (CBD) boast vacancy rates of below 15 per cent.
The main reasons for such a disparity, according to property analyst Matthew Green, head of research at consultancy CB Richard Ellis, is simple.
"Infrastructure is key," he says. "If you are leasing a building there at the moment, you are bringing tenants to view the building and you are having to come through a sand pit to get there - that's not good. Occupiers want to see somewhere that is ready to move in, somewhere where they would want to have their clients," he explains.
While ongoing improvement work will remedy some of Business Bay's shortfalls in roads and other infrastructure, Green says that the location is trapped in a chicken-and-egg situation as retailers and corporate firms each wait for the other to make the first move.
"The retailers don't want to be in there until the offices are better occupied. So the facilities and amenities within the location are again not particularly strong," he says.
There is an upside, though. Commercial rents in Business Bay are up to 50 per cent less than those in the nearby CBD, something which may lure firms looking for a cheaper option.
"Once you start to get a little bit of movement there, I think occupancy rates will improve," says Green. Not that this will necessarily spark a boom for landlords - 40 per cent of the expected office space in the next three years that will be added to a Dubai market already suffering from over-supply will be in Business Bay.
Another potential obstacle is the number of buildings where fractional ownership is a problem - with different owners laying claim to various floors in the one building. Major firms are looking for whole buildings or a consecutive run of floors to call their own, rather than having to haggle with a clutch of different owners.
"That is not attractive for the corporate occupier and so there is definitely more headaches to come for owners within Business Bay and some of the other free-zone developments as well," says Green.
Dubai already boasts a two-tier residential market; now the office scene too is all about location, location, location.
© 7Days 2012
