Average rental rates in Dubai's free zones have dropped significantly since Q3 due to lower demand for office space, said a report.

The report, by CB Richard Ellis Middle East (CBRE), said declining office demand is already having a direct impact on rental rates in Dubai’s free zones.

The report was prepared by CBRE's research analyst Mohammed Faheem, with comments from the firm's MD Nicholas Maclean.

"Rents within the various zones do vary from one to another with some zones implementing rate restrictions to stimulate demand for occupiers," it said.

The report said average rents in buildings managed by free zone authorities range from $46-52 per sq ft. In privately managed buildings located within free zones, the average rent ranged from $65-103 per sq ft during the third quarter of 2008.

However, since Q3 average rates have dropped significantly, with those signing up in Q1 2009 are paying as low as $25–49 per sq ft. This is a clear sign that demand has weakened, the report said.

The most affected zones are those where freehold status is available, it said.

Dubai International Financial Centre (DIFC)

DIFC still stands out above the rest as the prime office location in Dubai, said the report.  

Average rents at DIFC are about $115-123 per sq ft. This is generally due to the fact that the DIFC is one of the most popular locations for companies looking to move to Dubai.

Other free zones

Rents in Dubai Internet City and Dubai Media City are pegged lower, but this is done to attract international companies to the free zones, the report said.

Dubai’s prime office rents are now around $115-123 per sq ft. The lower rents in some of the free zones therefore make them financially more attractive for companies.

“The main point to emphasis is that the rents are artificially affected within the free zones, upwards or downwards, because the authorities have a different agenda than commercial landlords,” stated Nicholas Maclean.
 
“The concept of the free zone was a very bold idea that has proved to be hugely successful.  However initially it was sometimes difficult to let accommodation, before their popularity increased...Throughout 2008 many free zones had lengthy waiting lists of people wanting to set up business in Dubai.”

Many observers have suggested the whole of the UAE should be declared a free zone in order to help stimulate growth and development.
 
“It has been debated ever since I have lived here, but if there is a stimulus for the economy then I think the potential to change the regulations will be discussed more rigorously,” he concluded.-TradeArabia News Service