The declining demand for office space and significant new supply over the last nine months has resulted in a notable drop in lease rates for Dubai’s Freezones, according to a report by CB Richard Ellis.

This has created a ripple effect that has steadily moved towards the emerging new Freezones which offer office space on a freehold basis, the commercial real estate services giant said in the report.

The decline has been felt the most in emerging new Freezone areas of Jumeriah Lakes Towers (JLT) and Dubai Silicon Oasis, which have suffered heavy drop in price since the beginning of this year, stated Mohammed Faheem, research analyst, CB Richard Ellis Middle East.

'The drop in sales rates has seen individual owners extending holding periods and frequently opting to lease their properties rather than looking to sell,' Faheem pointed out.

'On average, the rents in JLT were Dh240 to 280 / sq ft ($65.3 to $76.2 sq ft) in the third quarter of 2008 but are now being offered at Dh70-120 /sq ft. However there was a notable supply factor in the development during this period with just circa 2.5million sq ft across eight towers in the third quarter of 2008,' said Faheem.

This space has almost doubled over the past year with close to 5.2million sq ft currently completed. Additional space along with the weak demand has resulted in a drop in lease rates of 63 per cent, Faheem noted.

Other developments to have witnessed a sharp drop in lease rates include Dubai Silicon Oasis and Tecom C, with properties in these developments being largely sold to private individual investors.

The office space from private developers in Dubai Silicon Oasis is typically offered at Dh50 to maximum of Dh80/ sq ft while in Tecom C the rents are in the range of Dh85-130 /sq ft.

The highest office lease rates among the Freezones exists in the DIFC where the lease rates in the buildings managed by private developers stand in the range of Dh280-325/ sq ft.

'During the remainder of the year and into 2010 we expect the leasing market in these areas to remain sluggish, largely due to additional pipeline stock expected to enter from Freezone developments as well as non-Freezone areas such as Business Bay development,' Faheem added.

Freezones are popular areas of business due to varying benefits including, 100 per cent repatriation of capital and profits, multi-year leases, easy access to sea and airports, energy connections and assistance in labour recruitment.

In addition, the Freezone authorities provide significant support services, such as sponsorship, labour accommodation, dining facilities, recruitment and security for a fee.

The most well known freezones over the years have been Tecom (Dubai Internet City, Media City), Jebel Ali Freezone and Airport Freezone.

The success of these Freezones along with the demand for office space has over the years resulted in the emergence of new Freezones. These include Dubai International Financial Centre (DIFC), Jumeirah Lake Towers, Dubai Healthcare City and Dubai Silicon Oasis.-TradeArabia News Service