The prime office rents at Dubai International Finance Centre were the second highest in Europe, Middle East and Africa (EMEA) region during the last quarter at $1128/sq m / annum, according to CB Richard Ellis (CBRE).

The CBRE office market research said office occupiers in a number of markets across EMEA remained well-placed to negotiate favourable terms with landlords.

'Unsurprisingly the number one position goes to London’s West End at €972 / sq m / annum. The other cities that make up the top 5 are Paris (third) at €720, Moscow (4th) at €594, with Geneva and Zurich jointly (5th) at €573,' Matthew Green, head of Research UAE, CB Richard Ellis Middle East, said.

According to Green, the 12 month loss for Dubai-DIFC had been somewhat less drastic when compared to the rest of its EMEA neighbours.

'Moscow has lost 43.3 per cent of its value, followed closely by Dublin on 39.6 per cent and St Petersburg on 38.5 per cent. Dubai-DIFC lost 27.3 per cent of its value, while London West End fared even better, losing just 17.9 per cent of its value, he added.

Green said the rents within the DIFC Freezone have seen a level of protection during the downturn, 'however we are now starting to see some movement in negotiation levels within both DIFCA and privately managed buildings.'
 
The CBRE study said local market environment will continue to face new challenges during 2010 and this is sure to create additional cost implications for occupiers, especially those in prime locations such as the DIFC.

'It will thus be the responsibility of the DIFCA and the estate management to effectively mitigate and govern the situation by acknowledging and responding to market pressures, in order to maintain focus, retain current tenants and to continue to attract new global brands in the future,' he added.

On a separate issue, the fourth quarter of 2009 witnessed an increase in occupier interest and activity as office market conditions in Dubai moved further in the tenants’ favour.

Landlords are now increasingly willing to offer incentives in the form of longer rent-free periods alongside lower face rents. The impact of new supply in the CBD is forcing landlords in non-prime locations to reduce their rents more aggressively to try and stay competitive against better located and higher quality buildings.

'The typical lease length in Dubai is now around three years with a rent free period of 2 months. The UK has the highest average term in EMEA at 10 years, while the EMEA average is between 3 to 5 years,' Green said.

As for the Abu Dhabi market, it is estimated that approximately 390,000 sq m of new internationally recognisable “Grade A” office accommodation will see handover by 2011.

Although this huge amount of space will be delivered in a relatively short time period, it is expected that take-up levels will be strong as tenants migrate from low quality existing accommodation in converted residential towers and villas to high quality purpose built office buildings, he explained.

However, with rents beginning to find a floor in a number of markets, this situation is highly dynamic and tenants’ advantage may be short-lived. While rents across EMEA continue to fall, the rate of decline is slowing, said the CBRE research.

The CB Richard Ellis EU-27 office rent index moved down just one per cent in the fourth quarter of 2009, taking the annual change to -9.2 per cent.

'At individual market level, the rental pattern remains uneven. London led the EMEA region’s rental recovery at the end of 2009 as rents in the City of London rose by 3.5 per cent in the fourth quarter (Q4). This partly reflects a shortage of space options over 10,000 sq m, which contrasts with a greater choice of units below 2,500 sq m: effectively a two-tier market.'

A significant number of other markets, including Paris, Berlin and Stockholm, are now seeing the rate of rental decline slowing significantly, it added.

Matt Pullen, head of EMEA Global Corporate Services, CBRE, said cost-cutting, rationalisation and re-gearing remain the key drivers of tenant activity in a large number of office markets.

'Despite rental growth in London and stabilising rents across many other markets in EMEA, opportunities to negotiate more favourable terms still exist, although these may be short-lived so need to be acted upon quickly.  Most markets across EMEA should see demand stabilise or improve in 2010,' he added.

Aggregate vacancy levels continue to rise, but in many markets the rate of increase has slowed. This has been spurred by previous low levels of demand which restricted the scale of office development, and in some cases has prompted office conversions to hotel or residential use, the CBRE study said.

Vacancy rates in major cities typically ended 2009 one or two percentage points above their end-2008 levels. However, some markets, including London and Milan, are now seeing vacancy rates start to fall, and the availability of large, high-specification buildings in core central areas remains very limited in many major cities.

Demand is still fragile but showing some signs of strengthening: the second half of 2009 produced higher levels of leasing activity than the first, and Q4 was the most active quarter of the year in terms of office take-up, it added.