With the general economic restructuring now starting to bear fruit in Sharjah, UAE, the demand for top quality office space in the emirate  continues to rise, said a report.

The occupiers are focused on Grade A space, similar to the other emirates in the UAE. Amidst a limited supply pipeline of Grade A office space in Sharjah, the increasing demand is set to put the commercial property market rents on an upward curve, stated property expert Cluttons in its winter outlook for the  commercial market in Sharjah.

The report also highlights that this trend is expected to drive Grade A space take up, against a backdrop of low levels of Grade A stock.

In the short term, while supply levels play catch up to an extent, office rents at the top end of the market are expected to come under increased upwards pressure. This will leave incumbent occupiers with little choice, but to absorb the higher costs, or seek alternative options, said Cluttons.

“The shortage of Grade A space and capital expenditure associated with any potential move, will mean that larger occupiers will be either unwilling, or unable to relocate and are likely to absorb any rent hikes,” said Steve Morgan, chief executive of Cluttons, Middle East.

“We anticipate that smaller occupiers will be more flexible due to their cost conscious behaviour.”

The report shows that, during the third quarter of 2014, rents across Sharjah’s main office markets held steady, with the prime areas of Al Majaz retaining their position as the city’s most expensive area for office space, with rents remaining stable at Dh75 ($20.2) per sq ft. These flat rents are attributed to the sudden drop in rental rates across some Grade A buildings in the area.

Morgan continued: “This drop in rental rates has been recorded in schemes where landlords, who were previously reluctant to lower rents, are now being forced to reassess their options due to prolonged void periods.”

“This behaviour has started to undermine rents in the prime areas of Al Majaz, which is being further exacerbated by landlords attempting to undercut one another in an attempt to drive take up.”

Industrial

Elsewhere in the commercial sector, with both economic activity and the population continuing to expand, there has been an upturn in warehouse requirements from companies expanding operations in Sharjah, as well as those new to the emirate.

According to Cluttons, the rezoning of peripheral areas of several of Sharjah’s Industrial Areas to “commercial use” has meant that there has been a steady flow of warehouse occupiers looking for alternative premises. The rezoning of these external parts of the Industrial Areas has translated into heightened interest for space in more internal areas, which have subsequently seen rents driven up.

Cluttons’ international research and business development manager, Faisal Durrani said: “Although there has been no official enforcement of the change of land use in the wider Industrial Areas yet, we have already begun to see a knock on impact on the limited number of vacant land plots in more central areas, with prices continuing to rise.

“Land prices in the Sharjah Industrial Areas currently stand at between Dh200 ($54.4) per sq ft and Dh300 ($81.6) per sq ft, depending on the size of the plot and the proximity to main roads. With the availability of larger plots dwindling, it is inevitable that values will continue to creep upwards, which is likely to catalyse the development of more peripheral and emerging industrial estates.”

The report indicates that, away from the Sharjah Industrial Areas, the appetite to relocate to the emerging industrial areas around Sharjah International Airport and the existing Al Saja’a Industrial Area is growing. The advantage of these areas is the widespread availability of larger land plots and better access to both the northern emirates and regional and international markets, due to the air-freight links available through Sharjah International Airport.

The report also points out that, with Sharjah Municipality’s rent rules also extending to cover the commercial sector, industrial occupiers who have been in situ for a period of three years are being subjected to substantial uplifts at renewal, which is driving relocation to these more affordable areas. – TradeArabia News Service