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Dubai’s office realty yields catching up fast

Dubai: Dubai’s property upturn is no longer just about residential — yields on its commercial property have firmed up at around the 5 per cent mark which could entice investors to give it a serious thought. At a 5 per cent yield for an office in the central business district, Dubai compares favourably against the likes of Munich and Frankfurt (4.5 and 4.7 per cent respectively) and London City (3.75-4.75 per cent) among cities within Europe, Middle East and Africa (Emea), according to Knight Frank’s new report on global capital flows.

Within the Emea territory, Johannesburg’s central business district yields tops, at 8-9 per cent. An improving real estate demand has also driven up yields in Madrid and Barcelona, to 6 and 6.25 per cent respectively.

This year, global transactions on commercial property should be in line for a “at least” 15 per cent growth and take the total past $600 billion (Dh2.2 trillion). Last year, the gross of $536.7 billion was the highest on commercial realty since 2007, Knight Frank records.

“Property yields continue to offer a significant margin over government bonds in most markets,” said Joseph Morris, Knight Frank’s director of capital markets. “While pricing at the prime end of the market will remain keen, yield compression will slow, as investor attention gradually shifts towards higher-yielding opportunities which offer good prospects for growth.”

As for Dubai, investments into commercial realty is playing catch up with those that have been ploughed into residential since the second-half of 2011. Market sources talk of overseas investors recording “expressions of interest for big-ticket office blocks”.

“In the recent past, there were even instances of units getting rented at Dh50 a square foot as landlords found it was impossible to find tenants at some locations,” said Samir Munshi, managing director of Orion Holdings. “That situation no longer exists — we are talking of Dh80-100 a square foot and that too is showing signs of firming up further. The yields on office realty in Dubai are definitely on the upturn.”

Office sales values in Jumeirah Lakes Towers offer a mirror to the kind of turnaround local commercial realty has been experiencing. ““When residential was going for Dh900 a square foot, offices were getting quoted at Dh500,” said Munshi. “Now, with residential units at Dh1,200 plus, offices are inching closer to the Dh900 mark.”

According to Khawar Khan, Knight Frank’s research manager for the Middle East, “The weight of capital seeking exposure to real estate continues to increase, with investors being drawn to the asset class by its income-producing qualities, the improving availability of debt and a steady recovery in global occupier markets.”