Dubai: More and more landlords in the UAE are giving tenants of their retail and office properties rent deferrals and even large-scale lease renegotiations to help them weather the COVID-19 crisis. Even owners who had refrained from doing anything last year are more willing to come to the bargaining tables.
“Existing tenants have the opportunity to downsize their premises until market conditions improve,” said Zain Qureshi, managing director and global head of real estate finance and advice at Mashreq Bank. “As UAE businesses face heightened financial strains due to declining revenues caused by the pandemic, occupants are looking for more value on their properties.”
If so, it is a case of late wisdom. A majority of retail owners, including mall owners, were offering rent deferrals last year only for the period in which commercial activity was halted to combat the spread of the virus. Calls from tenants to waive rents until the end of 2020 have been broadly rejected.
But now businesses and owners have realized that a quick recovery for everyone is a mirage. Office tenants are looking for “greater flexibility in their leases, especially to allow hybrid work, increased collaborative spaces and a generally improved offer,” according to a new report from the Mashreq.
What this means is that tenants want to achieve these goals against a backdrop of lower rental spending – and they expect their landlords to take that into account. “As businesses return to their physical workplaces, the pandemic has provided an opportunity to reassess how much real estate they need… and whether a combination of remote and physical work better fits their business model. ‘business,’ Qureshi said.
“The growing demand for flexible workspaces is also driven by freelancers, start-ups and even some established businesses looking for short-term solutions due to uncertain market conditions. Coworking or shared spaces are seen as a trend that will continue to grow, supported by supportive government initiatives.
According to a new report from Asteco, office rents in Dubai continued with quarterly and annual declines – by 3% and 18% – in line with “slower job / business growth and continued uncertainty about the speed of the economic recovery ”.
Red carpet treatment
While existing tenants have the option to defer their rent, new or future tenants are courted with a set of options. “We have seen some situations, particularly in newer office buildings, where owners have reserved spaces for a set period of time, to allow future tenants to expand into those reserved and adjacent spaces once conditions are met. are improving, ”Qureshi said. “This incentive goes beyond rent-free periods and more typical development contributions.
More “ flexibility ”
Flexible spacing and co-working options could be the next big thing for commercial real estate in Dubai. The supply of flexible office space in Dubai has grown by 20% per year and stood at around 1.6 million square feet at the end of last year. This supply is expected to increase at a faster rate, as commercial tenants learn what they really need in terms of space.
“Many companies, start-ups and freelancers want to avoid being locked into leases and find coworking spaces as a suitable alternative for the foreseeable future,” Qureshi added. “Initiatives such as freelance and remote work visas in Dubai further support this trend.”