Dubai's peculiar problem commercial real estate

Breaking ground for the new Standard Chartered building in March Megan Mahon

By zainab Fattah

Finding office space in Dubai should a module: the unoccupied office amounts to more than 40 percent. Even after searching in vain for more than two years, Standard Chartered, the UK's third largest bank, decided to put his own Tower. When construction is completed in 2012, it will occupy 8 of the 13 floors of the building.

Standard Chartered is a peculiarity of Dubai's troubled real estate market confront. During the business hub property boom from 2002 until mid-2008 sold developers sections of yet-to-be-equipped apartment and office buildings to investors. The result is that in many buildings, each floor has a different owner, making it difficult for large tenants to find sufficient contiguous space and customize to their needs. At the end of last year, 22 percent of Dubai of 61 million square feet of commercial space was held by several owners under what strata titles.

The site of Standard Chartered new headquarters is not far from the Plaza Boulevard towers, which the British bank shunned because they have different owners, according to Robin Pugh of real estate broker Jones Lang LaSalle, who helped the bank in its quest in 2008 and 2009. "We want to be in a building that is well managed and maintained well," says Christopher Harris, Standard Chartered regional head of projects. "When you create a single entity, you tend to serious facilities management in place, and that is really important."

Negotiations with a group of landlords tend to be long and frustrating, says Ian Albert, regional director at Colliers International property broker. Even when a majority of the owners of a building and renting conditions agree, an often will hold out for a better deal, says knowing that the tenant is eager to complete an agreement, he. Albert "corporate occupiers do not want to deal with multiple landlords," says, and companies that are more than corresponds to square metres required tend to steer clear of commercial buildings with strata titles. That effectively rules out a large part of the Business Bay and Jumeirah Lakes Towers developments, where many of Dubai's office space is being built.

Dubai's landlords try to fill empty commercial space equal to approximately nine Empire State buildings, and the space comes on the market is even more problematic. About 41 percent of the 13.1 million square metres due to be completed this year will be held by several owners, 81% of the extra 12.7 million square feet to be completed in 2012, says Matthew Green, head of United Arab Emirates research at CB Richard Ellis Group. According to Jones Lang, Dubai's office vacancy, now 44 percent, it will surpass 50 percent in the next 12 months.

Strata titles can be a headache for both owners and tenants. When a building has different owners, there is an increased chance that one or more from the country or in financial distress, complicating decision-making. "It is much more difficult to manage a building consistently as one of the owners decide not to pay its service fees, or if the tenant wants to changes in the space that the approval of landlords require," says Ludmila Yamalova, a partner at law firm HPL Yamalova & Plewka in Dubai. "Who pays for what a very big problem."

The bottom line: Many towers in Dubai have multiple owners, making it difficult for large enterprises to find contiguous space, despite the high vacancy rates.

Fattah is a reporter for Bloomberg News.