Building owners are struggling to find tenants in Business Bay, the US$30 billion (Dh110 billion) project envisioned as Dubai's new central commercial district.
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About 80 per cent of the completed office space in the project is empty, property agents say. And offices are renting for as much as 50 per cent less than space in nearby downtown Dubai.
"The problem is there are very few deals being done, so it's hard to say how much rents are falling," said Craig Plumb, head of research for Jones Lang LaSalle in Dubai.
Business Bay was designed to create a business and residential district on "the scale of Manhattan," according to promotional materials. Plans call for more than 200 towers covering 80 million sq feet around the man-made Dubai Creek.
But today most of the project is still a construction site. Many plots are nothing more than dirt and several half-built projects are stalled.
Residential buildings in the development are faring little better than office space. The average lease for a one bedroom apartment in Business Bay is Dh55,000 a year, compared to Dh75,000 in downtown Dubai, according to CB Richard Ellis (CBRE) data.
Work has progressed slowly on the infrastructure for the development, including roads, power and landscaping, according to people familiar with the project. The master developer is Dubai Properties Group, a subsidiary of Dubai Holding, which has struggled with its debt load in the wake of the property market downturn.
Construction was completed a year ago on 0-14, the office tower known as the "Swiss Cheese" building for its perforated white concrete skin, but electricity was not hooked up until this spring, said Shahab Lutfi, chief executive of H & H Investment & Development, which built the tower.
The 22-storey building still doesn't have permanent sewage and water connections, he said.
About 25 per cent of 0-14 is currently occupied, according to Mr Lutfi.
"They have to finish the roads and landscaping and make it look good," Mr Lutfi said. "We need to have places for people to have lunch and places where they can walk."
The infrastructure for the fist phase of Business Bay near Sheikh Zayed Road is already in place and by the end of 2011 "all the extra enhancements in relation to roads and landscaping will be complete" in the phase, a spokesman for Dubai Properties Group said.
Later this year Bay Avenue, a 175,000 sq-foot retail complex is set to open and the infrastructure in phase two will be "further developed over the course of the next 12 months," the spokesman said.
The image of Business Bay as a construction site makes it a tough sell for businesses, which have an array of choices in Dubai. The overall vacancy rate in Dubai office space is close to 50 per cent.
"I think there is a lot of reluctance from occupiers to move in unless everything is properly completed," said Matthew Green, head of research and consultancy for CB Richard Ellis (CBRE) in the Middle East. "There is a so much competition in the market any location that is just a little off will struggle."
More than 2.17 million square feet of office space has already been built in Business Bay--about the same as the total space available in Abu Dhabi--as well as 2,300 residential units, according to CBRE.
Another 3 million sq ft of office space and 1,900 residential units are scheduled for completion this year, CBRE reports.
The majority of the office buildings in Business Bay are so-called strata buildings with multiple owners. Some of the larger buildings may have more than 100 owners.
The strata issue complicates the recruitment of tenants, compared to single-owner buildings, agents say.
"That's going to have major implications" for Business Bay, Mr Green said.
Many strata buildings may remain empty for years, even as Business Bay fills up, property agents say.
"Long term Business Bay will become an extension of the central business district as downtown has," Mr Plumb said. "It will be an attractive location once the infrastructure improves."