Is high-end office development squeezing out space that might suit SMEs? And if so, what can you do about it?

The space race: are SMEs being squeezed out?
A visit to Dubai’s upcoming CityScape exhibition (8–10 September) will doubtless be another stunning showcase of prestigious developments and grand schemes. Whether residential or retail, commercial or cultural, the emphasis is likely to once again be on scale and luxury, with global customers the key audience.

Amid all this, it’s fair to ask: what about commercial real estate, and in particular choices for UAE SMEs? While the residential market receives close and constant scrutiny, this market feels somewhat neglected. And when it is on the agenda, has it become too focused on high-end spaces, at the expense of the needs of SMEs?

To answer this, it helps to know how much of a city’s commercial real estate should be high-end, and how much suitable for SMEs. Several studies suggest a model where high-end accounts for 15–24%, with the remainder occupied by SMEs and back-office operators.

In the UAE, it’s difficult to know precisely what the Grade A ratio is. But it appears to be around 30%, and – based on current development projections – could even rise to 45% by 2020.

This squeezing out of suitable SME space has two important consequences. Firstly, occupancy rates remain unnaturally high, as demand and supply don’t tally. Secondly, when developers do offer more reasonable prices, they’re met with overwhelming demand. This usually leads to swift price hikes, resulting in a lopsided marketplace, and a perception among developers that they can safely continue charging high prices and focusing on high-grade space. That 45% projection is based on the schemes developers have in the pipeline, few of which focus on affordable office space. The only factor weighing against this is the increasing diversification of the national economy, and the fact that our governments are promoting entrepreneurship, and sectors such as knowledge-based and creative industries – none of which necessarily call for high-grade commercial space.

So what are SMEs to do?
Firstly, the best options are often to be found in free zones. Their explosive growth has increased the supply of less expensive lower grade space, plus alternatives to conventional offices such as business centres and flexi desks. For example, the DMCC Free Zone – commonly known as Jumeirah Lakes Towers – has in 12 years grown from nothing to be home to nearly 11,000 businesses, most of which are SMEs. It offers services and extras aimed at making life easy for an SME, and recently won ‘2014 Global Free Zone of the Year for SMEs’ from fDI magazine. It’s significant that this year will be DMCC’s first-ever appearance at CityScape, as they look to put their SME offering onto the bigger stage.

Secondly, those alternatives mentioned above – such as flexi desks and business centres – are worth considering if they suit your business. Some sectors, such as the creative industries, now have dedicated hubs and locations where companies can share space and facilities.

Thirdly, try to negotiate on rental terms. The property market is no way near as buoyant this year as last, and while the demand/supply ratio is still an issue, there is perhaps more room for manoeuvre than before.

 

Disclaimer:
“The opinions expressed within this article are generic. Mashreq is not responsible for the accuracy, completeness, suitability or validity of any information on this article. The information, facts or opinions appearing in this article do not reflect the views of Mashreq. Mashreq does not assume any responsibility or liability for the same.”

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