Craig Plumb, the head of research at JLL MENA, told the same conference that demand for flexible office space has been growing at a rate of about 20 percent per year over the past five years. He said the amount of flexible office space in Dubai - which JLL defines as space that can be leased for a period of less than 12 months - currently stands at just 65,000 square metres out of a total stock of around 8.5 million square metres. Albert said that flexible office provision has changed, starting with the likes of Servcorp and Regus - both of whom have been operating in the Dubai market for more than 20 years, he said - offering dedicated serviced office space used by corporates for branch or project offices, or for additional short-term space. In the early part of this decade, he said, co-working space providers such as WeWork developed a new model based on access to global shared working spaces via a membership fee. Albert said the two models were now converging, his presentation stated that the number of co-working spaces had more than doubled in three years to 18,900, while the number of members had trebled - to 169,000 in 2018, from 54,500 in 2015. Albert said the relative lack of flexible office space in Dubai was partly linked to trade licences. "Labour issues, licencing issues, restrict the ease with which co-working space can be used," he said. Age of Dubai companies based on space occupied (Source: JLL) Bigger books He also said the implementation of IFRS 16 - a new global accounting standard - from January next year requires companies to add all lease obligations longer than 12 months, and with a value of over $5,000, to their balance sheets as liabilities. "Globally, what that means is an addition of debt onto companies’ books of around $3 trillion," he said. This will lead to fewer companies wanting to commit to 20-year leases, he said, which will also impact on building valuations, and on sale-and-leaseback transactions which have become a popular source of deals for the region's growing band of real estate investment trusts, Albert said. In its report analysing the impact of the digital economy on Dubai's office market, JLL found that 85 percent of space it analysed (both onshore and free zone) in the Dubai office market was taken by companies that are more than 10 years old. Around 49 percent of space was taken by companies that are more than 30 years old, and only 2 percent was taken by start-ups (classified as less than three years old). "That is because Dubai, to date, its economic growth has been driven by two sets of companies - by large, family conglomerates and by major, international companies," Plumb said. "There hasn't been that much emphasis on small and medium-sized enterprises or start-ups. Even in some of the more innovative districts, like the Dubai Design District or the Science Park, we still see only 7 percent (of space being taken by start-ups). "We think that will change. One of the reasons that will grow is the increased amount of flexible office space," he added. Origin of Dubai companies based on space occupied (Source: JLL) Eastern promise Around 46 percent of the office space analysed in JLL's report was taken by local companies, and a further 39 percent was taken by Western firms. Eastern corporates now take up 10 percent of space and companies owned by 'other' Arab nations make up 5 percent. Plumb said that he also expects this to change, with more space being taken in the region by the new corporate giants of China and India. "They're already very active in leasing markets.... in Amsterdam or in the US. We think they will become more active here in the future." (Reporting by Michael Fahy; Editing by Shane McGinley) Our Standards: The Thomson Reuters Trust Principles Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here © ZAWYA 2018
New accounting rules that take effect in January are predicted to increase demand for flexible offices space. IFRS 16 requires companies to include leases longer than 12 months and worth $5,000 or more as liabilities on their balance sheets. That will result in fewer firms committing to longer leases, Colliers International Regional Director Ian Albert told the Cityscape Global conference in Dubai. The changes will also have repercussions on commercial property valuations and sale-and-leaseback deals, which have become more prominent with the growth of real estate investment trusts, Albert said.