Rent – That Old Chestnut

It has been quite an interesting week in Dubai. Of course, the announcements and launches are a regular feature and the last few days didn’t disappoint. However, what perhaps made for most interesting reading to many people was a Gulf News report on rising rents.

After torturing and uprooting the ordinary lower and middle class, it looks like the ‘rent issue’ is now also catching up to the commercial sector. We could very well see a reshuffling of the region’s companies to other less expensive, neighbouring countries. However, is that really going to help? After all, it is demand that is the major contributor to price increase. So an exodus of people to another country will inevitably lead to the same problems over there. We have already seen that in Qatar, for example.

What is surprising is that during the same week I saw concerns about rising commercial rents in the region, we had the 13th Annual Middle East Council of Shopping Centres Convention in Dubai. Emirates Business 24/7 covered the event and reported that industry experts were expecting the “explosion in retail real estate development” to last more than a decade. At the same event, Nakheel announced it will be opening more than five shopping malls. These are certainly very bullish statements and gestures in times of rising inflation rates. Whilst we are perhaps still better off than other parts of the world that have been experiencing a major slowdown, the effects are gradually trickling towards the region. We have already seen the price of essential commodities increasing. Of course, we have to applaud the government for controlling these increases. However, with rising oil prices and a global shortage of food supplies, we could see a tightening of the purse-strings by the common man. We could also see diminishing tourist revenue.

The implications of the global slowdown could mean fewer people travelling and hence fewer tourists coming into Dubai. Fewer tourists equals less spending. It is a vicious circle. The good news is that we are not there yet and unless everything that can go wrong does go wrong, the UAE will continue to prosper. On a global perspective, the UAE is still a great place to be in. By all accounts, it is still booming. We have to remember that as a country it is still a relatively ‘new’ state and it is going through several ‘firsts’. Twenty years ago, the country experienced a completely different set of problems. Most of the people who came to the Emirates back then did their time so to speak and have gone on to become extremely successful professional and/or business people. While they undoubtedly worked hard, I am sure without the support of the country and its people many of them would have long chosen the path of migration.

One’s loss is another’s gain

According to a report in ArabianBusiness.com, the subprime mortgage has claimed over 15,000 jobs since the beginning of the year. The number is expected to rise to almost double that by the end of the year. As expected, most (if not all) of these jobs were in the financial sector. The situation has come as a blessing in disguise for the Gulf region. With the financial and banking sectors screaming for top talent and used to poaching it from their competitors, they certainly could do with the skills and experience of these individuals.

However, the article does highlight a major concern in the shape of the USD vs. Dirham peg. With the exception of Kuwait, this is a regional obstacle and companies need to offer very attractive salaries if they want to compete with other major financial centres like London with its solid sterling pound. The same can be also attributed to other European cities that are riding high on the success of the Euro.