Brookfield Property Partners joint venture began work on a US$1 billion office tower in Dubai on Wednesday as the Canadian firm bets the emirate’s commercial property sector will be unaffected by the sustained slump in oil prices.
Brent crude has fallen by about 75 percent from a 2014 high, ravaging the state finances of the Gulf’s major producers, spurring governments to reduce subsidies and leading economists to cut growth forecasts.
Oil contributes very little to Dubai’s economy, which relies much more on real estate, retail and transport, among other sectors. But as the Gulf’s hub it is not immune to the effects of crude’s tumble.
Brookfield seem undeterred, however, forming a 50-50 joint venture with state-owned Investment Corp of Dubai (ICD) to build a 53-storey tower in the Dubai International Finance Centre (DIFC) that is slated to be completed in late 2018.
“By the time this project is completed, the world will be a different place,” said Ric Clark, chairman of Brookfield Property Partners, which has more than US$65 billion in assets.
“A lot of international businesses are covering the Middle East, India and Africa from Dubai; it’s a quality of life thing,” he told reporters, adding that vacancy rates in the DIFC were in single-digit percentages.
About 19 percent of office space in Dubai’s central business district is empty, industry consultant JLL said this month, predicting that the vacancy rate would increase.
Prime office rents rose 4 percent last year, JLL estimates, though rival consultant CBRE said rents were flat.
Commercial property has fared better than residential, which suffered sales price declines in the double-digit percentages and a 43 percent drop in the aggregate sales value in the 11 months to November, CBRE estimates.
Brookfield’s Clark said he was in talks with potential tenants to take several hundred thousand square feet of office space in the consortium’s tower, though no deals had been signed.
Construction financing will fund about 65 percent of the building, the cost of which is undisclosed, with the partners jointly contributing the remainder.
“It will likely be a consortium of banks. We’re probably two to three months away from wrapping that up,” Clark said.
The main contractor is a partnership between Brookfield Multiplex, a unit of Brookfield’s parent company, and Korea’s Ssangyong Engineering and Construction, part-owned by ICD. ICD’s assets under management were worth US$190 billion in November.
By Matt Smith
(Editing by David Goodman)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Dubai International Finance Centre