Beirut office space expensive but stable

- Paige Kollock, NOW Lebanon
The world’s leading business centers have suffered an unprecedented fall in rent and demand for office space because of the global economic crisis in the last year, leaving entire floors of office buildings empty. While no corner of the world has been left untouched by this phenomenon, Lebanon fared better than many cities, as Beirut rents merely stagnated from 2008 – 2009, during the worst global economic downturn since the 1930s.

Real estate brokers and property consultants Cushman & Wakefield came out with their 2010 survey of office space costs around the world, neatly demonstrating the effects of the crisis on the sector, this week. The survey ranked Beirut the 31st most expensive city worldwide and the fourth most expensive among 10 cities in the Middle East and Africa region (MENA) in terms of office space.
 
The annual study evaluated 202 key office locations in 63 countries. Occupancy costs reflect rent as well as municipal tax, service charges and VAT.

Cheaper than Warsaw, Copenhagen and Vienna, Beirut office space is pricier than that in Damascus, Istanbul and Vancouver at approximately $400 per square meter per year in 2009.

Manal Karam, who works for Cushman & Wakefield in Beirut, says prices in the capital city, while not as high as in its Middle Eastern counterparts Dubai or Doha, remain competitive because there is a lack of supply.

“There are plenty of developments throughout Beirut, in Hamra, Sin al-Fil, etc., but the main tenants that look for large spaces are multinational corporations, and they have certain requirements that you can’t find in these neighborhoods.”

Karam says most of these corporations move to office space in downtown Beirut, as they require security and sustainability measures that Solidere, the development powerhouse that rebuilt the area after the civil war, provides.

“Solidaire has implemented energy measures, seismic regulations, fire escapes… it’s very hard to find a building outside [downtown] Beirut with two or three fire escapes, which is essential for multinational corporations.”

Tenants in the small area that encompasses downtown Beirut include banks, law offices, insurance agencies, shipping companies and telecom corporations. Big names such as NSN (Nokia), Proctor & Gamble, Microsoft and General Electric house their Beirut branches there.

It is not just international building standards that draw businesses to downtown Beirut; location plays an important role as well, says Gebran Massabni, Manager of Operations and Sales at Bankers Assurance, a Lebanese insurance company.

“It’s the same reason brokerage firms rent space on Wall Street in downtown New York.  The neighborhood of downtown Beirut has an image, it has a cliché, and there’s a feeling the company would be regarded better,” he said.

In the MENA region, Dubai and Amman saw rents drop by double digits in 2009, whereas Beirut, along with Doha and Cairo, benefitted from a shortage of Grade A space, keeping demand high.

“You can’t find any free space in downtown Beirut,” said Massabni. “If you find a space, it will be like finding a genie lamp, as no one can afford it, and you can sell it to big investors for billions.”
 
This was not the case after the 2006 July War, when much of downtown Beirut was vacated and landlords dropped rents as low as $250 per square meter. Karam says Lebanon’s history of destructive conflict leaves it subject to its own set of economic swings, which occur outside of global economic trends.

“What influences the market in Lebanon is more the political issue and the security and stability of the country, so once we have that, demand rises in all sectors,” she said. “So it’s not about office and residential rates influencing each other, but rather political stability affecting all real estate.”