Expat focused wealth managers Forth Capital and Killik & Co along with service provider SEI have all recently shuttered or announced plans to close their operations in the DIFC.
“It is quite an expensive jurisdiction with a high regulatory burden,” said Sam Instone, chief executive of AES International, which conversely recently opened up a new office in the centre.
“All three firms had small offices and it would have been difficult for their advisers to generate the revenue required to pay the overheads,” he said.
Indeed Tom Tracy of Forth Capital, which announced plans to pull out in October, agreed.
“The revenues generated and projected didn’t justify the high cost of infrastructure and regulation for that region.”
“The revenues generated and projected didn’t justify the high cost of infrastructure and regulation for that region,” Tracy told International Adviser.
He said aside from the high cost of regulation that only companies in the DIFC had to deal with, the decision was also driven by the real difficulty in finding high quality people experienced in UK financial services to drive revenues out of the office in the highly regulated zone.
US headquartered SEI said it had taken the decision not to renew the lease on its DIFC office and would cease to support its local operation with effect from the 30 November 2016 without giving any reason. SEI’s existing clients will in future be serviced from its UK operation in London.
While Killik & Co, which shuttered its only non-UK DIFC office at the end of September, said the move was down to a strategic decision to focus on servicing its global clients from its head office in London.
Rising rental costs
The spate of moves has led some to speculate on the rising costs of renting in the DIFC and the restrictions which only allow firms to conduct business within the free zone.
According to Craig Plumb, head of research at commercial real estate services and investment management firm JLL (Jones Lang LaSalle), demand for space in the DIFC Gate and Village has resulted in rentals increasing by 20% over the last 12 months at a time when average rents elsewhere in Dubai have been relatively flat.
Plumb estimated that average rents in the DIFC have risen to around AED300 ($81.70) per square foot per annum from AED250 ($68) per sq ft per annum over the past year.
These net rents are exclusive of service charges, which can add another AED60 per sq ft per annum to occupancy costs.
In other parts of Dubai, such as nearby Sheik Zayed Road, rentals are quoted at closer to AED100 to 125 AED per square foot per year, while in other parts of Dubai offices can be rented for around AED75 per square foot.
Despite these exits, opportunity remains, according to AES International’s Instone.
“The market opportunity is certainly here and we aren’t seeing a slowdown in demand for professional advice,” he said.