Dubai Running Out of Office Space as Boom Draws Firms (Update1) By Sean Cronin http://www.bloomberg.com/apps/news?pid=20601109&sid=aAu7rArkl91w&refer=home April 6 (Bloomberg) -- Dubai, the Middle East's fastest- growing city, is running out of office space, according to the commercial property broker CB Richard Ellis Group Inc. The lack of space is making it more difficult for foreign companies to profit from the sheikdom's economic boom, said Nicholas Maclean, managing director of the firm's business in the region. Some U.S. companies have agreed to occupy premises that won't be built for two years, he said. ``There's a desperate shortage,'' Maclean said in an interview. In some cases, companies are ``running their operations from other locations until the space eases up'' in Dubai, the most noted of the seven emirates that make up the U.A.E. The United Arab Emirates economy, the Arab world's second- biggest after Saudi Arabia, grew 8.9 percent in 2006 as the country earned an average of $65 per barrel of oil, about 22 percent higher than the previous year. That's helped draw in companies such as Baker Hughes Inc. to Dubai, the second-largest sheikhdom, and the biggest U.A.E. emirate, Abu Dhabi. David Lesar, Halliburton Co.'s chief executive officer, plans to move to Dubai to oversee the company's expansion in the Middle East and Asia. The world's second-largest oilfield-services provider is ``looking at a number of potential places to put an office,'' spokeswoman Cathy Mann said in an e-mail. Merrill Lynch & Co., the world's biggest brokerage, and the Bermuda-based insurer Lancashire Holdings Ltd. are also looking for office space in Dubai. Baker Hughes, the third-largest oil contractor, plans to create as much as 700,000 square feet of space at the Jebel Ali Free Zone, a 25-acre site owned by the government where foreign companies benefit from government incentives and tax breaks. Rents Jump ``There is no available space for several large-scale international office requirements we have from companies wishing to enter the Dubai market,'' said Maclean. Commercial rent in Dubai has jumped the past two years as landlords capitalized on the lack of space. Prime office space can cost more than 400 dirhams ($109) a square foot to rent, up from 165 dirhams in May 2005, according to CB Richard Ellis. Some office buildings are being sold to investors by the floor, said Abdullah Hageali, chief executive officer of property developer Tameer Holding. ``When it comes to leasing space, occupiers often have to deal with multiple owners,'' said Hageali, whose company is building the 107-story Princess Tower in Dubai. Companies seeking new office space in Dubai are also paying for the fit-out costs of the premises that are being let by developers on a ``shell and core'' basis. ``If it's a new building, you can add another 300 to 500 dirhams per square foot in fit-out costs,'' said Ian Albert, director of the real estate broker Colliers International. ``The annualized cost of occupation over a three-year lease could be 363 dirhams per square foot,'' he said. ``Three years ago it was 160 dirhams per square foot.''