Rents drop as supply rises in Dubai

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Lease rates in Dubai continued to decline in June compared to April, as more housing stock was released into the market, a real estate consultancy said.

Landmark Advisory, in its Dubai lease guide, said although the units in lower-quality buildings and less prestigious locations are experiencing the strongest rent declines, the more significant trend is the resumption in rent declines for quality units in prestigious locations.

“Declines are primarily attributed to increasing supply, a trend that will continue with 100,000 new units anticipated for delivery over the next two years,” the report said.

However, Landmark said rental demand in Dubai has been bolstered by tenants relocating from surrounding emirates, namely Abu Dhabi with landlords in Dubai benefiting from tenants moving to Dubai to take advantage of both lifestyle and lower rental rates.

“The imminent delivery of Abu Dhabi’s Marina Square will inevitably sway existing or potential commuters to rent an apartment in Abu Dhabi, however, which will clearly hurt rental demand in Dubai,” said Jesse Downs, Director of Research and Advisory Services, Landmark Advisory.

“Rents in the capital are coming down and will continue to do so, especially in the fourth quarter of 2010 and first quarter of 2011.”

Downs said the biggest problem is the impending supply pipeline. “Tenants are increasingly seeking more value for their rental dirham and are able to leverage alternative options to negotiate very attractive deals. This is pushing up bid-ask spreads and illustrates that landlords are conceding in negotiations with ever more discerning and value-seeking tenants. More significantly, this is a trend now observed in high-quality units in prestigious locations, which is a segment that has experienced relatively minimal volatility in late 2009 and the first quarter of 2010 due to relocation trends.”

The lower limits for a one-bedroom on the prestigious Jumeirah Lakes Tower (JLT) have fallen six per cent while one-bedroom apartments in JLT have fallen a further 10 per cent since publishing the previous lease guide.

In lower-quality areas such as International City, studio lower limits decreased 12 per cent while upper limits for both studios and one-bedroom apartments decreased on average by 22 per cent. The lower limit of lower quality two-bedroom apartments in both West and East Dubai have also declined by an average of seven per cent since early May.

Well-established areas with a limited supply pipeline are also experiencing additional rent declines; Downtown Dubai has seen further drops in rent due to continued supply entering the market in neighbouring areas such as Business Bay and Sheikh Zayed Road. “While these areas are not of comparable quality to Downtown Dubai, the impact on this increased supply is evident, lower limits for two-bedrooms in Downtown Dubai are falling five per cent, at the same time that lower limits in Business Bay and Sheikh Zayed Road have fallen by 12 per cent and six per cent respectively since the beginning of May,” said Downs.

Villas lease ranges have been much more stable than apartment rates, however, some areas are still experiencing declines. Areas including Arabian Ranches, Victory Heights, Jumeirah Islands, The Springs, Dubai Silicon Oasis, sections of the Lakes and parts of Palm Jumeirah have all seen lower limit declines.

The largest declines occurred in the lower limits of five-bedroom villas in Jumeirah Islands and Dubai Silicon Oasis, five-bedroom villas declined by seven per cent and 13 per cent respectively. For two-bedrooms, lower limits in The Springs declined six per cent (with rents as low as Dh75,000) while in Victory Heights, Palm Jumeirah, and Dubai Silicon Oasis the three-bedroom lower limits declined by an average of six per cent.

Downs said: “While some villa rents did fall, they did not fall in every area and rents for certain high quality villas have remained stable.”

In terms of commercial units, Downs said location and incentives are set to play a key role in attracting tenants. “The commercial market is witnessing a prolonged period of oversupply, and with new developments in Business Bay, and JLT expected for completion in 2010 and beyond, lease rates are expected to decline further across Dubai.”

By Emirates Business 24 7