Residential rents dip after registering an increase for ten consecutive quarters

• Average residential rents dipped marginally by 1% during Q3 this year

• Office rents across the CBD area remained unchanged while secondary locations grew by 3% quarter-on-quarter

• On a year-on-year basis, average villa rents have witnessed a single digit growth of around 8%

Dubai, 21^st September 2014 — After registering growth for ten consecutive quarters, average residential rents dipped marginally by 1% during Q3 this year, according to the Q3 2014 Dubai MarketView by global property consulting firm CBRE.

The percentage drop, however, has been higher for some individual developments. The highest falls were noted within Dubai’s freehold developments, while rental rates across leasehold areas remained more stable with few areas still registering an increase.

Within the freehold developments, rental rates in Downtown Dubai, Tecom C and International Media Production Zone dropped by an average of 3%, whilst Palm Jumeirah, Business Bay, International City, Jumeirah Lakes Towers, Motor City and Dubailand Residences have seen rents dipping by around 2%.

“Rental declines, however, were not universal across all freehold developments. Developments such as the Greens and Dubai Marina have witnessed stable rental rates during the quarter. The dip in rentals has been attributed to an increase in new residential stock combined with weaker demand during the traditionally slow festive and holiday period,” said, Mat Green, Head of Research & Consultancy UAE, CBRE Middle East.

On a year-on-year basis, average villa rents have witnessed a single digit growth of around 8%. However, the notable rise in new villa stock over the past 18 months has restricted rental inflation within the segment.

“Smaller villa units of two and three bedroom sizes, which are popular amongst new job entrants, registered an increase of 12% and 11%, whilst larger five and six bedrooms villas registered just a modest single digit growth. During the same period seven bedroom villas witnessed a similar marginal increase of around 3%,” added Green.

According to the report, whilst the rental market experienced a slight blip in performance, the sales market maintained some momentum, albeit at a slower rate compared to previous quarters. Overall, average sales prices increased by around 3% quarter-on-quarter, bringing the annual growth close to 23%. The best performing segment of the market during the quarter was found to be high end apartments, a trend that was also visible in buying patterns with prime areas such as Dubai Marina and Palm Jumeirah seeing the majority of transaction activity.

In the short term around 19,000 new units are expected to enter the market during 2015, with a large portion of these (29%) expected from the Dubailand development. The expected new supply across the emirate should help to keep rental inflation in check, controlling the spiraling cost of living that has seen rents jump close to 50% during the past two years.

The Dubai office market is experiencing rising demand with new requirements reflecting the improving state of the sector, overall business confidence and positive sentiment as a result of Dubai Expo 2020.

“Most of the new enquiries over the past six months have emanated from occupiers looking to upgrade, expand and consolidate in to more centralised locations. The freezone areas which are an important part of Dubai’s office market continue to record healthy occupancy levels. Office buildings managed by individual freezone authorities of DIFC, JAFZA, Tecom and DAFZA are currently witnessing vacancy levels of less than 5%,” commented Green.

According to the report, the market in the Central Business District (CBD) remains undersupplied of quality office space with large and efficient floor plates. Despite having a headline vacancy rate of 15%, occupiers in the area are struggling to find suitable accommodation to complete office expansion moves.

“CBRE is aware of several large occupiers in the market with over 1,400 m² space requirements, with a preference to locate in the CBD. However, they are being constrained by the lack of good quality office buildings available, specifically those with adequate office accommodation of contiguous floors. Much of the current availability in the area is within ageing properties while good quality buildings are experiencing high occupancy levels of >95%,” commented Green.

The current lack of space has limited leasing activity in the area resulting in stable rents during the quarter. The average prime CBD rents stood at AED 1,884/m2/annum recording an increase of 17% year-on-year, noted the report.

Despite a rise in new stock, the secondary office locations continue to experience rental growth. Migration of tenants from older districts, availability of varied options for new start-ups and improved infrastructure is helping towards strengthening of rental and occupancy rates.

“Average rents across secondary office locations during the quarter recorded at AED 1,180/m2/annum, as compared to AED 1,148/m2/annum in Q2 2014 representing a 23% rise year-on-year and 3% quarter-on-quarter,” further added Green.

With 53,000 m² GLA of retail space and 6,000 hotel and hotel apartment rooms expected to be completed by 2015, the demand for executive staff accommodation is also forecast to remain high, particularly with many existing staff accommodation facilities achieving occupancy levels of over 90%.

“With a solid economic outlook, Dubai’s position as the headquarter city of choice for global corporates in the Middle Eastern region looks set to continue. However, with limited good quality and efficient office properties available in the market, it is likely that this segment of the market could see a growing demand and supply imbalance in the coming quarters. Whilst a number of major office developments, such as DTCD Phase 1, are under construction, the supply is likely to remain constrained in the short-term,” concluded Mat Green.