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Rents in Sharjah, Ajman and RAK set to fall in H2

Abdul Basit / 22 August 2011

DUBAI - A quiet property market is anticipated in Sharjah, Ajman and Ras Al Khaima for the second half of the year on new supply that will also increase vacancy levels in residential sector and further decline in rental rates, according to a latest report by CB Richard Ellis.

Despite widespread market negativity many investors are breathing a collective sigh of relief with a number of developments now handed over.

Increased construction activity is taking place on projects along the Emirates Road and for developments in the City Centre, Ajman including Ajman One, Ajman Pearl and the remaining components of the Garden City development. However, the slow pace of development work and extended handover dates are likely to have a telling and lasting impact on investor confidence.

Rental rates are likely to suffer as a result of significant new residential supply approaching completion, according to the report.

The Sharjah, Ajman and Ras Al Khaima office market will feel mounting stress for the remainder of the year as new office supply, existing vacant spaces and increased landlord competition further exacerbates lease rates, it added.

It said the real estate market continues to face a host of challenges amidst a weakened economic and investment environment.  However, in a bid to stimulate activity and improve overall living conditions in the Sharjah, Ajman and Ras Al Khaima, the UAE government has committed significant new funds towards the development of key infrastructure projects.

In recent years power shortages have become increasingly problematic, as an expanding population has seemingly outgrown the capabilities of the existing infrastructure.

The allocation of Dh5.7 billion over the next five years will go some way to alleviating persistent problems, with the majority of investment focussed on increasing the production capacity of electricity and water facilities.

Road and other transport projects are also to see further investment with a number of major road infrastructure works already underway. This includes expansion and improvement works on the Emirates Road and development of the Zorah-Al Helio Road.

Residential sector

The report said deflationary pressures persist for poor quality residential products, particularly those further impacted by inferior location.  As more residential units enter the market, the importance of providing adequate facilities and amenities has become increasingly clear, and a major consideration in judging the overall appeal of real estate offerings for both end-users and investors, it added. This is negatively impacting older stock which typically lacks the same level of specifications and conveniences available in newer comparable property.

As competition intensifies many landlords in Sharjah have started to include parking and chiller charges within their quoted lease rates.  In some cases agent commissions on initial lettings are also being ignored.  With further new residential supply in the pipeline the market is expected to correct further, particularly in less desirable locations, whilst ongoing infrastructure works may also have a negative impact in the interim period.

On average, lease rates across the Northern Emirates have now dropped by 18 per cent year on year.  The worst affected area was Ajman where rents have fallen by 28 per cent as a result of significant new supply and ongoing infrastructure issues.  This was followed by Umm Al Quwain which registered a 22 per cent decline.  Rents fell 21 per cent and 15 per cent in Sharjah and Ras Al Khaimah, respectively during the same period.

On the other hand rental rates in masterplanned and gated community developments are currently outperforming the wider market with significant premiums being achieved.

Office sector

Lease rates across the Sharjah, Ajman and Ras Al Khaima are showing signs of greater homogeny as supply continues to exceed demand. Availability of office space within the Free Zone’s (with the exception of Umm Al Quwain) continues to encourage international occupiers who are seeking to benefit from the incentives offered by the Free Zone authorities.

Office lease rates in Sharjah have slipped 22 per cent over just a six month period.  Average lease rates in second half of last year were in the range of Dh430-860/sqm/annum, but have now fallen to Dh300-700/sqm/annum.

Lease rates across the Sharjah, Ajman and Ras Al Khaima currently range from Dh240-700 per square metres annully with the lower pricing for residential conversions. Dedicated office accommodation continue to hold a significant premium.

An increasing inventory of new towers has started to affect tenant loyalty, with increased occupier movement away from ageing buildings that lack sufficient amenities and facilities.

Prime properties set to enter the market over the next 12 months include the Al Ghanem Business Centre Tower which is located in the Al Majaz area.  The property should achieve handover within the next few months and is quoting lease rates from Dh590-700/sqm/annum inclusive of service charge.

abdulbasit@khaleejtimes.com

 
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