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Dubai Rents, Prices to Fall Across Board in 2010

DUBAI — Average prices and rentals in the Dubai residential, office and retail sectors will continue to decline in 2010 with more new units further aggravating the oversupply scenario, a new report by a global real estate advisory company said on Monday.

The Dubai office market is “becoming increasingly favourable for tenants” as it is witnessing a significant demand-supply mismatch along with falling rentals and increased vacancies, Jones Lang LaSalle MENA’s Dubai Real Estate Market Overview.

“The tenant is becoming the ultimate winner as the office market is going through a significant adjustment with more vacancies and cheaper rents on offer. This scenario is encouraging for businesses as it offers multiple options for expansion and relocation as Dubai becomes more competitive office location both locally and regionally,” said Blair Hagkull, Managing Director of Jones Lang LaSalle Mena.

The report described 2010 as a year of “selective stability”, with a “flight to quality resulting in an increasingly two tier market emerging”.

Attractive deals can be found throughout the city’s prime and peripheral areas as rental rates and capital values are hovering at pre-2007 levels, he said in the report. “This is an opportune time for tenants as average annual Grade A rentals have fallen to around Dh220 per sq ft.”

The report said that while demand levels were increasing, as both existing and new tenants seek to consolidate and take advantage of better quality space becoming available on more competitive terms, there is not likely to be enough demand to meet the high level of new supply entering the market in 2010.

“Average office vacancies across the city are therefore likely to increase from their current level of around 33 per cent during 2010,” the report said.

In Dubai’s residential sector, average prices and rentals are expected to show more stability in 2010 as the rate of decline has slowed in the past few months. “While conditions may stabilise in some locations and sectors, the overall market is likely to see a continued decline in average prices and rentals in 2010. The performance of different locations will be more driven by local demand
 and supply issues.”

Despite the existing over-supply situation, prices seem to have stabilised over recent months, the report said. “Stabilisation of transactional volumes is another positive indicator of investor confidence but the lack of housing finance remains a major challenge in Dubai. An improved lending scenario is one of the key factors for a sustainable recovery as the value of mortgages as a percentage of total sales value has dropped significantly during 2009,” the report said.

Hagkull said with an additional 24,000 units expected to be completed in 2010 and 25,000 units in 2011, there might be an emerging opportunity for both investors and financers in the Dubai residential market as it has already seen a significant level of pricing adjustment in 2009.

Dubai’s retail sector will also see a shift in favour of tenants in 2010, the report said. The average rentals have declined by around 29 per cent from Q4 2008 to Q4 2009 and by 13 per cent from Q3 2009 to Q4 2009 on the back of a 15-20 per cent decline in retail sales in 2009.

“This is an interesting time as the dynamics of the Dubai retail market continues to swing in favour of tenants due to falling rents and increased vacancies in some centres,” said Hagkull.
 “In spite of the cut back in future supply levels, we expect to see an increase in shorter leases, break clauses and rent free periods as we go through this tectonic shift in the market. There will be more and more incentives for tenants due to the shift in power from landlords to tenants,” he said.

· issacjohn@khaleejtimes.com