Office, house rentals rise

Sending clear signals of a sustained pick up in Dubai property market on the back of “an upturn in business and consumer confidence”, office and residential rental rates rose by four per cent in the first quarter of 2013.

By Issac John

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Published: Mon 29 Apr 2013, 11:24 PM

Last updated: Sat 4 Apr 2015, 9:36 AM

Positive sentiment was also evident in CBRE’s quarterly survey of Dubai’s construction pipeline, with renewed activity for some previously stalled developments and a number of new projects launched during the quarter. The CBRE report noted that average prime rents in the Central Business District, or the CBD, have risen by four per cent during the quarter to reach Dh1,500 per square metre per annum.

Sharjah rents in steady rise as demand outstrips supply, says Cluttons report

Issac John

DUBAI - Sharjah’s residential sector is witnessing a steady rise in average rents as demand outstrips supply for the first time since the global crisis, a report by Cluttons, real estate experts said.

In its first quarter 2013 market report, analysts at Cluttons said since October 2012, apartments in popular areas such as Al Majaz, Al Nahda and Qassimiya have witnessed an average rental increase of 10 to 15 per cent. In Sharghan, Al Fisht and Al Falaj, villas have seen a similar 15 per cent increase due to strong growth in demand and a lack of quality stock. “However, these increases are applicable only to new lettings as the three-year, no-increase protection law still exists in Sharjah,” said the report.

“Sharjah has maintained a strong economic recovery period demonstrated by the expansion of various markets and industry sectors and a focus on diversification. Sharjah’s real estate market has always proved resilient and highly popular with investors,” said the report, noting that there has been healthy performance across the residential, office, commercial, hospitality and industrial sectors over the past 12 months.

“Landlords are becoming increasingly flexible with their office leasing agreements, boosting demand,” the report said.

“In order to reduce congestion, the new Salik tollgate became operational on the Ittihad Road in mid-April, but the effect on nearby property prices is yet to be seen. It is not expected to have a significant impact, but commuters might move to take alternative roads like the 311, which is currently under expansion. As the economy of both Dubai and Sharjah continue to improve, Cluttons expects the residential market to strengthen further and rents for both apartments and villas to rise over the next six month,” said the report.

The report noted that Sharjah’s office market has remained unchanged since October 2012, with average rents in the main business districts holding between Dh 50 to 80 per square foot.

“Landlords of a number of the more prominent office towers are now offering flexible lease agreements, which has helped attract tenants and increase occupancy rates,” said the report.

Cluttons expects the current market trend to continue over the next six months, driven also by Sharjah’s position as a good start-up location for smaller businesses.

According to the report, the industrial market is the most stable real estate sector and accounts for approximately one fifth of the emirate’s GDP.

Since October 2012, industrial rents have remained steady, but certain areas further away from the city centre, like Industrial Area 18, are seeing a notable 15 per cent rise in rents, with warehouse rents increasing from Dh17 to Dh20 per square foot.

The report said that many businesses are now looking to relocate from the older congested industrial areas to reap the benefits of improved infrastructure as well as newer, higher quality properties.

Cluttons speculated there would be further rent increases in newer developments over the next six months, but expects the rents to remain unchanged in the older, less popular areas.

Sharjah’s hospitality sector has also shown signs of continued growth, with a nine per cent year-on-year rise in guest numbers at hospitality establishments within Sharjah.

“With landlords becoming increasing bullish on the market outlook, we may expect to see further growth in prime rents over the remainder of the year, particularly as occupancy rates the CBD, slowly edge up.

“Despite a scenario of widespread oversupply within many secondary and tertiary locations, we have seen evidence of rental growth for some select office assets in JLT, Business Bay and Tecom,” it said.

The report observed that discerning office occupiers continue to set their focus on high quality properties, establishing a growing differential between what is viewed as the ‘best’ and ‘worst’ products in each sub-market.

The report noted that an ongoing infrastructure works in Business Bay continue to hamper its leasing performance. However, those towers that benefit from a Shaikh Zayed Road frontage or those which are in close proximity to the Metro station, are now starting to see an improvement in occupancy levels,” said the report.

The CBRE study said office stock continued to swell at a steady rate with an addition of around 110,000 square metres of space during the quarter. The majority of this accommodation was delivered in Business Bay, a trend that will continue in the short term, the report said. “With increasing activity from international occupiers, well managed, good quality office accommodation is fast becoming scarce in the Dubai market, prompting an imminent return to speculative office development starts,” it said.

Dubai’s residential sector has maintained positive momentum amidst solid market fundamentals and steady economic growth. “However, there is a modicum of concern that the recent escalation of sales and leasing rates could actually be a little ahead of reality,” said report.

The report noted that one of the key drivers of this disconnect during the past 18 months, has been the substantial return of foreign investment and speculator/investor activity. “This is a trend that has been particularly evident at recent off-plan sales launches.”

As per data sourced from the Dubai Land Department, the first quarter 2013 saw a total of 3,547 residential transactions with a value of Dh4.7 billion. The CBRE report said established residential locations, such as Dubai Marina, Emirates Living, Palm Jumeirah and Downtown Dubai, continue to dominate activity in the sales market, with 60 per cent of all transactions in volume terms. The highest number of transactions was registered in Dubai Marina, with sales comprising 25 per cent of the total share.

“Dubai’s established residential locations also remain incredibly popular amongst the emirate’s expatriate workforce, with rents and occupancy rates continuing to grow at a rapid rate amidst strong investor and occupier demand,” said the report. On average, a two bedroom unit in these locations has witnessed a 27 per cent increase year-on-year, with the largest single jump being noted in The Greens, where rental rates have risen by over 40 per cent during the past year.

Villa properties continue to see solid upward movement in both rents and sales pricing, with five consecutive quarters of growth now recorded. Average villa rents have risen by nearly five per cent during the quarter. However, smaller unit sizes of two and three bedrooms have registered substantially higher growth of nine per cent and seven per cent respectively.

CBRE said the outlook for the residential market a forward momentum with a growing number of companies committed to expanding their headcount as they look to capitalise on positive economic conditions.

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