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28 March 2024

Dubai rent fall slows down in Q1

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By Staff

Rents in Dubai continued their decline in the first quarter of 2011 but at a slower rate compared with the previous quarter, according to a Kuwait bank.

Apartment rents in the emirate, the Gulf’s commercial hub, edged down by only around two per cent in the first quarter of this year after dropping by nearly three per cent in the fourth quarter of 2010, Global Investment House (GIH) said.

Villa rents remained almost unchanged through the first quarter after a slight fall of around one per cent in the fourth quarter, GIH said in a study.

“The pace of decline in Dubai residential rentals and selling prices continued to slowdown in the first quarter of 2011,” it said.

The report showed selling prices dropped by just one per cent compared to about two per cent for apartments led by DIFC, which declined by nearly seven per cent on new supply. Villa prices in most areas across Dubai maintained their fourth quarter levels with the exception of minor decreases, it added.

In Abu Dhabi, rents of both apartments and villas declined at a faster pace, negatively affected by new deliveries during the quarter, GIH said.

It showed apartment rents dropped eight per cent compared to seven per cent in the fourth quarter of 2010 while villa rents dropped another eight per cent after a decline of nearly five per cent in the previous quarter.

“The office market remains under pressure in both markets on the back of relentless oversupply and feeble business demand,” the study said.

It showed that in Dubai, more than 4.6 million square feet were delivered during the first quarter after the delivery of 4.3 million sqf in the previous quarter, bringing the aggregate available office space to 60 million sqf with a vacancy rate of 45 per cent. Average rents dropped around 10 per cent while selling prices dropped by three to four per cent.

In Abu Dhabi, rents have dropped by nine per cent on average with Grades B and C continuing their underperformance as tenants get the luxury to upgrade to better office space at affordable prices, according to the report.

It showed retail space in Dubai increased by 530,000 sqf in the first quarter of this year on new additions in and around DIFC. Vacancy rates citywide remained around 20 per cent on average while rental values dropped nine per cent.

“The first quarter of 2011 witnessed high activity due to increasing tourism to the city driven by the political tensions in neighboring countries along with the Dubai Shopping Festival….. Emaar properties reported that the footfall on Dubai Mall has recorded its highest level ever since inception.”

In a previous study, GIH said the 2008 global fiscal turmoil depressed property prices in Dubai by a whopping 55 per cent in just two years but expected the pace of decline to sharply slow down in the next period.

After climbing to a record high level during the oil boom before the 2008 global crisis, property prices in the Gulf’s main commercial hub tumbled by 55 per cent between the fourth quarter of 2008 and the fourth quarter of 2010, it said.

 “We estimate that Dubai residential selling prices have dropped almost 55 per cent between the peak of 4Q08 and 4Q10 with average selling prices dropping to AED1,000/sqf down from AED2,150/sqf in 4Q08,” GIH said.

“We expect another drop of 5-10 per cent to take place through to the end of 2012 when new demand enters the market, increasing the rate of absorption, and the pace of new supply entering the market slows down.”

The report said it saw what it described as some positive signals in the first quarter of 2011 involving an increase in sales volume and a slowdown in the pace of drop in rental and selling prices.

It said this situation was created by an “exceptional wave” of tenant and capital movement of local and foreign investments from Egypt and Bahrain on the current political unrest in the two countries.

The report said Dubai’s residential market currently has an estimated 93,000 vacant units out of a total of 309,000 stock with an additional 60,000 units expected to come in the market through to 2013.

Turning to Abu Dhabi, it said prices had also plunged by nearly 43 per cent between the fourth quarter of 2008 and the fourth quarter of 2010.

Although Abu Dhabi vacancies remain low at a consensus average of only three per cent , the overhang of new supply entering the market along with lower construction and tenant mobilization to Dubai are factors pressuring prices lower.

“The vacancy rate in Abu Dhabi is more contained at an average of three per cent out of the total existing stock of 185,000 units at the end of 2010. Abu Dhabi is expected to see an influx of a fresh 65,000 units through 2013 representing an addition of 35 per cent over the existing stock,” GIH said.