Although few experts have predicted high commercial vacancy rates, CB Richard Ellis (CBRE) believes occupancy rates in CBDs across Dubai are stabilising and may increase this year.
On the residential side, average rents continued to dip in the first quarter with an estimated decline of eight to 12 per cent is expected over the year due to oversupply.
In its first quarter market report on Dubai, Matthew Green, Head of Research & Consultancy, UAE, CBRE, said: “With only a small number of office buildings scheduled for completion in the CBD during 2011, we may start to see occupancy rates stabilise or even rise. Based on existing requirements, properties between Trade Centre and Downtown Dubai could be set for a bumper year, assuming recent enquiries transpire into actual deals,”
Total office space in the first quarter was at circa 5.7 million square metres, an annual increase of 17 per cent, as most of the new space emerged from Business Bay, Jumeirah Lakes Towers, TECOM, Dubai Investment Park and Dubai Silicon Oasis.
The current lease rates within the CBD, but outside DIFC, were in the range of Dh1,075 to Dh1,940/sqm/pa, witnessing a quarterly drop of three per cent. For the first time, secondary and tertiary locations, which have experienced a substantial drop in lease rates over the last two years, saw “some” stability in the first quarter. Lease rates now range between Dh430 and Dh1,075 sqm/pa with little or no deviation over the previous quarter.
Cluttons estimates 10 million square feet of space to enter the market with vacancy levels currently at circa 40 per cent. Landmark Advisory expects office space to double to 80 million square feet by beginning of 2015 from 41 million square feet in early 2010. Jones Lang LaSalle believes 1.15 million square metres of office space to be delivered in 2011 and overall vacancy rates to be 40 per cent and 20 per cent in CBDs.
An interesting trend, CBRE said, that emerged during the quarter was a discernible reduction in transaction timing with some occupiers clearly ready to move immediately. It cited a potential reason for these abbreviated acquisitions was political unrest in countries such as Libya, Tunisia and Egypt.
“We have already seen a number of occupiers freeze regional expansion plans and instead consolidate in more stable locations such as Dubai,” Green added.
Rents steady in established locations
The decline in residential lease rates continued at around four per cent over the first quarter while rates in established locations with infrastructure connectivity, facilities and amenities remaining steady for consecutive quarters.
On average, lease rates dropped 17 per cent over the last 12 months with the highest fall noted for studio units, which fell 19 per cent. One and two bedroom apartments dropped 17 per cent and 16 per cent, respectively.
New developments at Dubai Silicon Oasis, Business Bay, IMPZ, Jumeirah Village and Dubai Sports City continued to experience rising vacancy rates and falling rents.
“Unrelenting new supply and unfinished infrastructure and community facilities are serving to further exacerbate the situation,” the report said.
Despite a prominent location adjacent to the existing CBD, Business Bay struggled to attract tenants and faces a battle to reverse huge vacancy rates. Current average lease rates for a one-bedroom apartment stands at Dh55,000/annum, compared to Dh75,000/annum in Downtown Dubai for similar quality apartments.
Jones Lang LaSalle (JLL) expects completion of 20,000 new units by year-end, with approximately 7,900 units being completed in first quarter. It expects low to mid-end apartment rents to decrease during the year with the quarter-on-quarter decline of two per cent and year-on-year fall of five per cent.Cluttons earlier said apartment rents in the lower end of the market fell eight to 10 per cent in the first quarter compared to the last quarter of 2010.
CBRE added: “An improving economic outlook is likely to result in improved demand levels as the year progresses, although the sheer volume of new supply, coupled with existing vacancy rates is expected to continue to exert downward pressure on lease rates.”
Large down payment required
According to the report, mortgage providers are starting to become more visible and active with seemingly liberal offerings emerging. The broad interest rate range still lies between 5.5 and eight per cent, although a growing number of lenders are quoting rates at the lower end of this scale.
Despite an apparent relaxation of terms, many of the “deals” currently circulating require detailed analysis to fully assess the conditions and restrictions in play. On close scrutiny it becomes clear that low interest rates require large down payments, typically in the region of 40 to 50 per cent of the property value.
“For most borrowers this is unattainable.” Green said adding that for the majority of lenders risks are still considered too significant, with the result that mortgages are focused on more secure and high-income customers only.