Rents in luxury villas stable, smaller villa units decline

Rentals for luxury villas on the Palm Jumeirah, Emirates Living and Jumeirah Islands have remained stable over the last nine months, but smaller villas and townhouses bore the brunt of oversupply, leading to larger rental decline, according to CB Richard Ellis (CBRE).

“Villa properties continue to outperform apartments as the more limited supply and strong demand for high-end properties impacts overall performance. Despite this, average lease rates have dropped by 10 per cent year-on year which is around half of the average decline for apartments during the same period,” the authors of the new report said today.

A new key trend noticed by CBRE was the relative poor performance of smaller unit types. It found two bedroom properties in both freehold and leasehold locations dropping 44 per cent and 20 per cent, respectively. Seven bedroom properties in freehold locations just saw a three per cent fall due to limited supply and stronger demand.

Although the premium/luxury sector of the villa market was affected by the economic crisis, the impact was more minimal, once again due to the relative limited supply.

CBRE, however, pointed out that new luxury villa developments lacking community facilities were experiencing greater pressure on lease and occupancy rates, citing Al Barari development as an example where rates are 15 to 18 per cent lower than other prime developments in Dubai.

Comparison of villa properties within freehold and leasehold locations revealed an 8.6 per cent and 10.8 per cent dip over the past 12 months, respectively. The main drag on leasehold locations emanated from the Al Barsha and Mirdiff areas, which both saw significant deflationary pressure on rents due to rapid supply growth over the past two years.

According to the report, the most significant fall was in the two-bedroom apartment category at 26 per cent.

“Despite a quiet six months, the real estate market looks set to enter the final quarter with some positivity. Whilst the high end residential market seems to be benefitting from ongoing capital shifts in the region as a result of the ‘Arab Spring’,” the report added.

Commercial occupier interest now appears to be slowly on the rise as companies look to exploit prevailing conditions to secure long term cost savings for their business.

The health of the European and US economies will have to be closely monitored with a downward spiral in performance having potentially significant implications for debt financing and general liquidity conditions in the region.

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