Rents in north to fall more: CBRE

Rents and property prices in the Northern Emirates continue to slide against the backdrop of an oversupply in Dubai and uncertainty over future recovery and growth prospects, CB Richard Ellis (CBRE), a real estate service provider and property consultancy, said on Wednesday in a report.

“The performance of individual emirates continues to fluctuate widely with Sharjah and Ajman currently feeling the brunt of Dubai’s overhang of space,” Matthew Green, CBRE UAE’s Head of Research and Consultancy, said in the report.

“Ras Al Khaimah and Fujairah have been less affected by the cyclical dynamics of Dubai due largely to greater reliance on locally generated demand rather than spillover demand generated by Dubai – a function of their geographic remoteness,” Green added.

The report reckons that average apartment lease rates across the N. Emirates have dropped by 17 per cent since the second half of 2009, and forecasts a further drop of between 10 and 15 per cent in residential rental rates over the next 12 months.

“Our forecast for the next 12 months is for a further 10-15 per cent drop in residential rental rates. The biggest declines are expected in Ajman and Umm Al Quwain due to their proximity to Dubai and Sharjah which both have huge volumes of available supply at declining rental rates,” it said.

“An ongoing situation of depressed demand and increasing supply is further compounded by the outflow of occupiers to Dubai encouraged by a growing availability of quality, yet affordable accommodation and fears of a prolonged period of infrastructure problems,” CBRE’s Green wrote, referring to increased utility charges and sporadic power outages in some emirates.

“The sheer volume of residential stock in the development pipeline across the Northern Emirates poses a major problem for the market that will ultimately lead to further rental declines,” the report said.

“A ‘flight to quality’ has been evident across the market since the beginning of 2009 and this trend continued throughout 2010. Competitive lease rates coupled with landlord incentives continue to drive tenant migration to newer, larger and superior specification buildings,” the report states.

“Older buildings with lower specifications are witnessing a sustained slump in lease and occupancy rates as a result of the pressure from new supply,” it says. This trend, the report adds, has “helped to compensate tenants who have experienced increased utility charges over the last year. The irony of such a rise is surely not lost on residents and businesses alike given the sporadic power outages that have plagued Sharjah in recent years", it says.

According to the report, the “Northern Emirates property market reflected the subdued economic environment” during the second half of last year, “with little new demand for residential or office properties.”

The CBRE report reckons that one bedroom apartments across the Northern Emirates have witnessed the highest drop over the past year – declining by 20 per cent – followed by two bedroom units by 16 per cent and three bedroom apartments by 14 per cent.

“The largest rental declines in the Northern Emirates occurred in Ajman which has seen lease rates dip by around 25 per cent. This was followed by Umm Al Quwain and Sharjah with falls of 21 and 20 per cent, respectively. Average lease rates in the Northern Emirates at the end of H2 2010 ranged between Dh17,000 to Dh24,000 per annum for a one bedroom apartment; Dh24,000 to Dh31,000 per annum for a two bedroom apartment and Dh29,000 to Dh43,000 per annum for a three-bedroom apartment. The lowest rates were identified in Umm Al Quwain,” it said.
 

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