Migration puts pressure on rents in Northern Emirates

Migration of residents back to Dubai from Northern Emirates is expected to continue during the first half of 2010, with lease rates coming under pressure, according to CB Richard Ellis (CBRE).

"The recent migration of residents back to Dubai is having a significant negative impact on the residential market of the Northern Emirates, dragging lease rates down and pushing vacancy rates up," the global real estate consultancy said in its second half market view report on the Northern Emirates.

"It is likely that this trend will continue during the first half of 2010 as a result of continued weak demand and increasing supply from within the Northern Emirates as well as the border areas of Dubai, such as Al Nahda, Muhaisanah and Al Ghusais. We anticipate a rise in incentives as landlords continue to react to further declines in a bid to stop further tenant migration," the report said.

Average lease rates for commercial and residential properties in the Northern Emirates fell 29 per cent in the second half of 2009 compared to the first half of 2008, said the latest report.

According to CBRE, the demand for off-plan properties for both commercial and residential is "negligible".

The Northern Emirates had enjoyed relatively high lease and occupancy rates during the period 2006-2008 against a backdrop of rising prices in Dubai.

Rates are currently witnessing a substantial drop as major new supply and low demand has impacted lease and occupancy levels throughout 2009.

A significant number of new residential buildings have been handed over in the past year, typically boasting notably superior facilities and amenities compared to existing stock. The sizeable drop in rental rates has allowed residents to increasingly opt for larger apartments with better facilities than their existing units.

Entry of new stock that is still awaiting utility supply is expected to have a further impact on lease and occupancy rates.

The report said: "2009 has been a challenging year for the Northern Emirates as reality returns with a bump amid severely pressing economic conditions."

Over the past few years, it is has been apparent that a high percentage of demand for residential accommodation in the Northern Emirates (mainly Sharjah, Ajman and Umm Al Quwain) has stemmed directly from Dubai. The actual size of this spillover is difficult to estimate as it has been mixed in with rampant investor/speculator activity.

However, it seems that the Northern Emirates residential market had become somewhat reliant on the accommodation equipments generated by their fast-growing southern neighbour (Dubai) and this helped fuel excessive expectations for new units.

Residential lease rates also continued to decline as new supply enters the market. Further migration away from the Northern Emirates is also evident as residents choose locations on the border areas of Dubai, where better quality stock and increasingly competitive lease rates are being offered. Incentives are also becoming more evident as competition for new tenants continues to grow.

Landlords are now typically offering rent-free periods of up to one or two months, free chiller charges and in some cases, free parking. Landlords in Sharjah typically charge an additional Dh3,000 to Dh5,000 per parking space per annum. However, with rising vacancy rates landlords are in some cases exempting charges to boost flagging occupancies.

Since the first half of 2008, lease rates across the Northern Emirates have fallen by an average of 29 per cent. The highest decline has been for one-bedroom apartments at 34 per cent, while two and three bedroom apartments have dropped by 29 and 25 per cent respectively. The large fall in the one-bedroom sector is explained by the significant migration to larger units as rentals have fallen.

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