Rents softening in Dubai, but still highest in world

Prime residential rents in Dubai rose by 2 per cent in the second quarter 2014, taking the annual increase to 14.1 per cent – topping the list of 17 global cities tracked by UK-based Knight Frank.

“Dubai holds the top spot this quarter, having recorded a 14.1% increase in prime rents in the year to June.

“The emirate leapfrogged Nairobi which had enjoyed four consecutive quarters at the top,” the real estate consultancy said.

However, it added that prime rents in Dubai continue to “outpace wage inflation,” which is raising concerns about “affordability”, leading some to consider buying instead of renting.

The 12-month rental growth in Nairobi more than halved from 25.8 per cent in March to 9.9 per cent in June, but Dubai’s step change was less stark, from 16.4 per cent to 14.1 per cent over the same time period.

Both the cities recorded “weaker” growth in the last quarter, which explains the index’s more sluggish performance over the three months to June, the report said.

Last month, CBRE, a global real estate consultancy, said rents in Dubai fell for the first time in 10 consecutive quarters after a wave of new project completions increased the amount of residential properties on the market.

The consultancy said rents declined by one per cent in third quarter 2014, but some freehold areas witnessing higher decline.

Downtown Dubai, Tecom C and International Media Production Zone all witnessed rent declines of around three per cent, while in Jumeirah Lakes Towers, Business Bay, Palm Jumeirah, Motor City and Dubailand saw rents falling by two per cent.

“The dip in rentals has been attributed to an increase in new residential stock combined with weaker demand during the traditionally slow festive and holiday period,” CBRE said.

Last week, Emirates 24|7 listed the affordable areas to rent a studio apartments in Dubai based on Real Estate Regulatory Agency’s rental index.

(Read: Where in Dubai can you rent an apartment for Dh25,000)

Global index declines

Knight Frank said that the annual growth recorded by the prime global rental index declined from 4.7 per cent in the year to March to 2.2 per cent in the year to June.

Of the 17 cities tracked, nine saw flat or rising prime rents in the year to June. The gap between the strongest and weakest performing cities over the last 12 months shrank from 32 percentage points in March to 19 points in June, suggesting the performance of the world’s top luxury rental markets is converging.

As economic conditions in the world’s top financial centres improves, prime rental demand is likely to accelerate due in part to the upturn in corporate relocations, Knight Frank said.

Prime rents in London saw a recovery, recording a monthly growth of 0.9 per cent in June, while in Hong Kong rental demand for luxury homes picked up towards the end of the second quarter as expatriate families sought homes prior to the start of the new school year.

“We expect some of the key prime rental markets to benefit from quieter activity in the world’s luxury sales markets during the remainder of 2014,” Kate Everett-Allen, Partner, Residential Research, Knight Frank, wrote in the report.

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