Buy to let investors with properties in Dubai will be dismayed that the latest report shows that rents in the emirate have fallen in recent weeks in what real estate experts call a worrying trend.
Overall rents have fallen up to 22% since April with even the most sought after locations seeing declines, according to the report from Landmark Advisory.
Its report on the Dubai market for June showed that lower limits for a one bedroom apartment on the Palm Jumeirah were 6% lower than the previous quarter. One bedroom properties in JLT have dropped by 10% while in lower quality areas such as International City, upper limits for both studios and one bedroom apartments decreased on average by 22%.
Well established areas with a limited supply pipeline are also experiencing additional rent declines, Landmark says in its report. Downtown Dubai has seen further drops in rent due to continued supply entering the market in neighbouring areas, like Business Bay and Sheikh Zayed Road, it added.
‘While these areas are not of comparable quality to Downtown Dubai, the impact on this increased supply is evident, lower limits for two beds in Downtown Dubai are falling 5%, at the same time that lower limits in Business Bay and Sheikh Zayed Road have fallen by 12 and 6% respectively since the beginning of May,’ said Jesse Downs, director of Research and Advisory Services.
‘Unlike the trends in April 2010, where the rental declines were primarily restricted to lower and medium quality buildings, high quality buildings in good locations are also seeing rental drops,’ she explained.
‘While the falls are still marginal when compared to the drops in lower quality buildings, this is still a significant trend,’ she added.
Villa rents are more stable but some areas are still experiencing declines with Arabian Ranches, Victory Heights, Jumeirah Islands, The Springs, Dubai Silicon Oasis, sections of the Lakes and parts of Palm Jumeirah all seeing lower limit declines.
‘While some villa rents did fall, they did not fall in every area and rents for certain high quality villas have remained stable. Since this segment is particularly sensitive to demand fluctuations, rents for specific high end villa developments may experience short term fluctuations,’ said Downs.
According to Downs, the biggest problem facing the market is the impending supply pipeline. ‘Tenants are increasingly seeking more value for their rental dirham and are able to leverage alternative options to negotiate very attractive deals. This is pushing up bid-ask spreads and illustrates that landlords are conceding in negotiations with ever more discerning and value-seeking tenants,’ she said.
‘More significantly, this is a trend now observed in high quality units in prestigious locations, which is a segment that has experienced relatively minimal volatility in late 2009 and the first quarter of 2010 due to relocation trends,’ she added.
The commercial sector is also seeing rent declines and suffering from a prolonged period of oversupply and with new developments in Business Bay, and JLT expected for completion in 2010 and beyond, lease rates are expected to decline further across Dubai.