Cluttons: Dubai property prices and rent fall amidst fragile demand

DUBAI: Property prices and rents for residential and office spaces in Dubai are falling as demand remains fragile, according to the local property market update report for July 2010 issued by real estate consultancy Cluttons.

The report added residential property prices and rents in Dubai continue to adjust, although prices in the freehold residential market appear to be approaching levels at which buyers are once again interested.

However, Cluttons said it is unlikely that much movement will occur over the coming quarter as the residential property market is settling into its traditional summer lull, which coincides with Ramadan this year. This may also lead to increased pressure on landlords and property owners to further reduce prices.

The more mature communities with established amenities and landscaping, or newer properties with good views and green spaces being the targets of buyers, said Cluttons, indicating that transactions are happening in areas and developments such as The Lakes, The Springs, The Meadows, Victory Heights, Old Town, Arabian Ranches and Green Community Motorcity.

The report stated that the oversupply of leasehold apartments, combined with the increasing affordability of leasehold villa accommodation has led to a drop in average rental rates for 2-bedroom apartments by 11.8% over the last quarter.

Similarly, in the freehold market, rents of high-end villas have declined by 5% in the second quarter, with mid-range villas reducing 4.7% over the quarter, whilst prices have dropped 5.9% (excluding Burj Khalifa) and 5.6% for high-end and mid-range apartments respectively.

Meanwhile, the Dubai commercial office market in 2Q 2010 continued its downward trend with rents and occupancy levels expected to fall further while general supply continues to increase. An additional 12 million sq ft of office space is anticipated throughout 2H 2010.

“This massive increase in office stock will put vast pressure on rents and occupancy levels and we expect further falls to occur, as short-term demand does not look likely to increase,” said Cluttons in the report.

It added that developers too needed to produce quality stock that occupants desire, as well as meeting the requirements for parking ratios, usable space, and flexible lease terms.

DIFC and Downtown’s Emaar Business Square have continued to fare the best in terms of occupancy and rents. Demand has remained stable in these areas mainly due to the quality of stock and their prime locations.

“However even in these sought after areas, we are seeing the beginnings of rental concessions as achievable rates continue to drop within other recognised office zones, such as Deira and Bur Dubai," it added.

The most recently built areas such as Jumeirah Lake Towers, Tecom Area C and Business Bay are still perceived to have the highest vacancy levels. In situations where landlords are unwilling to renew leases at lower rates, tenants are relocating in order to take advantage of cheaper rents.

“Downsizing is another major reason for tenant movement. Many companies are now requiring smaller premises having made employee cuts due to the global downturn,” it said.