Short-term outlook to remain 'slow'

The short-term outlook for both residential and commercial properties across Dubai is likely to remain "slow moving" with a modest recovery in fortunes next year, says a new report.
"We anticipate a continuation of rising vacancy ratios. However, this will be project-specific and largely dependent on the location, quality and amenities offered by each development," said CB Richard Ellis (CBRE) in its third quarter market view report.

"We have already witnessed a notable rise in tenant movements to either larger apartments, which were previously too expensive, or to the lower end of the market where terms are more flexible and rates lower, due to continued fear of job security," said Matthew Green, Associate Director, CBRE, Middle East, in the report.

The short-term outlook for both residential and commercial properties across Dubai is likely to remain "slow moving" with a modest recovery in fortunes next year, says a new report.

"We anticipate a continuation of rising vacancy ratios. However, this will be project-specific and largely dependent on the location, quality and amenities offered by each development," said CB Richard Ellis (CBRE) in its third quarter market view report.

With the rental and sales rates dropping in the residential sector, the global real estate consultancy expects continued inward migration from neighbouring emirates with increasing pressure to negotiate both sale and lease terms.

"We have already witnessed a notable rise in tenant movements to either larger apartments, which were previously too expensive, or to the lower end of the market where terms are more flexible and rates lower, due to continued fear of job security," said Matthew Green, Associate Director, CBRE, Middle East, in the report.

"In terms of lease and sales rates, we believe the bottom is nearing, however we are not there yet and we can expect a further nominal decline before year end. In 2010, rate declines will become more project specific with areas of significant oversupply typically suffering the most," he said.

According to CBRE, the pressure on lease rates continued during the third quarter as demand for office space remained low. The situation was aggravated further by considerable new supply on top of an increasing availability of existing stock.

Lease rates are currently below those of 2006. Although lease rates have dropped across all commercial districts of Dubai, occupancy levels in the central business district (CBD) between Trade Centre and Interchange 1 are faring better than the newly established districts.

Lease rates in prime, secondary and tertiary office locations from third quarter, 2005, to third quarter, 2009, are provided in the chart below.

Lease rates in the CBD during third quarter, 2009 ranged between Dh2,152 and 2,422 per square metre per annum for smaller units with landlords of larger offices offering special incentives along with a markdown of eight to 10 per cent on these rates.

On average, lease rates in the CBD have dropped approximately 55 per cent year-on-year, while secondary locations have experienced a downward movement of 67 per cent.

The main reasons for the sharp fall in secondary locations can be attributed to ownership status as well as the timing of new stock entering the market. Among the secondary locations worst effected have been Al Barsha, Jumeirah Lakes Towers and Tecom C. The drop in lease rates in tertiary locations on a year-on-year basis has been around 65 per cent.

The market downturn has resulted in the creation of a two-tier market for prime rents in the emirates.

The first tier of office space in the DIFC development is holding firm, significantly above levels in other locations within the CBD.

DIFC lease rates range between Dh3,250 and 4,300 square metres per annum for accommodation from private developers.