Dubai residents could be in for a rental jolt

Tuesday, Apr 11, 2017

DUBAI

Dubai’s residential rental decline seems to be losing steam, with minimal changes happening for both apartments and villas during the first three months. Average rentals in Dubai’s freehold clusters had declined 7.9 per cent for villas and 2.9 per cent on apartments last year, according to a new update from consultancy JLL.

If the first quarter trend of slowing rental dips continue, “this suggests that the residential sector is currently poised close to the bottom of its cycle,” the consultancy states.

If this proves to be the case, it could dash the best laid plans of Dubai’s residents to try and squeeze out some rental respite for themselves when their contracts come up for renewal this year. Some of the older neighbourhoods in the city did not experience the rental softening that the freehold clusters did last year. (Some consultancies are, however, predicting further declines in rents this year, which they say is likely to be by more than 5 per cent.)

If residents were hoping that new supply might help keep the pressure on rents, they may be disappointed. New home completions in Dubai this year is likely to be around 14,000 units, and it is a number most analysts seem to agree upon. It would be in keeping with the 50 per cent “materialisation rate” Dubai’s property market has seen in recent years.

As for property sales values, “given the continued slowdown in the Dubai economy, and its dependence upon the global economy where growth remains uncertain, any recovery in residential prices in Dubai is unlikely before late 2017 at the earliest,” JLL states.

In the first quarter, only about 2,600 units were completed, in JLL’s estimates. The bulk of the handovers were at the Damac Akoya development in Dubailand, where 1,500 apartments and townhouses were completed. Apartments made up more than 60 per cent of completions, followed by villas at 24 per cent and townhouses at 15 per cent.

In Dubai’s office marketplace, tenants are making use of soft rents to head for cheaper locations. “Vacancy rates in the CBD (central business district) had to decline in Q4-2014 and have continuously reduced since then (currently standing at 14 per cent),” the report states. “This highlights the strength of demand for high quality buildings,

“As demand for “smart” offices increases, tenants will seek space in these buildings (ICD Brookfield Place being a prime example, which will enter the market in 2019). We believe it’s the quality buildings which will continue to outperform the market.”

In the first quarter, the Greens area dominated new supply, with the two Onyx towers adding 66,000 square metres of gross leasable area. These strata titled buildings are also the first completions of new office space in this location since 2006.

“The pipeline for the remainder of the year remains relatively active, with approximately 235,000 square metres of GLA expected to enter,” the report says. JLT (Jumeirah Lake Towers) should contribute the largest share of this total, adding 60,000 square metres of GLA during the second quarter. Only 15 per cent of completions will be in the CBD.

Staff Report